In a May 13, 2018 research note, analyst Andrew Kaip with BMO Capital Markets indicated Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) entered into a metals purchase agreement with First Majestic Silver Corp.' (FR:TSX; AG:NYSE; FMV:FSE) regarding the San Dimas mine following the close of First Majestic's acquisition of Primero.
According to the deal terms, Kaip reported, Wheaton "will receive 25% of gold production plus an amount of gold equal to 25% of silver production based on a fixed exchange ratio. It will make ongoing payments of the lesser of $600 per ounce (1% inflationary adjustment) and the market price." Also, it will get 20.9 million First Majestic shares valued at $151 million. Kaip wrote, "We forecast an average of 34 thousand ounces of gold equivalent (34 Koz Au eq) over the next three years versus an average of 75 Koz Au eq over the previous three years."
BMO viewed the deal as "slightly dilutive at 6%," which was expected, Kaip noted. However, "given Wheaton's carrying value of ~$133M at the end of Q1/18, the company is expected to record a gain on the transaction."
As for First Majestic as a partner, it's a solid one, wrote Kaip, one with a good track record of operating in Mexico and a strong balance sheet to invest in exploration and development and "to reinvigorate San Dimas."
Further, the closing of the transaction should allow for the overhang on Primero to dissipate, "thereby setting the stage for investors to recalibrate expectations on San Dimas," said Kaip.
In other news, Wheaton's Q1/18 was as expected. Looking forward, the company anticipates deliveries of 355 thousand ounces of gold and 22.5 million ounces of silver this year. Additionally, Wheaton now has a court date, September 2019, for its pending tax dispute with the Canadian Revenue Agency.
Based on Wheaton's Q1/18 results and its agreement with First Majestic, BMO raised its net asset value per share on the San Dimas stream to $12.35 from $12.09. On Wheaton, BMO reiterated its Outperform rating and US$28 per share target price. Wheaton's stock is currently trading at around US$21.66 per share.
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1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Wheaton Precious Metals. Click here for important disclosures about sponsor fees.
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Disclosures from BMO Capital Markets, Wheaton Precious Metals, May 13, 2018
Analyst's Certification: I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures:
Disclosure 2: BMO Capital Markets has provided investment banking services with respect to Wheaton Precious Metals and First Majestic Silver within the past 12 months.
Disclosure 3: BMO Capital Markets has managed or co-managed a public offering of securities with respect to First Majestic Silver within the past 12 months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Wheaton Precious Metals and First Majestic Silver within the past 12 months.
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from First Majestic Silver and Primero Mining.
Disclosure 6A: Wheaton Precious Metals and First Majestic Silver is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services Disclosure
6C: Primero Mining is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 8A: BMO Capital Markets or an affiliate has a financial interest in 1% or more of any class of the equity securities of Wheaton Precious Metals.
Disclosure 8C: BMO Capital Markets or an affiliate has a financial interest in 0.5% or more in the issued share capital of Wheaton Precious Metals. Disclosure 9: BMO Capital Markets makes a market in Wheaton Precious Metals.
For Important Disclosures on the stocks discussed in this report, please click here.