Berenberg lowers target price on Wheaton Precious Metals

Berenberg said Wheaton's Q2 results saw the group deliver gold-equivalent-ounce production of 163,000 ounces, short of estimates of 189,000oz, split into 68,400 oz of gold and 6.5m oz of silver, with the remainder coming from other metals. Sales for the period were 170,000 oz GEO versus Berenberg's 181,000 oz estimate.

The German bank, which stood by its 'buy' rating on the stock, stated the lower production looked to have been driven by continued difficulties at Vale's Salobo mine in Brazil, where further maintenance was expected in H2, and by its Stillwater asset, where flooding affected operations.

"Wheaton has revised its 2022 and five- and 10-year guidance. Attributable GEO production for 2022 has been reduced to 640-680koz from 700-760koz due to the operational issues above, five-year guidance has moved to 820koz from 850koz, and 10-year guidance has been moved to 870koz from 910koz," said Berenberg.

"The reduction in guidance is driven by the recent changes to the Stillwater asset alongside a change in assumptions for Hudbay Minerals' Rosemont project, and the sale of the Keno Hill stream. We would note that the total return on this stream including this sale is over 300% and at $135.0m the sale is NAV-accretive to our $22.0m."

Berenberg updated its model for the quarter and the updated guidance, leading to the trim in its estimates.

"Wheaton remains protected in terms of margins thanks to its defensive cost structure, which is not exposed to FX over-runs, or cost or capex inflation, due to the nature of its streams, meaning that the company is well placed to benefit from precious metal prices in the current inflationary environment," concluded the analysts.

Reporting by Iain Gilbert at Sharecast.com