2023-03-10 06:11:07 ET
Summary
- Wheaton Precious Metals' latest earnings report shows solid financial results.
- WPM's financial position is strong, with a cash balance of $696 million and no debt.
- Bullish forward guidance for 2023 and beyond includes a potential 27% growth in annual production over the next five years, at a minimum.
- I break down Wheaton's latest earnings report and what investors should consider.
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This is an update on Wheaton Precious Metals ( WPM ), one of the world's biggest precious metals royalty and streaming companies, which just put out its latest earnings report .
It's been a challenging few months for Wheaton, whose stock price is essentially flat year-to-date after falling by close to 20% over the past year, only slightly outperforming the VanEck gold miners index ( GDX ) and the junior miners index ( GDXJ ). Additionally, several of its peers, including Osisko Gold Royalties ( OR ) and Triple Flag ( TFPM ), have turned in a better stock price performance.
What's more: Wheaton previously reported lower-than-expected gold production for FY 2022, which caused it to miss its 2022 guidance. On Feb. 22, the company announced that it produced 286,985 oz of gold, missing guidance of 300,000 - 320,000 oz; silver output came in at the top-end of its guidance at 24 million oz. But its full-year gold equivalent output totaled 638,048, falling just short of the low-end of its annual guidance (640-680Koz).
So, how did Wheaton end 2022, and what's in store for 2023 and beyond? Is the stock price attractive after the recent sell-off? Here's a look at its latest earnings report and what to expect.
Wheaton Precious Metals Earnings Were Solid
The numbers released were quite impressive, even though they represent a decline from 2021's full-year earnings due to 6% lower gold equivalent production.
In the fourth quarter, the company generated $236 million in revenue (just shy of estimates), $172 million in operating cash flow, $166 million in net earnings, or $.367 per share, and $104 million in adjusted net earnings, or $.229 per share.
For the full year, the company posted $1.06 billion in revenue, $743 million in operating cash flow, $669 million in net earnings ($1.48 per share), and $505 million in adjusted net earnings ($1.118 per share).
The company's financial position is equally impressive, and among the best in the industry. As of December 31, 2022, Wheaton has a cash balance of $696 million and zero debt. They also have access to an undrawn US$2 billion revolving credit facility with a maturity date of July 18, 2027.
So, Wheaton has close to $3 billion in available firepower to complete new streaming or royalty deals. And, it's generating roughly $1 billion in average annual cash flow at spot commodity prices. Things are looking good here, to say the least.
Wheaton's balance sheet is among the strongest in the business. (Wheaton Precious Metals)
Another positive development for shareholders is the declaration of a quarterly dividend of $0.15 per common share. Wheaton's dividend policy ties the payment amount directly to the company's financial performance - it's calculated by taking 30% of its average cash generated by operating activities in its prior four quarters, and then dividing it by the total number of common shares outstanding. Currently, Wheaton shares yield 1.54% .
Overall, I think these results show that Wheaton is one of the more solid, stable gold and silver stocks in the sector, because even though its production fell by 6% year-over-year, and the company faced challenges, it still generated massive amounts of cash flow and it bolstering its balance sheet.
Wheaton's Forward Guidance is Bullish: Here's Why
Wheaton Precious Metals
For this year, Wheaton forecasts a slight increase in gold production to 320,000 - 350,000 oz, up from 300,000 - 320,000 oz. However, it also expects lower silver production of between 20 - 22 million ounces, down from 24 million ounces in 2022. Overall, it says investors can expect a small bump in gold equivalent production from 2022.
But things look much better looking further out. Wheaton anticipates higher average production over the next five years, primarily due to expected production growth from various sources, including Constancia, Salobo, Stillwater, Voisey's Bay and Marmato, plus potential output from growth projects like Blackwater, Toroparu, Marathon, and Rosemont.
Wheaton is forecasting a 5-year average annual production rate of 810,000oz (gold equivalent), representing 27% growth compared to 2022. Things look even brighter looking out further with its 10-year average annual output potentially rising to 850,000oz, indicating 33% growth.
Wheaton has an exceptional project pipeline. (Wheaton Precious Metals)
Keep in mind that this impressive 33% long-term production growth includes output from the Fenix project, the Kutcho project, and the Victor mine in Sudbury. Fenix, in particular, is a question mark at the moment as its environmental permit was denied . There's no guarantee those development projects will produce what Wheaton is expecting.
However, Wheaton's guidance may be conservative even so. For one, it has not included Vale's ( VALE ) potential for an additional expansion at the Salobo mine . In 2018, Vale approved this Phase III expansion, which will add about 50,000 tonnes to the open-pit mine's current capacity of nearly 200,000 tonnes of copper per year (potentially reaching full production by 2024). This project commenced at the end of 2022.
Wheaton Precious Metals
This expansion, once completed, will likely increase the company's long-term gold equivalent production forecast to over 900,000oz per year, boosting its growth to 41% compared to 2022.
Additionally, Wheaton's expansion payment to Vale is now more flexible. It will now be phased (paid in two installments); Wheaton will make its first payment once actual throughput is expanded above 32 million tonnes per annum, and it will only make a second payment if throughput expands above 35 Mtpa. The total payment will not exceed $552 million, depending on the timing for each production increase, according to Wheaton.
Finally, it is important to note that Wheaton does not include any production from the Pascua Lama project in its estimated average ten-year production guidance, as Barrick Gold Corp. continues to advance a comprehensive review of the project. Any positive news out of that stalled asset would be a big positive.
Also, Wheaton's long-term guidance assumes no new deals are completed over the next few years. Wheaton ended 2022 in strong financial shape, with $2.7 billion in available capacity, and zero debt.
So, Wheaton is estimated to grow its long-term annual production by at least 30%, to as much as 41% if the Vale expansion goes through as planned, but production could ultimately end up much higher if new streams/royalties are acquired. After all, Wheaton's CEO has stated numerous times in video interviews that one of his main goals is for the company to reach 1 million GEOs output per year.
Wheaton Precious Metals: The Final Word
Wheaton Precious Metals' latest earnings report indicates solid financial results and a strong balance sheet. Despite a challenging year for the company's stock price, and challenges at Salobo and a few other mines, Wheaton has proven to be one of the more stable gold and silver stocks in the industry. And, with a cash balance of $696 million and zero debt, Wheaton has the financial resources to pursue more than a few new streaming or royalty deals.
Looking forward, Wheaton's guidance is among the most bullish in the sector, with expectations of a 27% growth rate in average annual production over the next five years, and the potential for even higher growth if expansion plans at the Salobo mine come to fruition.
For further details see:
Wheaton Precious Metals: Strong Earnings, Bullish Guidance