Gold Wheaton reported very strong Q4/09 results with adjusted EPS of
.07 (excluding
FX and tax items) versus our estimate and consensus of
.02. The variance was
explained by materially higher deliveries from FNX including prior-period adjustments
(22,162 oz vs. our estimate of 7,100 oz). Following the February 25 reinstatement of the
Environmental Authorization for the future tailings storage facility at the MWS project, we
have increased our valuation to assume continued production at MWS beyond Q4/11.
Our 5%/peak NAVPS (MWS discounted at 10%) has increased by 25% to US$4.45/share
based on an updated balance sheet and the improved profile for the MWS project beyond
2011. Our 12-month target price has been increased to C$4.70 (from C$3.75) based on 1.0x
our 5%/peak NAVPS estimate (MWS discounted at 10%) of US$4.45 (previously US$3.55)
adjusted for a US
.95/C$1.00 exchange rate. We maintain our BUY rating on Gold
Wheaton based on relative valuation and our improved valuation for the MWS gold stream.
Our valuation could improve further if we were to lower our discount rate on the MWS
stream (to 5% from 10%) and if the company were to consider a potential third gold
plant, subject to an improved financial picture and development plans of First Uranium
as owner/operator of the underlying asset. The combined impact of a lower discount
rate and third gold plant would be an 18% increase in our peak NAV estimate to
US$5.26 from $4.45. First Uranium’s announced debenture offering last Friday will go a
long way to de-risking the completion of the tailings project and potential ultimate
development of a third gold plant on the MWS project.