Continuing to beat expectations

Wheaton Precious Metals 12 November 2020 Update
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Wheaton Precious Metals

Continuing to beat expectations

Q320 results

Metals & mining

12 November 2020

Price

C$57.65

Market cap

C$26bn

C$1.3004/US$

Net debt (US$m) at 30 September 2020*

277.7

*Excluding US$3.7m lease liabilities

Shares in issue

449.3m

Free float

100%

Code

WPM

Primary exchange

TSX

Secondary exchange

LSE, NYSE

Share price performance

%

1m

3m

12m

Abs

(13.0)

(11.1)

67.1

Rel (local)

(14.1)

(12.6)

68.1

52-week high/low

C$75.1

C$33.5

Business description

Wheaton Precious Metals is the world’s pre-eminent ostensibly precious metals streaming company, with 30 high-quality precious metals streaming and early deposit agreements relating to assets in Mexico, Peru, Canada, Brazil, Chile, Argentina, Sweden, Greece, Portugal and the US.

Next events

Dividend record date

25 November 2020

Ex-dividend trading date

23 November 2020

Q420/FY20 results

March 2021

Q121 results

May 2021

Analyst

Charles Gibson

+44 (0)20 3077 5724

Wheaton Precious Metals is a research client of Edison Investment Research Limited

Wheaton’s Q3 performance was characterised by a strong recovery in silver production coupled with a materially higher silver price to result in a record operating cash flow (of US$228.1m, or US$0.508/share), revenue and sales volumes in the first nine months of the year. One notable feature of the quarter was the absence of any inventory build among WPM’s gold assets, which contributed to revenues being 9.9% above our forecasts for the quarter, although this was partially offset by costs to result in basic EPS that were 5.0% ahead of our expectations.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/18

794.0

203.1

48

36

92.4

0.8

12/19

861.3

242.7

56

36

79.2

0.8

12/20e

1,160.0

535.7

116

42

37.7

0.9

12/21e

1,496.1

814.4

181

70

24.5

1.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Gold fundamentals still strong despite Pfizer vaccine

While the gold price has fallen by c US$75/oz, or 4%, since the announcement of interim Phase III results from Pfizer’s potential coronavirus vaccine, we do not subscribe to the view that year-to-date gold price strength is a result of the COVID-19 pandemic, but rather that it is a consequence of the Federal Reserve’s asset purchase programme, which has pushed the total US monetary base to record levels in 2020, in conjunction with a continuation of negative real interest rates (see our report A golden future, published in June 2020).

Genuine prospect of being net debt free in Q121

WPM has reduced its net indebtedness by 78% (or US$1.0bn) since Q318 and, at the current rate of cash generation, may expect to be net-debt free early in FY21. In the meantime, its US$110m precious metals purchase agreement (PMPA) with Caldas Gold regarding the Marmato project (see pages 5–7) demonstrates that it can continue to conclude business in the current climate, despite coronavirus (note that our forecasts for WPM now include a contribution from Marmato from Q420 for the first time).

Valuation: C$69.41/share potentially rising to C$98.80

In normal circumstances and assuming no material purchases of additional streams in the foreseeable future (which we think unlikely given its business strategy), we would ordinarily forecast a value per share for WPM of US$53.37, or C$69.41 in FY21. However, given its peers’ valuations as well as the current precious metals investing environment, we believe that WPM is capable of supporting a premium valuation that could rise to as high as US$75.98 or C$98.80 per share. In the meantime, WPM’s shares are trading on near-term financial ratios that are cheaper than the averages of its peers on 100% of six common valuation measures using Edison forecasts and 66% using consensus forecasts (see Exhibit 11).

Q320 results

Wheaton’s Q3 performance was characterised by a strong recovery in silver production coupled with a materially higher silver price. As expected, not all of the increase in silver production translated into increased sales owing to a process of rebuilding inventory (as measured by ounces produced but not yet delivered to Wheaton) after a period of drawdown in Q2 occasioned by coronavirus-related disruptions. Slightly unexpectedly however, there was no comparable drawdown among WPM’s gold assets, at which sales and production were closely aligned. Together, these two effects were largely responsible for a 9.9% positive variance in revenues in Q3 relative to Edison’s expectations, only partially offset by a 13.5% variance in direct costs (the disproportionately large increase in costs arising from the effect of the higher silver price on variable cost streams such as Yauliyacu and Antamina) and a 9.2% variance in depletion (see Exhibit 1). General and administrative costs were once again ahead of our expectations, although, as in Q2, almost all of the variance could be attributed to performance share unit accruals (see Exhibit 7). As a result of the overwhelming effect of the increase in sales however, net earnings exceeded our forecasts (and consensus forecasts) by 5.3% or US$7.6m. A full analysis of WPM’s Q320 income statement relative to both Q220 and our prior expectations is provided in the table below:

Exhibit 1: Wheaton Precious Metals underlying Q320 results vs Q220 and Q320e, by quarter*

US$000s
(unless otherwise stated)

Q119

Q219

Q319

Q419

Q120

Q220

Q320e

Q320a

Change
**(%)

Variance
***(%)

Variance
***(units)

Silver production (koz)

5,614

4,834

6,095

5,962

6,704

3,650

5,275

6,028

65.2

14.3

753

Gold production (oz)

93,585

100,577

104,175

107,225

94,707

88,631

93,187

91,770

3.5

-1.5

-1,417

Palladium production (koz)

4,729

5,736

5,471

6,057

5,312

5,759

5,938

5,444

-5.5

-8.3

-494

Silver sales (koz)

4,294

4,241

4,484

4,684

4,928

4,729

4,617

4,999

5.7

8.3

382

Gold sales (oz)

115,020

90,077

94,766

89,223

100,405

92,804

81,538

90,101

-2.9

10.5

8,563

Palladium sales (koz)

5,189

5,273

4,907

5,312

4,938

4,976

5,177

5,546

11.5

7.1

369

Avg realised Ag price (US$/oz)

15.64

14.93

17.09

17.36

17.03

16.73

24.36

24.69

47.6

1.4

0

Avg realised Au price (US$/oz)

1,308

1,320

1,471

1,483

1,589

1,716

1,911

1,906

11.1

-0.3

-5

Avg realised Pd price (US$/oz)

1,443

1,381

1,535

1,804

2,298

1,917

2,172

2,182

13.8

0.5

10

Avg Ag cash cost (US$/oz)

4.64

5.14

5.16

5.13

4.50

5.23

5.49

5.89

12.6

7.3

0

Avg Au cash cost (US$/oz)

417

420

424

426

436

418

422

428

2.4

1.4

6

Avg Pd cash cost (US$/oz)

254

247

271

321

402

353

391

383

8.5

-2.0

-8

Sales

225,049

189,466

223,595

223,222

254,789

247,954

279,533

307,268

23.9

9.9

27,735

Cost of sales

Cost of sales, excluding depletion

69,214

60,957

64,624

63,764

66,908

65,211

61,801

70,119

7.5

13.5

8,318

Depletion

68,381

61,404

63,396

63,645

64,841

58,661

55,473

60,601

3.3

9.2

5,128

Total cost of sales

137,595

122,361

128,020

127,408

131,748

123,872

117,274

130,720

5.5

11.5

13,446

Earnings from operations

87,454

67,105

95,575

95,814

123,040

124,082

162,259

176,548

42.3

8.8

14,289

Expenses and other income

– General and administrative

16,535

12,249

14,028

11,695

13,181

21,799

13,627

21,326

-2.2

56.5

7,699

– Foreign exchange (gain)/loss

0

0

0

0

0

0

0

0

N/A

N/A

0

– Net interest paid/(received)

13,946

13,306

11,871

9,607

7,118

4,636

4,009

2,766

-40.3

-31.0

-1,243

– Other (income)/expense

(266)

(500)

(265)

814

-1,861

234

391

67.1

N/A

391

Total expenses and other income

30,215

25,055

25,634

22,116

18,438

26,669

17,636

24,483

-8.2

38.8

6,847

Earnings before income taxes

57,239

42,050

69,941

73,698

104,602

97,413

144,623

152,065

56.1

5.1

7,442

Income tax expense/(recovery)

(110)

(2,758)

(2,751)

(3,447)

8,442

59

250

58

-1.7

-76.8

-192

Marginal tax rate (%)

(0.2)

(6.6)

(3.9)

(4.7)

8.1

0.1

0.2

0.0

-61.9

-80.9

-0.2

Net earnings

57,349

44,808

72,692

77,145

96,160

97,354

144,373

152,007

56.1

5.3

7,634

Average no. shares in issue (000s)

444,389

445,769

446,802

446,802

447,805

448,636

448,636

449,125

0.1

0.1

489

Basic EPS (US$)

0.13

0.10

0.16

0.17

0.215

0.217

0.322

0.338

55.8

5.0

0.016

Diluted EPS (US$)

0.13

0.10

0.16

0.17

0.214

0.216

0.321

0.336

55.6

4.7

0.015

DPS (US$)

0.09

0.09

0.09

0.09

0.10

0.10

0.10

0.10

0.0

0.0

0.00

Source: Wheaton Precious Metals, Edison Investment Research. Note: *As reported by WPM, excluding exceptional items. **Q320 vs Q220. ***Q320 actual vs Q220 estimate.

From an operational perspective, production at Antamina, Yauliyacu, Neves-Corvo and San Dimas materially outperformed our expectations during the quarter. Of the six of Wheaton’s partners’ mines that were directly affected by shutdowns and suspensions in Q2, four are, to all intents and purposes, operating once again at full capacity:

Exhibit 2: Mines affected by COVID-19 performance in Q220

Name

Approximate percentage of ‘normal’ production achieved in Q220

Approximate percentage of ‘normal’ production achieved in Q320

Comment

Penasquito

47%

97%

Production halted in early April in line with Mexican government decree; restarted at the beginning of June and reached pre-coronavirus record throughput rates by mid-June.

San Dimas

67%

100%

Production halted in early April in line with Mexican government decree; restarted again in late May. Delays in supply of parts and equipment for mill modernisation and optimisation programmes mean that installation of high intensity grinding mill will not occur until Q221.

Antamina

53%

100%

Production suspended in mid-April; restarted in late May after Peruvian government decreed mining to be an ‘essential’ industry. Outperformance in Q3 attributed to higher grades and throughput, partially offset by lower recovery.

Constancia

*34–38%

55%

Production furloughed at the end of March; resumed at full capacity in mid-May after Peruvian government deemed mining an ‘essential’ industry.

Yauliyacu

48%

100%

Shut 2 April; restarted mid-May after Peruvian government deemed the mining industry to be ‘essential’.

Los Filos

19%

47%

Production halted in early April in line with Mexican government decree; restarted 5 May.

Source: Edison Investment Research, Wheaton Precious Metals. Note: *Underlying excluding contractual delivery of 2,005oz gold in respect of delay in mining Pampacancha deposit.

While lower than in Q319, production of gold at Wheaton’s flagship asset, Salobo in Brazil, was closely in line with our expectations, reflecting lower grades encountered in the orebody. Encouragingly however, there was little evidence on ongoing absenteeism during the quarter attributable to COVID-19. In the meantime, according to Vale’s Q320 performance report, physical completion of the Salobo III mine expansion was at 62% (cf 54% at end-Q2, 47% at end-Q1, 40% at end-Q419 and 27% at end-Q319) and remains on schedule for start-up in H122.

Ounces produced but not yet delivered, aka inventory

As noted previously, while sales of silver were 17.1% less than production – being approximately the amount anticipated to effect a c 20,000oz increase in inventories in gold equivalent (AuE) terms – gold sales were unexpectedly aligned with production, resulting in a negligible change in gold inventories.

Exhibit 3: Over/(under) sale of silver and gold as a percentage of production, Q112–Q320

Source: Edison Investment Research, Wheaton Precious Metals. Note: As reported.

As at 30 September, payable ounces attributable to WPM produced but not yet delivered to WPM amounted to 3.1Moz silver and 77,000oz gold (cf 3.1Moz silver and a fractionally restated 79,632oz gold at end-June). This ‘inventory’ equates to 1.85 and 2.45 months of FY20 forecast silver and gold production, respectively (cf 1.67 and 2.51 months as at end-Q220, as reported) and compares with WPM’s target level of two months of silver and two to three months of gold and palladium production, respectively.

Exhibit 4: WPM ounces produced but not yet delivered, Q316–Q320 (months of production)

Source: Edison Investment Research, Wheaton Precious Metals. Note: As reported.

Note that, for these purposes, the use of the term ‘inventory’ reflects ounces produced by WPM’s operating counterparties at the mines over which it has streaming agreements, but which have not yet been delivered to WPM. It in no way reflects the other use of the term in the mining industry itself, where it typically refers to metal in circuit (among other things) and would therefore be considered to be a consequence of metallurgical recoveries in the plant.

Medium-term outlook

Prior to the coronavirus pandemic, WPM provided production guidance for FY20 of 390–410koz gold, 22.0–23.5Moz silver and 23.0–24.5koz of palladium to result in gold equivalent production of c 685–725koz (based on an assumed gold price of US$1,500/oz, an assumed silver price of US$18.00/oz and an assumed palladium price of US$2,000/oz). WPM suspended its production guidance on 1 April in response to the coronavirus crisis. As its partners’ previously furloughed mines have returned to production however, it reinstated updated guidance, as shown in the exhibit below, at the time of its Q2 results in August. Its long-term production forecast remains unchanged at 750,000oz gold equivalent per annum on average between 2020 and 2024. This compares with Edison’s current and previous forecasts, as follows:

Exhibit 5: WPM precious metals production – Edison forecasts vs guidance

FY19

FY20e

FY21e

FY22e

FY23e**

FY24e

Previous Edison forecast

Silver production (Moz)

21.7

21.6

20.7

20.5

17.4

17.3

Gold production (koz)

394

375.6

393.6

382.6

374.3

319.3

Cobalt production (klb)

0

0

2,100

2,100

2,100

2,814

Palladium production (koz)

21

22.9

27.0

27.0

30.0

30.0

Gold equivalent (koz)

653.3

781.3

765.9

711.7

661.9

Current Edison forecast

Silver production (Moz)

22.3

20.8

20.5

17.5

17.5

Gold production (koz)

376.9

396.7

386.1

379.4

331.1

Cobalt production (klb)

0

2,100

2,100

2,100

2,814

Palladium production (koz)

22.5

27.0

27.0

30.0

30.0

Gold equivalent (koz)

666.5

786.4

771.3

719.3

677.2

Reinstated WPM guidance

Silver production (Moz)

*22.6

21.5–22.5

Gold production (koz)

*406.7

365–385

Cobalt production (klb)

*0

0

Palladium production (koz)

*22.0

23.0–24.5

Gold equivalent (koz)

655–685

750

750

750

750

Source: Wheaton Precious Metals, Edison Investment Research forecasts. Note: *Actual; **Edison forecasts include a contribution from Salobo III from FY23e.

Readers should note that the major differences between Edison’s gold equivalent production forecasts and Wheaton’s can be attributed to the ratio of the gold price to the silver price. Whereas Wheaton assumes an 83.33x ratio (based on a gold price of US$1,500/oz and a silver price of US$18.00/oz), the current ratio is closer to 77.5x and Edison assumes that the ratio will revert closer to its long-term average of 61.5x from FY21. Note that, at WPM’s prices, Edison’s gold equivalent production forecast in FY20 is 674.6koz, rather than 666.5koz (which assumes a gold price of US$1,875/oz for the remainder of the year and a silver price of US$24.18/oz). In addition, Edison is also expecting a production contribution from Salobo III from FY23 (albeit nothing from Rosemont).

In the medium term, First Majestic has announced plans to increase production at San Dimas by restarting mining operations at the past-producing Tayoltita mine and expects to ramp up production to add another 300tpd (12%) to throughput by the end of FY20. In addition, it intends to install a new 3,000tpd high-intensity grinding mill circuit and an autogenous grinding mill in Q221 to further improve recoveries and reduce operating costs. Production of palladium and gold at Stillwater (operated by Sibanye-Stillwater) will similarly increase into FY21 under the influence of the Fill-the-Mill project at East Boulder (although the Blitz project has now been delayed by two years, until 2024, following the suspension of growth capital activities owing to COVID-19).

By contrast, production is expected to remain at lower levels at Constancia in Q420, owing to delays in mining the Pampacancha satellite deposit (which hosts significantly higher gold grades than those mined hitherto). However, Hudbay reports that it has now secured the surface rights to Pampacancha and that approximately 79% of the land has been vacated and turned over to the company and that consequently it expects to begin mining ore from the satellite deposit early in FY21. Note that, in consideration of the delay, WPM continues to be entitled to receive an additional 2,005oz gold per quarter from Hudbay during FY20 relative to its PMPA.

Marmato

On 5 November, WPM announced that it had entered into a definitive PMPA with Caldas Gold regarding the Marmato project in Colombia (NB WPM had already announced that it had signed a non-binding term sheet with Caldas Gold re Marmato on 22 June). Under the terms of the proposed PMPA, WPM will acquire 6.5% of the gold production and 100% of the silver production of Marmato until 190,000oz gold and 2.15Moz silver have been delivered, after which the stream will drop to 3.25% of gold production and 50% of silver production for the remainder of the life of the mine. Under the proposed PMPA, WPM will pay Caldas a total cash consideration of US$110m, of which US$38m will be payable within six months (subject to certain customary conditions) with the remainder payable during the construction of the Marmato Deep Zone project. In addition, WPM will make ongoing delivery payments equal to 18% of the spot gold and silver price until the market value of gold and silver delivered to the company, net of the per ounce cash payment, exceeds the initial upfront cash deposit, at which point it will make payments equal to 22% of the spot gold and silver price. The PMPA became retrospectively effective on 1 July 2020.

The Marmato project comprises the existing producing underground gold and silver mine in the Upper Zone, including the right to mine the lower portion of the neighbouring Echandia licence area, the existing 1,200tpd processing plant and the area encompassing the Deeps Zone mineralisation, all located within the mining licence area referred to as Zona Baja. The area has been a centre for gold production for approximately 500 years and the current mine has been in operation since 1991. As at 31 July 2019, the project’s mineral resource inventory was estimated at 5.4Moz, of which 38%, or 2.0Moz, is in the measured and indicated categories. Among other things, it has excellent infrastructure, being located adjacent to the Pan American Highway with access to Medellin to the north and Manizales to the south and has access to the national electricity grid, which runs near the property.

A preliminary economic assessment (PEA) was completed on the project in 2019 and charted a path for expansion of mining operations at the Marmato Project to encompass both the existing Upper Zone operation and a new Deeps Zone operation, which sits directly below the Upper Zone vein system. The PEA was then duly superseded by a pre-feasibility study (PFS), which was announced to the market in July 2020 and which focused on the development of the Deeps Zone mineralisation, mechanised mining using an underground long-hole stoping method, construction of a new 4,000tpd plant and new dry stack tailings storage facilities.

Wheaton’s agreement with Caldas is subject to receipt of required permits and licences, sufficient financing having been obtained and other customary conditions. On the basis of the PFS however, we have calculated the following potential cash flows to WPM based on the first 10 years of mining at Marmato (out of a total of 14) as follows:

Exhibit 6: Marmato project production and estimated cash-flow to WPM, 2020–29

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Gold streamed (oz)

1,907

3,176

3,528

5,085

11,752

12,597

13,430

11,766

10,860

10,190

Silver streamed (oz)

51,450

67,774

68,376

95,819

159,908

154,484

167,150

151,934

130,324

113,103

Gold price (US$/oz)

1,908

1,892

1,892

1,892

1,892

1,892

1,968

2,047

2,129

2,214

Silver price (US$/oz)

24.60

30.78

30.78

30.78

30.78

30.78

32.30

33.60

34.94

36.34

Revenue (US$000s)

4,904

8,095

8,779

12,571

27,156

28,587

31,827

29,187

27,672

26,674

Gold costs (US$/oz)

343.44

340.55

340.55

340.55

340.55

416.23

432.92

450.28

468.34

487.12

Silver costs (US$/oz)

4.43

5.54

5.54

5.54

5.54

6.77

7.11

7.39

7.69

8.00

Total cash flow (US$000s)

4,021

6,638

7,199

10,308

22,268

22,298

24,825

22,766

21,584

20,806

Capital costs (US$000s)

(38,000)

(36,000)

(36,000)

Net cash flow (US$000s)

(33,979)

(29,362)

(28,801)

10,308

22,268

22,298

24,825

22,766

21,584

20,806

Source: Caldas Gold technical report, SRK Consulting, Edison Investment Research

In crude terms therefore, WPM is acquiring an average annual positive cash flow of c US$21m over 14 years for an upfront payment of US$110m. However, Wheaton interprets the geology of the mine to be structurally controlled and believes that there is a high probability that the system coalesces into one ore body at depth, similar to other systems in the region. Moreover, this interpretation appears to be supported by deeper drilling, which has indicated the potential for the mine to continue at depth and WPM therefore envisages the potential for multiple additional drop downs once the PFS plan has been concluded. Note that where cash flows from Marmato were previously excluded from our WPM forecasts, they are now included.

Longer-term outlook

Salobo

On 24 October 2018, Vale announced the approval of the Salobo III brownfields mine expansion, intended to increase processing capacity at Salobo from 24Mtpa to 36Mtpa, with start-up scheduled for H122 and an estimated ramp-up time of 15 months. According to its agreement with Vale, depending on the grade of the material processed, WPM will be required to make a payment to Vale in respect of this expansion, which WPM estimates will be US$550–650m in FY23, in return for which it will be entitled to its full 75% attributable share of expanded gold production. This compares to its purchase of a 25% stream in August 2016 for a consideration of US$800m (see our note, Silver Wheaton: Going for gold, published on 30 August 2016), the US$900m it paid for a similar stream in March 2015 (when the gold price averaged US$1,179/oz) and the US$1.33bn that it paid for its original 25% stream in February 2013.

According to Vale’s Q320 performance report, the Salobo III mine expansion is now 62% complete (cf 54% at the end of Q220, 47% at the end of Q120, 40% at the end of Q419 and 27% at the end of Q319) and remains on schedule for start-up in H122.

Pascua-Lama

Wheaton’s contract with Barrick provides for a completion test that, if unfulfilled by 30 June 2020, results in WPM being entitled to the return of its upfront cash consideration of US$625m less a credit for any silver delivered up to that date from three other Barrick mines (at which point it would have no further streaming interest in the mine). Given the test was unfulfilled, we calculate that WPM has the right to an estimated US$252.3m (the carrying value of Pascua-Lama in WPM’s accounts) repayment from Barrick in FY20. Given the long-term optionality provided by the Pascua-Lama project, however, Wheaton has indicated it is unlikely to enforce the repayment of its entitlement and it prefers instead to maintain its streaming interest in the project (which was originally expected to deliver an attributable 1.7–12.0Moz silver pa, averaging 5.2Moz Ag pa, to WPM at a cost of US$3.90/oz (inflating at 1% per year).

Rosemont

Another major project with which WPM has a streaming agreement for attributable gold and silver production is Rosemont copper in Arizona.

The proposed Rosemont development is near a number of large porphyry-type producing copper mines and would be one of the largest three copper mines in the US, with output of c 112,000t copper in concentrate per year and accounting for c 10% of total US copper production. Total by-product production of silver and gold attributable to WPM is estimated to be c 2.7Moz Ag pa and c 16,100oz Au pa.

Rosemont’s operator Hudbay has received both a Section 404 Water Permit from the US Army Corps of Engineers and a Mine Plan of Operations from the US Forest Service. The Section 404 permit regulates the discharge of fill material into waterways according to the Clean Water Act and was effectively the final material administrative step before the mine could be developed. Subsequently, Hudbay indicated it would seek board approval to start construction work by the end of CY19, which would have enabled first production ‘by the end of 2022’. In the meantime, it started early works to run concurrently with financing activities (including a potential joint venture partner).

On 31 July 2019, however, the US District Court for the District of Arizona issued a ruling relating to a number of lawsuits challenging the US Forest Service’s issuance of the Final Record of Decision effectively halting construction, saying that:

the US Forest Service ‘abdicated its duty to protect the Coronado National Forest’ when it failed to consider whether the mining company held valid unpatented mining claims; and

the Forest Service had ‘no factual basis to determine that Rosemont had valid unpatented mining claims’ on 2,447 acres and the claims were invalid under the Mining Law of 1872.

In its reaction to the ruling, Hudbay said it believed the ruling was without precedent and the court had misinterpreted federal mining laws and Forest Service regulations as they apply to Rosemont. It pointed out that the Forest Service issued its decision in 2017 after a ‘thorough process of 10 years involving 17 co-operating agencies at various levels of government, 16 hearings, over 1,000 studies, and 245 days of public comment resulting in more than 36,000 comments’ and with a long list of studies that have examined the potential effects of the proposed mine on the environment. Hudbay also pointed out that various agencies had accepted that the company could operate the mine in compliance with environmental laws. As a result, Hudbay is appealing the ruling to the Ninth Circuit Court of Appeals, which it expects to be successful, not least as a result of there being legal precedents to its waste disposal plan. As an alternative, however, it is also able to adapt its plan to accommodate its waste dumps on patented land alone, if necessary.

Once in production, we estimate Rosemont could add an average c US$0.23 per share (14.4%) to WPM’s basic EPS in its first six years of its official 18-year life from FY25–30 for an upfront payment of US$230m (equivalent to US$0.512/share) in two instalments of US$50m and US$180m (of which neither has yet been paid). Nevertheless, in the light of the uncertainty about the timing and development of the project we have, for the moment, removed any contribution from Rosemont from our forecasts.

Other potential future growth

WPM is ostensibly a precious metals streaming company (plus one cobalt stream). Considering only the silver component of its investible universe, WPM estimates the size of the potential market open to it to be the lower half of the cost curve of the 70% of global silver production of c 837Moz in CY19 (down from 894Moz in CY15) that was produced as a by-product of either gold or base metal mines (ie approximately 300Moz pa silver versus WPM’s attributable production of 22.6Moz Ag in FY19). Inevitably, WPM’s investible universe may be further refined by the requirement for the operations to be located in good mining jurisdictions, with relatively low political risk. Nevertheless, such figures serve to illustrate the fact that WPM’s marketplace is very far from being either saturated or mature.

As a result, WPM reports that it is as busy as it has ever been on the corporate development front. Whereas potential deals in FY19 were generally reported to be with development companies in the US$100–350m range, more recent overtures are reported to have been from producing companies, especially within the base metals sub-sector, looking to strengthen their balance sheets with mooted transactions in the >US$1bn range. In the first instance, WPM would fund any such transactions via the US$1,512.5m available under its revolving credit facility, plus US$209.8m in cash (as at end-Q320) and, potentially, its US$300m at-the-market equity programme.

While it is difficult, or impossible, to predict potential future stream acquisition targets with any degree of certainty, it is possible to highlight two that may be of interest to WPM in due course for which it already has strong, existing counterparty relationships:

the platinum group metal (PGM) by-product stream at Sudbury (operated by Vale); and

the 50% of the gold output at Constancia that is currently not subject to any streaming arrangement.

Otherwise, WPM also has streaming agreements with other potential producing mines, including (but not limited to) Navidad, Keno Hill (at which the operator, Alexco, has announced its intent to recommence mining operations from Q420) and Cotabambas. Note that during its most recent period in production, Keno Hill typically produced 150–200koz silver attributable to Wheaton per annum.

General and administrative expenses

WPM reiterated its guidance for non-stock general and administrative (G&A) expenses of US$40–43m (or US$10.0–10.75m per quarter) in FY20, compared to a range of US$33–36m in FY19 (reduced from an earlier estimate of US$36–38m), an actual FY19 outcome of US$31.6m and guidance of US$34–36m in FY18 cf an actual outcome of US$36.7m, including all employee-related expenses, charitable contributions, etc, but excluding performance share units (PSUs) and equity settled stock-based compensation. It is notable, within this context, that WPM’s non-stock G&A expense for Q320 actually fell below this range (see Exhibit 7) and that the extent to which actual all-in G&A costs exceeded our forecasts could be entirely attributed to performance share unit accruals.

Investors are reminded that, since April this year, stock-based compensation costs and PSUs have been included in our financial forecasts in Exhibits 8 and 12 notwithstanding their somewhat unpredictable nature. Excluding stock-based effects, however, it is clear that non-stock expenses are trending towards the bottom end of (or even below) Wheaton’s guided range of US$40–43m.

Exhibit 7: WPM FY19 general and administrative expense (US$000s)

Item

Q320

Q220

Q120

Q419

FY19

G&A excluding PSU* and equity settled stock-based compensation

4,037

4,095

4,135

7,434

31,642

Other (inc. depreciation, donations and professional fees)

5,488

6,302

4,266

Sub-total

9,525

10,397

8,401

7,434

31,642

PSU* accrual

10,482

10,097

3,277

2,830

17,174

Equity settled stock-based compensation

1,319

1,305

1,503

1,432

5,691

Total general & administrative

21,326

21,799

13,181

11,696

54,507

Source: Wheaton Precious Metals, Edison Investment Research. Note: *Performance share units.

FY20 forecasts by quarter

Our updated forecasts for WPM for FY20 are as shown in Exhibit 8, below. The forecasts assume that operations will continue throughout the remainder of the year without major interruptions. Apart from precious metals prices, the principal remaining risk to our forecasts relates to the extent to which sales differ from production and therefore the extent to which inventory (in the form of ounces produced but not yet delivered to Wheaton) either increases or decreases during the year.

Exhibit 8: Wheaton Precious Metals FY20 forecast, by quarter*

US$000s
(unless otherwise stated)

FY19

Q120

Q220

Q320

Q420e

(previous)

Q420e

(current)

FY20e
(current)

FY20e
(previous)

Silver production (koz)

22,562

6,704

3,650

6,028

5,926

5,952

22,334

21,555

Gold production (oz)

406,675

94,707

88,631

91,770

99,044

101,516

376,624

375,569

Palladium production (koz)

21,993

5,312

5,759

5,444

5,938

5,938

22,453

22,946

Silver sales (koz)

17,703

4,928

4,729

4,999

5,926

5,952

20,608

20,200

Gold sales (oz)

389,086

100,405

92,804

90,101

99,007

101,480

384,790

373,754

Palladium sales (oz)

20,681

4,938

4,976

5,546

5,914

5,914

21,374

21,004

Avg realised Ag price (US$/oz)

16.29

17.03

16.73

24.69

24.03

24.22

20.90

20.69

Avg realised Au price (US$/oz)

1,391

1,589

1,716

1,906

1,904

1,887

1,773

1,774

Avg realised Pd price (US$/oz)

1,542

2,298

1,917

2,182

2,375

2,431

2,216

2,199

Avg Ag cash cost (US$/oz)

5.02

4.50

5.23

5.89

5.51

5.97

5.43

5.19

Avg Au cash cost (US$/oz)

421

436

418

428

424

426

424

422

Avg Pd cash cost (US$/oz)

273

402

353

383

428

438

396

395

Sales

861,332

254,789

247,954

307,268

344,987

350,032

1,160,043

1,127,263

Cost of sales

Cost of sales, excluding depletion

258,559

66,908

65,211

70,119

77,215

81,361

283,598

271,134

Depletion

256,826

64,841

58,661

60,601

69,831

70,676

254,779

248,805

Total cost of sales

515,385

131,748

123,872

130,720

147,046

152,037

538,377

519,940

Earnings from operations

345,947

123,040

124,082

176,548

197,941

197,994

621,666

607,324

Expenses and other income

– General and administrative**

54,507

13,181

21,799

21,326

13,627

13,627

69,933

62,234

– Foreign exchange (gain)/loss

0

0

0

– Net interest paid/(received)

48,730

7,118

4,636

2,766

2,450

1,519

16,039

18,213

– Other (income)/expense

(217)

(1,861)

234

391

-1,236

-1,627

Total expenses and other income

103,020

18,438

26,669

24,483

16,076

15,145

84,735

78,819

Earnings before income taxes

242,927

104,602

97,413

152,065

181,865

182,849

536,930

528,505

Income tax expense/(recovery)

(9,066)

8,442

59

58

250

250

8,809

9,001

Marginal tax rate (%)

(3.7)

8.1

0.1

0.0

0.1

0.1

1.6

1.7

Net earnings

251,993

96,160

97,354

152,007

181,615

182,599

528,121

519,504

Ave. no. shares in issue (000s)

446,021

447,805

448,636

449,125

448,946

449,125

448,673

448,428

Basic EPS (US$)

0.56

0.215

0.217

0.338

0.405

0.407

1.177

1.158

Diluted EPS (US$)

0.56

0.214

0.216

0.336

0.404

0.404

1.175

1.156

DPS (US$)

0.36

0.10

0.10

0.10

0.13

0.12

0.42

0.43

Source: Wheaton Precious Metals, Edison Investment Research. Note: *Excluding impairments and exceptional items. **Forecasts now include stock-based compensation costs. Totals may not add up owing to rounding.

Readers should note that, whereas in Q320 we had assumed an inventory build in the order of 20,000oz gold equivalent, for the purposes of Q420 we are assuming production and sales are closely aligned for all metals as the possibility of a delayed inventory build in the gold division, in particular, is balanced by the traditional Q4 ‘flow through’ effect, whereby Wheaton’s partners prioritise concluding sales prior to the year-end. Within this context, our basic EPS forecast of US$1.177/share for FY20 (cf US$1.158/share previously) for FY20 is closely in line with the consensus forecast of US$1.14/share (source: Refinitiv, 10 November 2020) and towards the top end of the range of analysts’ expectations, of US$1.07–1.21 per share for the period:

Exhibit 9: WPM FY20 consensus EPS forecasts (US$/share)

Q120

Q220

Q320

Q420e

(previous)

Q420e

(current)

Sum Q1–Q420e

FY20e

Edison forecasts

0.215

0.217

0.338

0.405

0.407

1.177

1.177

Mean consensus

0.215

0.217

0.338

0.28

0.40

1.170

1.140

High consensus

0.215

0.217

0.338

0.36

0.44

1.210

1.210

Low consensus

0.215

0.217

0.338

0.22

0.35

1.120

1.070

Source: Refinitiv, Edison Investment Research. Note: As at 10 November 2020.

In the meantime, our ostensibly unchanged basic EPS forecast of US$1.81/share for FY21 (see Exhibit 12) compares with a consensus of US$1.65/share (cf US$1.43/share on 9 October and US$1.20/share on 13 August) within a range of US$1.19–2.25/share (source: Refinitiv, 10 November 2020). In this case, our estimate is, once again, predicated on an average gold price during the year of US$1,892/oz and an average silver price of US$30.78/oz, which assumes, among other things, the silver price will revert to the long-term correlation that it has exhibited with gold since the latter was demonetised in 1971. In the event that both metals instead remain at current levels, however (US$24.18/oz Ag and US$1,875/oz Au at the time of writing), our forecast for WPM’s EPS in FY21 moderates to US$1.50 per share and our forecast for its DPS to US$0.63/share.

Valuation

Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 29.5x current year basic underlying EPS, excluding impairments (vs 38.0x Edison or 40.8x Refinitiv consensus FY20e, currently – see Exhibit 11).

Exhibit 10: WPM’s historical current year P/E multiples, 2005–19

Source: Edison Investment Research

Applying this 29.5x multiple to our EPS forecast of US$1.81 in FY21 would ordinarily imply a potential value per share for WPM of US$53.37 or C$69.41 in that year. However, the graph above suggests that the current year multiple has been on a broadly upward trend since FY12 and we would therefore argue that a multiple in excess of 40x (as evidenced by the last two completed years) can be supported, notwithstanding the fact that these years were not subject to the extraordinary trials and tribulations being experienced in FY20. In this case, applying a 42.0x earnings multiple (the average of FY18 and FY19) to our updated EPS forecast of US$1.81 in FY21 implies a potential value per share for WPM of US$75.98 or C$98.80 in that year and/or for as long as precious metals prices remain at higher levels and/or the current coronavirus crisis persists. Even at such elevated levels, however, a multiple of over 42.0x would still leave WPM’s shares at no more than on a par with Franco-Nevada (see Exhibit 11).

Note that neither of these valuations include the value of 17.2m shares in First Majestic held by WPM (3.0m shares having been sold during Q320), with an immediate value (10 November) of C$253.8m, or US$0.42 per WPM share.

In the meantime, from a relative perspective, it is notable that WPM has a lower valuation than the average of its royalty/streaming ‘peers’ on all of six valuation measures if our forecasts are used or all but two if consensus forecasts are used. On an individual basis, it is cheaper than its peers on at least 66% (16 out of 24) of the valuation measures used in Exhibit 11 if our estimates are adopted or 58% (14 out of 24) of the same valuation measures if consensus forecasts are adopted. Among other things, this could possibly indicate the market has more conservative precious metal pricing expectations than we do.

Exhibit 11: WPM comparative valuation vs a sample of operating and royalty/streaming companies

P/E (x)

Yield (%)

P/CF (x)

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

Royalty companies

Franco-Nevada

56.1

42.3

0.7

0.7

36.9

28.0

Royal Gold

33.0

31.1

0.9

0.9

17.5

16.8

Sandstorm Gold

65.0

40.4

0.0

0.0

22.7

16.9

Osisko

57.1

28.3

1.3

1.3

22.9

14.5

Average

52.8

35.5

0.7

0.7

25.0

19.1

WPM (Edison forecasts)

37.7

24.5

0.9

1.6

23.6

17.9

WPM (consensus)

40.8

28.2

0.9

1.3

26.5

19.9

Source: Refinitiv, Edison Investment Research. Note: Peers priced on 10 November 2020.

Financials: Solid equity base

As at 30 September 2020, WPM had US$209.8m in cash cum-dividend (cf US$131.8m in Q220, US$126.7m in Q120 and US$104.0m in Q419) and US$487.5m of debt outstanding (cf US$640.5m in Q220, US$715.5m in Q120, US$874.5m in Q419 and US$1,017.1m at end-Q319) under its US$2bn revolving credit facility (which attracts an interest rate of Libor plus 120–220bp and now matures in February 2025), such that (including a modest US$3.7m in leases) it had net debt of US$281.4m (cf US$512.5m in Q220, US$592.7m in Q120, US$774.8m in Q419 and US$865.5m in Q319) overall, after US$228.1m of cash generated by operating activities during the quarter (cf US$151.8m in Q220, US$177.6m in Q120 and US$131.9m in Q419). Relative to the company’s balance sheet equity of US$5,551.3m, this level of net debt equates to a financial gearing (net debt/equity) ratio of just 5.1% (cf 9.5% in Q220, 11.3% in Q120, 14.5% in Q419 and 16.6% in Q319) and a leverage (net debt/[net debt+equity]) ratio of just 4.8% (cf 8.6% in Q220, 10.2% in Q120, 12.7% in Q419 and 14.2% in Q319). Self-evidently, such a level of debt is well within the tolerances required by its banking covenants that:

net debt should be no more than 0.75x tangible net worth; and

interest should be no less than 3x covered by EBITDA (we estimate that it was covered 11.3x in FY19 and that it will be covered 50.3x in FY20).

All other things being equal and subject to its making no further major acquisitions (which is unlikely in our view), on our current cash flow projections WPM will be net debt free early in FY21 (even after anticipated dividend payments).

At-the-market equity programme

WPM has filed an at-the-market equity programme that allows it to issue up to US$300m of common shares from treasury to the public, from time to time, at the prevailing market price or other prices through the Toronto Stock Exchange, the New York Stock Exchange or any other marketplace on which its shares are traded (eg the LSE). The volume and timing of distributions under the programme, if any, will be determined at the company’s sole discretion, subject to applicable regulatory limitations. WPM intends the proceeds from the programme, if any, will be available as one potential source of funding for stream acquisitions and/or other general corporate purposes, including the repayment of indebtedness. Owing to inherent uncertainties as to price and size, for the moment, at least, we have excluded from our forecasts the assumption of any such issues of shares under the programme.

Exhibit 12: Financial summary

US$'000s

2014

2015

2016

2017

2018

2019

2020e

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

620,176

648,687

891,557

843,215

794,012

861,332

1,160,043

1,496,086

1,467,667

Cost of Sales

(151,097)

(190,214)

(254,434)

(243,801)

(245,794)

(258,559)

(283,598)

(308,171)

(305,257)

Gross Profit

469,079

458,473

637,123

599,414

548,218

602,773

876,445

1,187,914

1,162,410

EBITDA

 

 

431,219

426,236

602,684

564,741

496,568

548,266

806,512

1,117,982

1,092,478

Operating Profit (before amort. and except.)

271,039

227,655

293,982

302,361

244,281

291,440

551,733

819,225

792,403

Intangible Amortisation

0

0

0

0

0

0

0

0

0

Exceptionals

(68,151)

(384,922)

(71,000)

(228,680)

245,715

(165,855)

103

0

0

Other

(1,830)

(4,076)

(4,982)

8,129

(5,826)

217

1,236

0

0

Operating Profit

201,058

(161,343)

218,000

81,810

484,170

125,802

553,072

819,225

792,403

Net Interest

(2,277)

(4,090)

(24,193)

(24,993)

(41,187)

(48,730)

(16,039)

(4,840)

1,155

Profit Before Tax (norm)

 

 

268,762

223,565

269,789

277,368

203,094

242,710

535,694

814,385

793,558

Profit Before Tax (FRS 3)

 

 

198,781

(165,433)

193,807

56,817

442,983

77,072

537,033

814,385

793,558

Tax

1,045

3,391

1,330

886

(15,868)

9,066

(13,768)

(1,000)

(1,000)

Profit After Tax (norm)

267,977

222,880

266,137

286,383

181,400

251,993

523,162

813,385

792,558

Profit After Tax (FRS 3)

199,826

(162,042)

195,137

57,703

427,115

86,138

523,265

813,385

792,558

Average Number of Shares Outstanding (m)

359.4

395.8

430.5

442.0

443.4

446.0

448.7

449.1

449.1

EPS - normalised (c)

 

 

75

53

62

63

48

56

117

181

176

EPS - normalised and fully diluted (c)

 

74

53

62

63

48

56

116

181

176

EPS - (IFRS) (c)

 

 

56

(-41)

45

13

96

19

117

181

176

Dividend per share (c)

26

20

21

33

36

36

42

70

73

Gross Margin (%)

75.6

70.7

71.5

71.1

69.0

70.0

75.6

79.4

79.2

EBITDA Margin (%)

69.5

65.7

67.6

67.0

62.5

63.7

69.5

74.7

74.4

Operating Margin (before GW and except.) (%)

43.7

35.1

33.0

35.9

30.8

33.8

47.6

54.8

54.0

BALANCE SHEET

Fixed Assets

 

 

4,309,270

5,526,335

6,025,227

5,579,898

6,390,342

6,123,255

5,869,570

5,608,814

5,346,739

Intangible Assets

4,270,971

5,494,244

5,948,443

5,454,106

6,196,187

5,768,883

5,515,198

5,254,442

4,992,367

Tangible Assets

5,427

12,315

12,163

30,060

29,402

44,615

44,615

44,615

44,615

Investments

32,872

19,776

64,621

95,732

164,753

309,757

309,757

309,757

309,757

Current Assets

 

 

338,493

105,876

128,092

103,415

79,704

154,752

764,284

1,527,071

2,252,131

Stocks

26,263

1,455

1,481

1,700

1,541

43,628

2,083

2,686

2,635

Debtors

4,132

1,124

2,316

3,194

2,396

7,138

3,178

4,099

4,021

Cash

308,098

103,297

124,295

98,521

75,767

103,986

759,023

1,520,286

2,245,476

Other

0

0

0

0

0

0

0

0

0

Current Liabilities

 

 

(16,171)

(12,568)

(19,057)

(12,143)

(28,841)

(64,700)

(80,877)

(83,301)

(83,014)

Creditors

(16,171)

(12,568)

(19,057)

(12,143)

(28,841)

(63,976)

(80,153)

(82,577)

(82,290)

Short term borrowings

0

0

0

0

0

(724)

(724)

(724)

(724)

Long Term Liabilities

 

 

(1,002,856)

(1,468,908)

(1,194,274)

(771,506)

(1,269,289)

(887,387)

(887,387)

(887,387)

(887,387)

Long term borrowings

(998,518)

(1,466,000)

(1,193,000)

(770,000)

(1,264,000)

(878,028)

(878,028)

(878,028)

(878,028)

Other long term liabilities

(4,338)

(2,908)

(1,274)

(1,506)

(5,289)

(9,359)

(9,359)

(9,359)

(9,359)

Net Assets

 

 

3,628,736

4,150,735

4,939,988

4,899,664

5,171,916

5,325,920

5,665,590

6,165,197

6,628,470

CASH FLOW

Operating Cash Flow

 

 

434,582

435,783

608,503

564,187

518,680

548,301

869,430

1,118,881

1,092,319

Net Interest

(2,277)

(4,090)

(24,193)

(24,993)

(41,187)

(41,242)

(16,039)

(4,840)

1,155

Tax

(204)

(208)

28

(326)

0

(5,380)

(8,809)

(1,000)

(1,000)

Capex

(146,249)

(1,791,275)

(805,472)

(19,633)

(861,406)

10,571

(1,094)

(38,000)

(38,000)

Acquisitions/disposals

0

0

0

0

0

0

0

0

0

Financing

6,819

761,824

595,140

1,236

1,279

37,198

0

0

0

Dividends

(79,775)

(68,593)

(78,708)

(121,934)

(132,915)

(129,986)

(188,452)

(313,778)

(329,285)

Net Cash Flow

212,896

(666,559)

295,298

398,537

(515,549)

419,462

655,037

761,263

725,189

Opening net debt/(cash)

 

 

902,313

690,420

1,362,703

1,068,705

671,479

1,188,233

774,766

119,729

(641,534)

HP finance leases initiated

0

0

0

0

0

0

0

0

0

Other

(1,003)

(5,724)

(1,300)

(1,311)

(1,205)

(5,995)

0

0

0

Closing net debt/(cash)

 

 

690,420

1,362,703

1,068,705

671,479

1,188,233

774,766

119,729

(641,534)

(1,366,724)

Source: Company sources, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Wheaton Precious Metals and prepared and issued by Edison, in consideration of a fee payable by Wheaton Precious Metals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

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280 High Holborn

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United Kingdom

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United States of America

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Level 4, Office 1205

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NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Wheaton Precious Metals and prepared and issued by Edison, in consideration of a fee payable by Wheaton Precious Metals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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