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Research: Metals & Mining
On 1 April, Wheaton Precious Metals (WPM) announced that all of its partners’ mines are operational, with the exception of Voisey’s Bay, Constancia, Yauliyacu and Penasquito. Voisey’s Bay is not scheduled to deliver cobalt to WPM until FY21, so its temporary furlough will make no difference to FY20 estimates. However, other mines at risk of temporary closure include San Dimas and Los Filos in Mexico. As a result, WPM has withdrawn its production guidance for FY20. However, assuming these mines remain closed throughout Q220, but at higher prevailing metals prices (see Exhibit 1, overleaf), our FY20 EPS forecast for WPM has increased by 18.6%.
Wheaton Precious Metals |
Swings and roundabouts |
Q419/FY19 results |
Metals & mining |
3 April 2020 |
Share price performance
Business description
Next events
Analyst
Wheaton Precious Metals is a research client of Edison Investment Research Limited |
On 1 April, Wheaton Precious Metals (WPM) announced that all of its partners’ mines are operational, with the exception of Voisey’s Bay, Constancia, Yauliyacu and Penasquito. Voisey’s Bay is not scheduled to deliver cobalt to WPM until FY21, so its temporary furlough will make no difference to FY20 estimates. However, other mines at risk of temporary closure include San Dimas and Los Filos in Mexico. As a result, WPM has withdrawn its production guidance for FY20. However, assuming these mines remain closed throughout Q220, but at higher prevailing metals prices (see Exhibit 1, overleaf), our FY20 EPS forecast for WPM has increased by 18.6%.
Year end |
Revenue (US$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
794.0 |
203.1 |
48 |
36 |
59.5 |
1.3 |
12/19 |
861.3 |
242.7 |
56 |
36 |
51.0 |
1.3 |
12/20e |
952.0 |
342.8 |
76 |
43 |
37.6 |
1.5 |
12/21e |
1,154.6 |
508.3 |
114 |
52 |
25.0 |
1.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Temporary mine suspensions due to COVID-19
Vale made the decision to temporarily suspend operations at Voisey’s Bay on 17 March, while Hudbay announced it was to shut down operations at Constancia on account of the limited availability of critical mining supplies on 20 March. Yauliyacu is similarly reported to have shut down on account of supply chain issues. Finally, on 31 March, the Mexican government mandated that all non-essential businesses should suspend operations until 30 April and on 1 April Newmont reported that mining had been deemed non-essential and that, as a result, it was taking steps towards a ‘safe and orderly ramp down of operations’ at Penasquito. Other Mexican mining operations over which WPM has precious metals purchase agreements include the San Dimas and Los Filos mines.
Updated production forecasts
Assuming these six mines remain closed for the entirety of Q220, our full-year production forecasts for WPM are 20.4Moz Ag and 373.5koz Au, compared with WPM’s prior (but now withdrawn) guidance of 22.0–23.5Moz Ag and 390–410koz Au. Together with unchanged forecast palladium production of 23.75koz, this equates to 599.7koz of gold equivalent production (at average annual prices) or 649.5koz at WPM’s nominal prices of US$18.00/oz silver, US$1,500/oz gold and US$2,000/oz palladium (cf a prior guidance range of 685–725koz).
Valuation: Effectively unchanged at C$47.27
Assuming no material purchases of additional streams (which we think unlikely), we forecast a value per share for WPM of US$33.46 (cf US$33.63 previously), or C$47.27 (cf C$46.34 previously) in FY21. This excludes the value of 20.2m shares in First Majestic held by WPM, with an immediate value of C$176.7m, or US$0.28 per WPM share.
Updated FY20 forecasts by quarter
In our last note on WPM (In the right place at the right time, 23 March), we based our FY20 earnings expectations on the then prevailing gold and silver prices of US$1,479/oz and US$12.00/oz, respectively, for the remainder of the year. To date, this has proved unduly conservative, as the gold price has since rallied to c US$1,591/oz, while the silver price has rallied proportionately more, to c US$14.17/oz. Self-evidently, given the current environment, both are potentially susceptible to elevated levels of volatility.
We expect the mine closures in late March to have little effect on our Q1 forecasts as any closures will provide mines with the opportunity to sell metal out of inventory and should therefore lead to a drawdown in ounces produced but not yet sold. While precise forecasts are difficult to make in the current environment, the following table demonstrates the effect on our FY20 forecasts of Yauliyacu, Constancia, Penasquito, San Dimas and Los Filos all remaining closed for the entirety of Q220 at our updated metals prices:
Exhibit 1: Wheaton Precious Metals FY20 forecast, by quarter*
US$000s |
FY19 |
Q120e |
Q220e |
Q320e |
Q420e |
FY20e (current) |
FY20e (previous) |
Silver production (koz) |
22,562 |
5,926 |
2,578 |
5,926 |
5,926 |
20,357 |
23,705 |
Gold production (oz) |
406,675 |
97,105 |
82,230 |
97,105 |
97,105 |
373,544 |
388,419 |
Palladium production (koz) |
21,993 |
5,938 |
5,938 |
5,938 |
5,938 |
23,750 |
23,750 |
Silver sales (koz) |
17,703 |
5,926 |
2,578 |
5,926 |
5,926 |
20,357 |
23,705 |
Gold sales (oz) |
389,086 |
97,068 |
82,193 |
97,068 |
97,068 |
373,399 |
388,274 |
Palladium sales (oz) |
20,681 |
5,914 |
5,914 |
5,914 |
5,914 |
23,655 |
23,655 |
Avg realised Ag price (US$/oz) |
16.29 |
16.89 |
14.17 |
14.17 |
14.17 |
14.96 |
13.14 |
Avg realised Au price (US$/oz) |
1,391 |
1,581 |
1,591 |
1,591 |
1,591 |
1,588 |
1,501 |
Avg realised Pd price (US$/oz) |
1,542 |
2,296 |
2,296 |
2,296 |
2,296 |
2,296 |
1,844 |
Avg Ag cash cost (US$/oz) |
5.02 |
5.16 |
5.06 |
5.06 |
5.06 |
5.09 |
5.02 |
Avg Au cash cost (US$/oz) |
421 |
425 |
402 |
425 |
425 |
420 |
425 |
Avg Pd cash cost (US$/oz) |
273 |
413 |
413 |
413 |
413 |
413 |
370 |
Sales |
861,332 |
267,138 |
180,881 |
251,990 |
251,990 |
951,998 |
937,831 |
Cost of sales |
|||||||
Cost of sales, excluding depletion |
258,559 |
74,282 |
48,564 |
73,760 |
73,760 |
270,365 |
291,778 |
Depletion |
256,826 |
71,623 |
53,669 |
71,623 |
71,623 |
268,537 |
286,490 |
Total cost of sales |
515,385 |
145,904 |
102,233 |
145,382 |
145,382 |
538,902 |
578,268 |
Earnings from operations |
345,947 |
121,234 |
78,648 |
106,607 |
106,607 |
413,097 |
359,563 |
Expenses and other income |
|||||||
– General and administrative** |
54,507 |
9,750 |
9,750 |
9,750 |
9,750 |
39,000 |
39,000 |
– Foreign exchange (gain)/loss |
0 |
0 |
0 |
||||
– Net interest paid/(received) |
48,730 |
7,830 |
7,830 |
7,830 |
7,830 |
31,320 |
31,320 |
– Other (income)/expense |
(217) |
0 |
0 |
||||
Total expenses and other income |
103,020 |
17,580 |
17,580 |
17,580 |
17,580 |
70,320 |
70,320 |
Earnings before income taxes |
242,927 |
103,654 |
61,068 |
89,027 |
89,027 |
342,777 |
289,243 |
Income tax expense/(recovery) |
(9,066) |
250 |
250 |
250 |
250 |
1,000 |
1,000 |
Marginal tax rate (%) |
(3.7) |
0.2 |
0.4 |
0.3 |
0.3 |
0.3 |
0.3 |
Net earnings |
251,993 |
103,404 |
60,818 |
88,777 |
88,777 |
341,777 |
288,243 |
Ave. no. shares in issue (000s) |
446,021 |
446,802 |
446,802 |
446,802 |
446,802 |
446,802 |
446,802 |
Basic EPS (US$) |
0.56 |
0.23 |
0.14 |
0.20 |
0.20 |
0.76 |
0.65 |
Diluted EPS (US$) |
0.56 |
0.23 |
0.14 |
0.20 |
0.20 |
0.76 |
0.64 |
DPS (US$) |
0.36 |
0.10 |
0.12 |
0.10 |
0.11 |
0.43 |
0.42 |
Source: Wheaton Precious Metals, Edison Investment Research. Note: *Excluding impairments and exceptional items. **Forecasts exclude stock-based compensation costs. Totals may not add up owing to rounding.
Our updated production forecasts of 20.4Moz silver and 373.5koz gold compare to WPM’s prior production guidance (now withdrawn) of 22.0–23.5Moz silver and 390–410koz gold and our prior forecasts of 23.7Moz silver and 388.4koz gold. Our production forecast for palladium remains unchanged. At annual average prices for the year, our updated production forecasts now equate to 599.7koz of gold equivalent production. At WPM’s nominal prices of US$18.00/oz silver, US$1,500/oz gold and US$2,000/oz palladium, they equate to 649.5koz (cf a prior guidance range of 685–725koz). Self-evidently, these forecasts are at risk to the downside if the mine shutdowns last longer than one quarter and are at risk to the upside if they are shut down for less than one quarter.
Relative to our prior FY20e EPS forecast of 65c, the change (+11c) to achieve our updated forecast of 76c may be apportioned as follows:
■
To increased precious metals prices (+18c)
■
To decreased production (-7c)
A subsequent quarter (Q320) of the same mines remaining no furlough would result in our EPS forecast decreasing by another 6c to 70c per share.
Our updated basic EPS forecast of US$0.76/share for FY20 is 13.6% below the consensus forecast of US$0.88/share (source: Refinitiv, 2 April 2020) within a range of US$0.64–1.05 per share. Relative to the consensus, our forecasts compare as follows on a quarterly basis:
Exhibit 2: WPM FY20 consensus EPS forecasts (US$/share)
Q1 |
Q2 |
Q3 |
Q4 |
Sum Q1-Q4 |
FY20 |
|
Mean |
0.21 |
0.21 |
0.21 |
0.21 |
0.84 |
0.88 |
High |
0.24 |
0.25 |
0.27 |
0.27 |
1.03 |
1.05 |
Low |
0.17 |
0.14 |
0.14 |
0.14 |
0.59 |
0.64 |
Source: Refinitiv, Edison Investment Research. Note: At 13 March 2020.
Our US$1.14 basic EPS forecast for FY21 (see Exhibit 4) remains, to all intents and purposes, unchanged and compares with a consensus of US$0.95 (source: Refinitiv, 2 April 2020), within a range of US$0.76–1.36. This estimate is predicated on unchanged average gold and silver prices during the year of US$1,509/oz and US$24.76/oz, respectively, which, in the latter case, is 74.7% above the current spot price. One of the central assumptions behind our silver price forecast is that it will, at some point, revert to the long-term correlation that it has exhibited with gold since gold was demonetised in 1971. If both metals remain at current levels, however (US$14.17/oz and US$1,591/oz at the time of writing), we forecast that WPM will instead earn US$0.76 per share in FY21.
Valuation
Relative to our last note, our valuation of WPM remains ostensibly unchanged. Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 29.5x current year basic underlying EPS, excluding impairments (vs 37.6x Edison or 31.4x Refinitiv consensus FY20e, currently).
Exhibit 3: WPM’s historical current year P/E multiples, 2005–19 |
Source: Edison Investment Research |
Applying this 29.5x multiple to our updated EPS forecast of US$1.14 in FY21 implies a potential value per share for WPM of US$33.46 (cf US$33.63 previously), or C$47.27 (cf C$46.34 previously) in that year. Note that this excludes the value of 20.2m shares in First Majestic held by WPM, with an immediate value (2 April) of C$176.7m, or US$0.28 per WPM share.
Exhibit 4: Financial summary
US$'000s |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020e |
2021e |
||
Dec |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||||||
Revenue |
|
|
849,560 |
706,472 |
620,176 |
648,687 |
891,557 |
843,215 |
794,012 |
861,332 |
951,998 |
1,154,559 |
Cost of Sales |
(117,489) |
(139,352) |
(151,097) |
(190,214) |
(254,434) |
(243,801) |
(245,794) |
(258,559) |
(270,365) |
(288,135) |
||
Gross Profit |
732,071 |
567,120 |
469,079 |
458,473 |
637,123 |
599,414 |
548,218 |
602,773 |
681,634 |
866,424 |
||
EBITDA |
|
|
701,232 |
531,812 |
431,219 |
426,236 |
602,684 |
564,741 |
496,568 |
548,266 |
642,634 |
827,424 |
Operating Profit (before amort. and except.) |
600,003 |
387,659 |
271,039 |
227,655 |
293,982 |
302,361 |
244,281 |
291,440 |
374,097 |
520,201 |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
(68,151) |
(384,922) |
(71,000) |
(228,680) |
245,715 |
(165,855) |
0 |
0 |
||
Other |
788 |
(11,202) |
(1,830) |
(4,076) |
(4,982) |
8,129 |
(5,826) |
217 |
0 |
0 |
||
Operating Profit |
600,791 |
376,457 |
201,058 |
(161,343) |
218,000 |
81,810 |
484,170 |
125,802 |
374,097 |
520,201 |
||
Net Interest |
0 |
(6,083) |
(2,277) |
(4,090) |
(24,193) |
(24,993) |
(41,187) |
(48,730) |
(31,320) |
(11,930) |
||
Profit Before Tax (norm) |
|
|
600,003 |
381,576 |
268,762 |
223,565 |
269,789 |
277,368 |
203,094 |
242,710 |
342,777 |
508,271 |
Profit Before Tax (FRS 3) |
|
|
600,791 |
370,374 |
198,781 |
(165,433) |
193,807 |
56,817 |
442,983 |
77,072 |
342,777 |
508,271 |
Tax |
(14,755) |
5,121 |
1,045 |
3,391 |
1,330 |
886 |
(15,868) |
9,066 |
(1,000) |
(1,000) |
||
Profit After Tax (norm) |
586,036 |
375,495 |
267,977 |
222,880 |
266,137 |
286,383 |
181,400 |
251,993 |
341,777 |
507,272 |
||
Profit After Tax (FRS 3) |
586,036 |
375,495 |
199,826 |
(162,042) |
195,137 |
57,703 |
427,115 |
86,138 |
341,777 |
507,271 |
||
Average Number of Shares Outstanding (m) |
353.9 |
355.6 |
359.4 |
395.8 |
430.5 |
442.0 |
443.4 |
446.0 |
446.8 |
446.8 |
||
EPS - normalised (c) |
|
|
166 |
106 |
75 |
53 |
62 |
63 |
48 |
56 |
76 |
114 |
EPS - normalised and fully diluted (c) |
|
165 |
105 |
74 |
53 |
62 |
63 |
48 |
56 |
76 |
113 |
|
EPS - (IFRS) (c) |
|
|
166 |
106 |
56 |
(-41) |
45 |
13 |
96 |
19 |
76 |
114 |
Dividend per share (c) |
35 |
45 |
26 |
20 |
21 |
33 |
36 |
36 |
43 |
52 |
||
Gross Margin (%) |
86.2 |
80.3 |
75.6 |
70.7 |
71.5 |
71.1 |
69.0 |
70.0 |
71.6 |
75.0 |
||
EBITDA Margin (%) |
82.5 |
75.3 |
69.5 |
65.7 |
67.6 |
67.0 |
62.5 |
63.7 |
67.5 |
71.7 |
||
Operating Margin (before GW and except.) (%) |
70.6 |
54.9 |
43.7 |
35.1 |
33.0 |
35.9 |
30.8 |
33.8 |
39.3 |
45.1 |
||
BALANCE SHEET |
||||||||||||
Fixed Assets |
|
|
2,403,958 |
4,288,557 |
4,309,270 |
5,526,335 |
6,025,227 |
5,579,898 |
6,390,342 |
6,123,255 |
5,856,718 |
5,551,495 |
Intangible Assets |
2,281,234 |
4,242,086 |
4,270,971 |
5,494,244 |
5,948,443 |
5,454,106 |
6,196,187 |
5,768,883 |
5,502,346 |
5,197,123 |
||
Tangible Assets |
1,347 |
5,670 |
5,427 |
12,315 |
12,163 |
30,060 |
29,402 |
44,615 |
44,615 |
44,615 |
||
Investments |
121,377 |
40,801 |
32,872 |
19,776 |
64,621 |
95,732 |
164,753 |
309,757 |
309,757 |
309,757 |
||
Current Assets |
|
|
785,379 |
101,287 |
338,493 |
105,876 |
128,092 |
103,415 |
79,704 |
154,752 |
587,949 |
1,168,375 |
Stocks |
966 |
845 |
26,263 |
1,455 |
1,481 |
1,700 |
1,541 |
43,628 |
1,709 |
2,073 |
||
Debtors |
6,197 |
4,619 |
4,132 |
1,124 |
2,316 |
3,194 |
2,396 |
7,138 |
2,608 |
3,163 |
||
Cash |
778,216 |
95,823 |
308,098 |
103,297 |
124,295 |
98,521 |
75,767 |
103,986 |
583,632 |
1,163,139 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(49,458) |
(21,134) |
(16,171) |
(12,568) |
(19,057) |
(12,143) |
(28,841) |
(64,700) |
(79,572) |
(81,325) |
Creditors |
(20,898) |
(21,134) |
(16,171) |
(12,568) |
(19,057) |
(12,143) |
(28,841) |
(63,976) |
(78,848) |
(80,601) |
||
Short term borrowings |
(28,560) |
0 |
0 |
0 |
0 |
0 |
0 |
(724) |
(724) |
(724) |
||
Long Term Liabilities |
|
|
(32,805) |
(1,002,164) |
(1,002,856) |
(1,468,908) |
(1,194,274) |
(771,506) |
(1,269,289) |
(887,387) |
(887,387) |
(887,387) |
Long term borrowings |
(21,500) |
(998,136) |
(998,518) |
(1,466,000) |
(1,193,000) |
(770,000) |
(1,264,000) |
(878,028) |
(878,028) |
(878,028) |
||
Other long term liabilities |
(11,305) |
(4,028) |
(4,338) |
(2,908) |
(1,274) |
(1,506) |
(5,289) |
(9,359) |
(9,359) |
(9,359) |
||
Net Assets |
|
|
3,107,074 |
3,366,546 |
3,628,736 |
4,150,735 |
4,939,988 |
4,899,664 |
5,171,916 |
5,325,920 |
5,477,709 |
5,751,158 |
CASH FLOW |
||||||||||||
Operating Cash Flow |
|
|
720,209 |
540,597 |
434,582 |
435,783 |
608,503 |
564,187 |
518,680 |
548,301 |
703,954 |
828,258 |
Net Interest |
0 |
(6,083) |
(2,277) |
(4,090) |
(24,193) |
(24,993) |
(41,187) |
(41,242) |
(31,320) |
(11,930) |
||
Tax |
(725) |
(154) |
(204) |
(208) |
28 |
(326) |
0 |
(5,380) |
(1,000) |
(1,000) |
||
Capex |
(641,976) |
(2,050,681) |
(146,249) |
(1,791,275) |
(805,472) |
(19,633) |
(861,406) |
10,571 |
(2,000) |
(2,000) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Financing |
12,919 |
58,004 |
6,819 |
761,824 |
595,140 |
1,236 |
1,279 |
37,198 |
0 |
0 |
||
Dividends |
(123,852) |
(160,013) |
(79,775) |
(68,593) |
(78,708) |
(121,934) |
(132,915) |
(129,986) |
(189,988) |
(233,821) |
||
Net Cash Flow |
(33,425) |
(1,618,330) |
212,896 |
(666,559) |
295,298 |
398,537 |
(515,549) |
419,462 |
479,646 |
579,507 |
||
Opening net debt/(cash) |
|
|
(761,581) |
(728,156) |
902,313 |
690,420 |
1,362,703 |
1,068,705 |
671,479 |
1,188,233 |
774,766 |
295,120 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
(12,139) |
(1,003) |
(5,724) |
(1,300) |
(1,311) |
(1,205) |
(5,995) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(728,156) |
902,313 |
690,420 |
1,362,703 |
1,068,705 |
671,479 |
1,188,233 |
774,766 |
295,120 |
(284,387) |
Source: Company sources, Edison Investment Research.
|
|
Research: Financials
Numis expects to report H120 revenues c 10% higher than in H119 with revenue from investment banking slightly down and equities ahead on the back of increased market volatility. Given the impact of the pandemic we have provided indicative scenarios rather than a point estimate for FY20. Numis is strongly capitalised and has net cash of over £84m. Looking beyond the current dislocation, it is well positioned to serve its corporate client base in a period in which the need for fresh equity and a revival in corporate transactions could drive a sharp recovery in activity.
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