Will Wheaton Precious Metals’ Silver Division See A Turnaround?

Wheaton Precious Metals (NYSE: WPM) has seen its silver revenue continuously decrease from $480 million in 2016 to $344 million in 2018, on the back of lower output and a fall in prices. 2019 is expected to be no different, with segment revenue likely to decrease further, with a marginal turnaround likely to take place only in 2020. Silver revenue is expected to increase slightly from $292 million in 2019 (projected) to $302 million in 2020.

Takeaway

1. Wheaton Precious Metals’ silver business, the sale of silver that is mined, is expected to contribute $292 million to WPM’s 2019 revenues, making up 33% of WPM’s $881 million in revenues for 2019.
2. The silver segment contribution is almost half that of the gold mining business.
3. WPM’s silver business is set to see a cumulative decline of $189 million between 2016 and 2019, whereas the company as a whole is likely to see only a marginal cumulative decline of $11 million in revenues for the same period.
4. The silver revenue growth trend has been a drag on the company’s stock, which witnessed a lot of volatility in the last 3 years, with >30% of cumulative stock appreciation during this period being almost wholly driven by strong performance of the gold segment, further helped by improving margins, and strong expansion in WPM’s valuation multiple. We discuss Wheaton Precious Metals’ Valuation analysis in full, separately.
5. In our interactive dashboard Wheaton Precious Metals Revenues: How Does WPM Make Money?, we discuss WPM’s business model, followed by sections that review past performance and 2020 expectations for WPM’s revenue drivers, including volume and price trends for all segments, and competitive comparisons with Newmont-Goldcorp, Barrick Gold, and Freeport-McMoRan.

Total Revenue

• WPM’s total revenue steadily decreased from $892 million in 2016 to $794 million in 2018.
• Total revenue is expected to increase by 11% to $881 million in 2019 and further by 8.4% to reach over $955 million by 2020.
• Higher revenue is likely to be driven by healthy growth in the gold and palladium divisions, partially offset by a decline in silver sales.

Segment-wise Revenue Breakup

Silver

• Segment revenues have seen a continuous decline due to lower production and fall in global silver prices.
• The trend is likely to continue in the near term with WPM expected to lose about $52 million of its silver revenue in 2019, led by volume decline and a drop in global price levels.
• Silver volume sales are likely to go down from 22 million ounces in 2018 to 18 million ounces in 2019, following 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.
• Silver price realization is expected to gradually increase from $15.81/ounce in 2018 to $16.20/ounce in 2019, due to an increase in prices of precious metals with an expected global economic slowdown.
• With volume expected to remain stable and prices being on an upswing, silver revenues are set to increase to $302 million in 2020.

To understand 10-year silver price performance and production-demand-GDP analysis, view our dashboard analysis.

Gold and Palladium

Gold and Palladium are the two fast-growing segments of the company which drive most of the company’s value. To understand how gold and palladium divisions have performed and what is the outlook, view our interactive dashboard analysis.

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