- Gold Streams (Sudbury Mines, Salobo Mine, Other Gold Streams, San Dimas Mine - Gold) constitute 54% of the Trefis price estimate for Wheaton Precious Metals's stock.
- Silver Streams (Antamine Mine, San Dimas Mine, Penasquito Mine, Constancia Mine, Other Silver Streams) constitute 41% of the Trefis price estimate for Wheaton Precious Metals's stock.
WHAT HAS CHANGED?
- Q4 2022 Earnings
- Wheaton Precious Metals posted Q4 2022 results that missed expectations. Revenue declined by about 15% year-over-year to $236 million due to weaker production and price realizations. Non-GAAP EPS came in at $0.23 per share down 22% versus last year. Wheaton produced 70-kilo ounces of gold, down by 20% from last year. Silver production was down 16% versus last year. Gold price realizations were down by about 4% compared to last year.
- Decline in gold prices
- The shares of Wheaton have been volatile as gold prices declined from $2,000/ounce in March 2022 to $1,700 as of early October. While other commodities, including copper and iron, have also seen a decline over concerns of lower demand amid an economic slowdown, the strong U.S. Dollar and rising bond yields have been putting pressure on non-productive assets like bullion.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Wheaton Precious Metals Corp.'s value that present opportunities for upside or downside to the current Trefis price estimate for Wheaton Precious Metals Corp.:
Silver and gold prices
- Average Realized Price Per Ounce: Precious metals are viewed as safe-haven assets from an investment point of view. Investments in these metals are primarily made from the point of view of hedging against macroeconomic and geopolitical uncertainty. Thus, any unforeseen disruption such as a sudden outburst of the uncertainty prevailing in the Korean peninsula or the continued uncertainty about U.S.-China trade relations leads to a surge in the investment demand for precious metals and, consequently, the prices of these commodities. If such a macroeconomic/geopolitical disruption materializes and prices rise by 5% relative to our current estimates by the end of the forecast period (accompanied by a 100 basis point increase in margins), it would result in an upside of around 6% to our price estimate.
Tax liability for the company
- Wheaton Precious Metals Corp. Tax Rate: Wheaton Precious Metals Corp. currently does not incur any significant income taxes as it carries out its operations from its wholly-owned subsidiary Silver Wheaton Cayman, registered in the Cayman Islands, where the company is exempt from income tax laws. The company's tax rate may increase gradually as governments crack down on tax havens and loopholes worldwide. Should this happen and the company's tax rate increase to 25% from the current year onward, it would present a downside of about 25% to our price estimate.
Wheaton Precious Metals Corporation is the world's largest silver streaming company. The company currently has fourteen silver purchase agreements and two precious metals agreements. In exchange for an upfront payment, it has the right to purchase all or a portion of the silver production at a low fixed cost from high-quality mines located in politically stable regions.
Based on the 2020 report, attributable production totaled 22,892 ounces of silver, 22,187 ounces of palladium, and 367,419 ounces of gold.
We have divided the company into ten divisions based on its current streaming contracts.
SOURCES OF VALUE
Salobo mine is the most valuable division
The Salobo mine consists of Wheaton Precious Metals Corp.'s 75% interest in the gold by-product produced from Vale's Salobo copper mine, located in Brazil. The signing of a streaming agreement for an additional 25% of the life of mine gold production from the Salobo mine in August 2016, over and above the pre-existing agreement for 50% life of mine gold production, has significantly boosted the division's shipments. The sharp rise in shipments will drive the value of this division.
Fixed rate contracts provide some visibility
Wheaton Precious Metals Corp.'s business model is to provide some of the necessary capital to other mining companies via an upfront payment to assist in the construction of mines. In return, the company gets a portion of the silver or gold produced as a by-product for a specified period (generally the life of the mine) at a fixed cost. Most companies assisted by Wheaton Precious Metals Corp. produce silver as a by-product of their mining operations. Accordingly, it is a mutually beneficial arrangement for the participating companies.
On average, Wheaton Precious Metals Corp. pays about $4-6 per ounce of silver procured from the mining companies. This fixed price is subject to change based on inflationary factors. The company does not have to pay for any additional development costs for any projects after the initial payment. Wheaton Precious Metals Corp. sells silver at spot market prices and does not hedge.
Rising demand from emerging markets
China is the world's largest consumer of precious metals. There is robust growth in demand for precious metals. The growing demand from increasingly affluent middle classes in emerging economies, such as China and India, will support prices of precious metals in the medium to long-term.