Wheaton Precious Metals’ Q2 Earnings Review: Stability In Prices Relative To Last Year Tempers Earnings Growth As CRA Dispute Remains Unresolved

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Wheaton Precious Metals

Wheaton Precious Metals’ Q2 2017 earnings stood close to the figure reported in the corresponding period of last year, which is unsurprising considering that average gold and silver prices in the second quarter of this year remained largely unchanged on a year-over-year basis.

Though steady economic and jobs growth in the U.S. has dampened the investment demand for gold and silver, precious metal prices in Q2 were propped up by a recovery in the jewelry demand for gold and silver from India. While the company reported a decline in its Q2 shipment volumes, an increase in non-operating income boosted the company’s overall EPS figure. Going forward, the company can look forward to a favorable pricing environment in Q3 as a result of safe-haven investment demand for precious metals amid heightened geopolitical tensions.

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On the deal-making front, the management reported progress on the path to securing an early deposit agreement worth $65 million for the Kutcho precious metals project in British Columbia, which would give the company rights to a precious metal stream post the construction of the mine. [1] While signing of the early deposit agreement would not give the company access to a precious metal stream in the near term, it certainly would give the company an option for future growth. Given the elevated levels of both copper and precious metal prices at present, the management will have to work hard in order to secure new streaming deals. While the company made progress towards securing a deal for the Kutcho project, there have not been any material developments in the company’s ongoing tax dispute with the Canada Revenue Agency (CRA). [2] The CRA is contesting the tax exempt status of the operations of the company’s international subsidiaries (which are based in tax havens not subject to income tax). While the company management remains confident of the validity of its tax position, the ongoing dispute is a source of uncertainty hanging over its high margin business model. More clarity on this front will shed some light on the road ahead for Wheaton Precious Metals.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Wheaton Precious Metals

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Notes:
  1. Wheaton Precious Metals’ Q2 2017 Earnings Release, SEC []
  2. Wheaton Precious Metals’ Q2 2017 Earnings Call Transcript, Seeking Alpha []