What Could Wheaton Precious Metals Look Like In The Next 5 Years?

by Trefis Team
Wheaton Precious Metals
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FY 2018 has been one of the most important years in the history of Wheaton Precious Metals (NYSE: WPM), with the company entering into a New San Dimas Agreement, by which its gold output is expected to increase at the cost of silver production, and with WPM adding Palladium as a new revenue segment with business in the Stillwater stream. Trefis estimates that over the next five years, WPM could add about $110-$115 million to its revenue base.

You can view our interactive dashboard – What Could Wheaton Precious Metals Look Like In The Next 5 Years – and modify the key drivers to arrive at your own revenue and margin estimates for the company. In addition, here is more Materials data.

How has WPM’s revenue grown over the last 5 years?

  • WPM has successfully added $174 million to its revenue base in the last five years, as it increased its total revenue from $620 million in 2014 to $794 million in 2018.
  • However, total revenues witnessed a decline in 2017 and 2018 (with the rate of increase in revenue being high from 2014-2016) due to lower silver volume sold, partially offset by an increase in gold output.
  • Palladium was added as a new revenue segment for WPM in 2018, which contributed over $9 million in revenue as it operated only for a couple of months.

What could be WPM’s revenue trend over the next 5 years?

  • Trefis estimates that WPM’s total revenues could increase from $794 million in 2018 to $906 million in 2023, an addition of $112 million over a period of five years.
  • The rise in revenue would primarily be driven by a steady increase in gold and palladium sales, with silver revenue being flat, led by lower volume.

a) Forecasting WPM’s Gold Revenue

  • Gold revenue is expected to witness a steady increase, with the segment adding over $50 million till 2023, on the back of higher shipments and a favorable pricing environment.
  • Gold volume is expected to increase in the medium term, following the acquisition of a new gold stream at Stillwater, and the New San Dimas agreement under which silver production that was attributable to the company under the old agreement would now be converted to the equivalent gold volume.
  • Price realization is set to improve with a rise in global gold prices following higher retail and institutional investment in the yellow metal in the face of rising economic uncertainty.
  • Gold is expected to be the largest revenue segment for WPM over the next 5 years.

b) Forecasting WPM’s Silver Revenue

  • WPM is expected to add over $30 million to its silver revenue by 2023, led by stable volume and increasing prices.
  • Silver price realization is expected to gradually increase from $15.81/ounce in 2018 to $16.30/ounce in 2023, due to an increase in prices of precious metals with an expected global economic slowdown.

c) Forecasting WPM’s Palladium Revenue

  • Palladium is a new addition to WPM’s revenue streams since Q3 2018, with the segment adding $9.2 million in FY 2018.
  • Since FY 2019 would be the first full year of production from the Stillwater stream, we expect palladium production to be significantly higher than 2018, with it increasing at a steady rate from 2020.
  • Price realization is expected to improve as global prices of palladium are expected to remain elevated in the near-term, in line with the recent increase.
  • Prices of precious metals have also rallied since the Federal Reserve indicated the possibility of a rate cut in the near future.

Operating Margin Trend

  • Operating margins fluctuated in the last 5 years mainly due to wide variations in the impairment cost in a couple of years due to revision of reserves and valuation of assets in Chile, along with volatile cost of sales as the gold and silver production saw sharp movement.
  • Operating margins improved from a low of -24.2% in 2015 to 30.8% in 2018, the year in which the company did not report any impairment charge.
  • With rising production output and higher price realization, WPM’s operating margin is expected to show gradual but marginal improvement, with it expected to reach over 31% in the next five years.

Market Share

a) WPM’s Gold Market Share

  • WPM’s gold revenues have continuously increased since 2016 and are expected to continue the rising trend going forward.
  • Though higher gold prices would help in future revenue growth, WPM’s share in gold revenues of its major peers is likely to decline, as bigger players such as Newmont Mining, Barrick Gold, and Freeport-McMoRan would be in a better position to take advantage of favorable market conditions, owing to their size, asset base, and technology and infrastructure.
  • Thus, in spite of gold expected to remain WPM’s largest revenue segment (contributing more than 50% of total revenue), its share among its peers is likely to decline from 2.7% in 2018 to 2.2% by 2023.

b) WPM’s Palladium Market Share

  • With 2019 being the first full year of palladium production, this is expected to be the fastest growing segment for WPM, with revenue growing from $9.24 million in 2018 to $39.15 million in 2023, adding close to $30 million in five years.
  • Healthy growth in revenue is expected to help WPM increase its palladium revenue share among its major peers (such as Norilsk and Implats) from a measly 0.2% in 2018 to 0.8% by 2023.
  • Palladium is likely to be the only segment where WPM is expected to gain global market share.

Thus, over the next five years, a slowdown in the company silver sales would be more than offset by a rise in global gold prices and volume, along with palladium sales. Along with an increase in the revenue base and improvement in margins, WPM is expected to benefit from increased product diversity in the medium term.


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