Wheaton Precious Metals: What Is Driving A Turnaround In Revenue Growth?

by Trefis Team
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Wheaton Precious Metals
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Wheaton Precious Metals (NYSE: WPM), the world’s largest silver streaming company, saw its revenue base shrink by $97.6 million in the last two years, from $891.6 million in 2016 to $794 million in 2018, due to lower silver production and a fall in global commodity price levels. However, Trefis has a positive outlook for the company’s revenues, with WPM shifting focus toward gold (which is expected to perform much better than silver) and adding Palladium as another revenue stream through the Stillwater agreement. Revenues are expected to increase over the next two years, reaching about $920 million by 2020.

You can view the Trefis interactive dashboard – Wheaton Precious Metals: How Does WPM Make Money? – to better understand the company’s business, along with historical and expected revenue performance. In addition, here is more Materials data.

WPM’s Business Explained

What Does It Offer?

  • Wheaton Precious Metals Corporation currently has fourteen silver purchase agreements and two other precious metals agreements.
  • Along with silver, WPM has also increased its share of gold production with new agreements.
  • Palladium is a new addition to the company’s business divisions in 2018, offering product diversification.

Who Is Paying?

  • WPM’s Gold is used in jewelry, in electronics and other technology applications, as an investment, particularly as a hedge against inflation, and in times of political and economic uncertainty.
  • Silver finds its application as a jewelry item, electrical conductor in appliances, ingredient in a variety of chemical compounds, and medicines.
  • Palladium is used in catalytic converters for cars. It is also used in jewelry and some dental fillings and crowns. It is used in the electronics industry in ceramic capacitors, found in laptop computers, and mobile phones.

What Are The Alternatives?

The company faces intense competition from global peers such as:

  • Freeport-McMoRan
  • Newmont Goldcorp
  • Barrick Gold
  • Silver Standard Resources
  • Pan American Silver
  • Bear Creek Mining Corporation
  • Endeavor Silver

Revenue Performance

  • Total revenue is expected to increase by 9.2% to $867 million in 2019 and further by 6.2% to reach over $920 million by 2020.
  • Higher revenue is likely to be driven by healthy growth in the gold and palladium division, along with a modest rise in silver sales.

a) Gold

  • Gold revenue has steadily increased over recent years with an increase in shipments and price level.
  • Segment revenue is expected to witness a further increase, with the segment adding over $50 million by FY2020, on the back of higher shipments and a favorable pricing environment.
  • Gold volume is expected to increase in the near 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.

b) Silver

  • Segment revenues have seen a continuous decline due to lower production and a fall in global silver prices.
  • However, the trend is likely to reverse as WPM is expected to add over $45 million to its silver revenue by 2020, led by volume and price growth.
  • Silver price realization is expected to gradually increase from $15.81/ounce in 2018 to $16.25/ounce in 2020, due to an increase in prices of precious metals with an expected global economic slowdown.

c) Palladium

  • 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.

Conclusion

Thus, after two years of revenue decline, WPM is expected to add close to about $125 million to $130 million to its current revenue base, by 2020, led by healthy performance in the gold and palladium divisions. As per Wheaton Precious Metals Valuation by Trefis, we have a price estimate of $30 per share for WPM’s stock.

 

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