Share Dilution

Wheaton Precious Metals: low gold production in the first quarter of 2022 (NYSE: WPM)

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Introduction

The Canadian company Wheaton Precious Metals (NYSE: WPM) released its first quarter 2021 results on May 5, 2022.

1 – A brief overview of the quarter

The company generated revenue of $307.24 million in 1Q22, down 5.2% year-over-year. The adjusted revenue was $158.01 million, or $0.35 per share.

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WPM: 1Q22 Highlights Presentation (Wheaton Precious Metals)

CEO Randy Smallwood said on the conference call:

I am pleased to report that Wheaton is off to a strong start in 2022. Our portfolio continues to deliver strong results including strong revenue, earnings and cash flow for the first three months of 2022

2 – Stock market performance

Wheaton Precious Metals is part of my main long term streamer with Franco-Nevada (FNV). Here is the performance over one year.

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Data by YCharts

WPM jumped 23% year-on-year, slightly underperforming rival Franco-Nevada.

3 – Investment thesis

WPM is one of my go-to long-term investments in the royalty and stream segment just below Franco Nevada (FNV).

The investment thesis has not changed this quarter, and the financial presentation below will clearly demonstrate why I recommend WPM over the long term.

However, a common recurring drawback in this industry is the lack of a decent dividend. The company can certainly afford to increase the actual dividend based on free cash flow.

Although I consider WPM to be a solid long-term investment, I always suggest regularly trading the short-term LIFO, 30% of your long-term position.

This split strategy has been my dominant strategy in my market, “The Gold and Oil Wedge”, and it is the most rewarding strategy while significantly reducing risk.

Wheaton Precious Metals: 1Q22 financials and production

Precious Wheaton 1T21 2Q21 3Q21 4Q21 1Q22
Total revenue in millions of dollars 324.12 330.39 268.96 278.20 307.24
Net income in millions of dollars 162.00 166.12 134.94 291.82 157.47
EBITDA in millions of dollars 232.41 237.37 192.19 352.35 215.96*
Diluted EPS in $/share 0.36 0.37 0.30 0.65 0.35
Cash flow from operating activities in millions of dollars 232.15 216.42 201.28 195.29 210.54
Capital expenditures in millions of dollars

155.33

64.78

1.81

304.05

46.00

Free cash flow in millions of dollars

76.82

151.63

199.48

-108.76

164.54*

Total cash in millions of dollars 191.16 235.45 372.45 226.05 376.16
Long-term debt in millions of dollars 0.0 0.0 0.0 0.0 0.0
Dividend per share in $ 0.13 0.15 0.15 0.15 0.15
Shares outstanding (diluted) in millions 450.6 451.2 451.7 451.2 452.0
Manufacturing details 1T21 2Q21 3Q21 4Q21 1Q22
Production in gold equivalent K Oz GEO 190.4 194.1 184.9 186.4 171.4
Production in Silver Equivalent Oz SEO 13,706 13,978 13,314 13,421 12,853
Realized Gold Price $/Eq. Oz GEO 1,848 1,870 1,764 1,798 1,870
Realized Silver Price $/Eq. OzSEO 25.66 25.97 24.51 23.36 24.19
The gold/silver ratio 72.0 67.5 72.0 77.0 77.3

Source: Company press release

* Estimated by Fun Trading

Footnote 1: Historical data (over four years) is only available to subscribers.

Footnote 2: The company has a $300 million ATM program, which has yet to be tapped. However, it is essential to be aware of its existence and the risk of dilution. In the press release:

Market Share Program The Company has implemented a market share program which allows the Company to issue up to $300 million of treasury common stock to the public from time to time, at the discretion of the Company and subject to regulatory requirements.

Analysis: revenue, profit details, free cash flow, debts and gold production details

1 – Revenue: Wheaton Precious Metals reported revenue of $307.24 million in 1Q22

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WPM: Quarterly Revenue History (Fun Trading)

The first quarter of 2022 generated revenue of $307.24 million, down 5.2% year over year and up 10.4% sequentially.

Adjusted net income was $158.01 million, or $0.35 per share, compared to $161.13 million, or $0.36 per share in 1Q21. Cash costs were $477 per GEO, higher than $450 per ounce a year ago.

Lower attributable gold production was primarily due to lower production at Salobo and 777. This was partially offset by higher grade ore at Constancia.

Cash flow from operating activities for the fourth quarter of 2021 was $210.54 million, compared to $232.15 million a year earlier.

Below is revenue by metal for the last four quarters. Cobalt production started in 1Q21:

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WPM: Quarterly revenue by segment 2Q21 1Q22 (Fun Trading)

Gold represents 47.4% and silver 43.7% of total revenues this quarter.

To note: During the quarter ended March 31, 2022, Wheaton received its fifth delivery of cobalt under the Voisey’s Bay Precious Metals Purchase Agreement.

Gold price increased sequentially to $1,850 per GEO or $1,870 per Au Oz, while silver price also increased up to $24.67 per SEO or $24.19 per Ag Oz. Please see the table below:

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WPM: Quarterly Gold and Silver Price History (Fun Trading)

2 – Free cash flow was an estimated loss of $164.54 million in 1Q22

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WPM: Quarterly Free Cash Flow History (Fun Trading)

Note: Generic free cash flow is operating cash flow minus capital expenditures.

As of March 31, 2021, the 12-month FCF was estimated at $406.89 million and the first quarter of 2022 at $164.54 million.

The Board of Directors declared a quarterly dividend of $0.15 per common share or a yield of 1.36%.

To note: Wheaton Precious Metals is a Canadian company and dividends are subject to Canadian tax (15%) taken directly for non-Canadian investors, which reduces the amount paid out to US investors.

3 – Available capital, no debt and liquidity

As of March 31, 2022, Wheaton Precious Metals had cash and cash equivalents of $376.163 million and no debt outstanding under its revolving facility, which is excellent support from a business perspective. a long-term investor.

The company has a $2 billion revolver facility that has been extended for a year (see below). Total liquidity of nearly $2.4 billion.

The graph below shows a significant reduction in debt:

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WPM: Quarterly Cash vs. Debt History (Fun Trading)

Additionally, WPM holds total long-term equity investments of $92.194 million in 1Q22 (Bear Creek, Sabina, Kutcho and others).

4 – Production in gold equivalent ounces and details of trends

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WPM: quarterly gold equivalent production history (Fun Trading)

Gold equivalent production this quarter was 171,367 GEO compared to 190,359 GEO last year.

The company sold 166,065 GEO during 1Q22, down 3.6% from 172,271 GEO in the prior year quarter. This was low production that had been slowly declining for the past three quarters.

Wheaton’s metal production was:

  1. 79,087 Au ounces.
  2. 6,206 ounces AgK.
  3. 4,488 Pd oz.
  4. 234 million pounds of cobalt.

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WPM: Gold to Money Ratio (Fun Trading)

The gold/silver ratio is 1:77.3 this quarter (see chart above).

5 – 2021 reserves (Total Proved and Probable) and 2021 guidance and recent acquisitions

5.1 – Reserves 2021

As stated in my previous article, the total mineral reserves of P1+P2 are 14.01 Moz of gold, 567.9 Moz of silver, 0.63 Moz of palladium, 0.17 Moz of platinum and 31.4 Moz of Cobalt.

5.2 – The 2022 guidance is unchanged from the previous one.

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WPM 2022 Guidelines (Wheaton Precious Metals)

Gold production for 2022 is expected to be lower than 2021. However, the company expects gold equivalent production of 700K to 760K for 2022.

With the 5-year annual average from 2023 to 2026, WPM guides an average of 850,000 GEOs per year. The company also indicates a 10-year annual average from 2022 to 2031, which is expected to average 910,000 GEO.

5.3 – Aris Gold’s Marmato project

Under the amended terms of Marmato’s PMPA, the Company has agreed to provide Aris Gold with total funding of $175 million. WPM has already spent $53 million and $50 million is to be paid during the construction of the lower mine.

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WPM: Introducing the Marmato Aris Gold Project (Wheaton Precious Metals)

Technical analysis and commentary

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WPM: Short Term TA Chart (Fun Trading)

Note: Chart is adjusted for dividend.

The WPM is forming an ascending channel pattern with resistance at $52 and support at $44. The trading strategy is to sell around 30% of your position between $51.75 and $52.25. However, the WPM has fallen significantly over a short period of time, and it is essential to watch the medium-term resistance/support line at $48. I recommend taking partial profits at this level and seeing if the WPM can break out and hit the $52 resistance.

I think it is prudent to build up WPM below $44. However, if the stock breaks down, the next lower support is $39.75. I suggest buying slowly using comparable buys (about four potentials), assuming a retest of lower support.

The price of gold has fallen recently with the recent Fed hike and a potential 75 bp hike in June. However, the decline was modest and slowed by the conflict between Russia and Ukraine.

The dominant strategy that I regularly promote in my market, “The Gold and Oil Wedge”, is to hold a long-term basic position and use around 30% to trade LIFO while waiting for a higher final price target. high for your heart in the long run. position between $60 and $70.

Trading LIFO allows you to sell your most recent purchases, assuming a profit while holding your position long term until your position has appreciated enough to consider selling.

To note: The LIFO method is prohibited by International Financial Reporting Standards (IFRS), although it is permitted in the United States under generally accepted accounting principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by setting up two different accounts for the same security, one for long term and one for short term trading.

Warning: The TA table must be updated frequently to be relevant. This is what I do in my stock tracker. The table above has a possible validity of approximately one week. Remember that the TA chart is a tool only to help you adopt the right strategy. This is no way to predict the future. Nobody and nothing can.

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