Wheaton Precious Metals Earnings Nosedive; Maiden Palladium Production

by Trefis Team
Wheaton Precious Metals
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Wheaton Precious Metals Corporation (NYSE: WPM) released its third quarter results on November 14, 2018, and conducted a conference call with analysts the same day post-market. The company missed on consensus revenue and earnings estimates. Revenue was posted at $185.7 million and earnings were reported at $34 million, a decline of 8.5% and approximately 49%, respectively, as compared to the figures posted a year ago. Adjusted net earnings, lower than expected, were posted at $35 million and the decline in earnings was attributed to a major decrease in silver sales volume.

The decrease in silver sales volume was held responsible for the lower earnings, however lower silver production was primarily due to lower production levels at the Penasquito mine (production level down by 36% as compared to last year mainly due to lower throughput and planned lower grades from stockpiles) and the Antamina mine (production level down by 15%), and the termination of the San Dimas silver purchase agreement. Further, other gold mines (Capstone mine) production levels declined by 41%, partially offsetting the increase in gold sales volume and the positive changes in the balance of payable gold produced but not yet delivered to WPM. The company also recorded its first palladium production of 8,817 ounces.

Significantly lower earnings have reduced investor confidence in the company, leading to the sell-off of the stock to a 52-week low. We have a $21 price estimate for the company, which is higher than the current market price. View our interactive dashboard – Q3: Earnings Take A Nose Dive. Higher Gold Sales, Lower Silver Sales – and modify the key assumption/sales to arrive at a price estimate of your own.

Highlights From Q3

Adjusted net earnings were reported at $35 million for Q3, or 8 cents per share, as compared to 15 cents per share, or $66 million reported a year ago. Subdued pricing in gold and silver in the third quarter led to the revenue fall of $17 million, as compared to $203 million a year ago. The decline was mainly attributed to the lower silver sales volume, which was further accounted to lower silver production in almost all the mines including the restructuring of the agreement of the San Dimas mine. Silver Production for this quarter stood at 5.7 million ounces and the company reported net sales of 5 million ounces, a decline of 25% and 13% approximately.

WPM’s acquisition of a new gold stream at Stillwater and the new agreement with First Majestic at San Dimas mine aided to the gold sales volumes and the production amounts, partially offset by lower production levels in other gold mines. Further, the company recorded its first ever sales of 3,668 ounces of palladium. Palladium sales came in at $955 per ounce, turning into a significant amount of sales revenue from the Stillwater acquisition.

Additionally, the company has announced the expansion of its Salobo III mine, thus ramping up its total gold production. Furthermore, WPM generated $110 million in operating cash flow, with the completion of acquisition activities of Stillwater (Stillwater and East Boulder mines), and recorded its highest gold production and first-ever palladium production. Going forward, palladium prices could turn to be a major factor in fostering institutional investor confidence in the company as it turns out to be the metal of the future.

After all, the company expects to produce approximately 355,000 ounces of gold, 22.5 million ounces of silver, and 10,400 ounces of palladium in 2018 and making significant capital expenditures to increase palladium production significantly in the next 2 years.  Starting in 2021, the company also expects 2.1 million pounds of cobalt production per year.


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