Exceeding guidance and expectations

Wheaton Precious Metals 25 March 2019 Update
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Wheaton Precious Metals

Exceeding guidance and expectations

Q418/FY18 results

Metals & mining

25 March 2019

Price

C$30.28

Market cap

C$13.5bn

C$1.3300/US$

Net debt (US$m) at 31 December 2018

1,188.2

Shares in issue

444.0m

Free float

100.0%

Code

WPM

Primary exchange

TSX

Secondary exchange

NYSE

Share price performance

%

1m

3m

12m

Abs

12.4

25.3

26.1

Rel (local)

10.7

7.5

21.7

52-week high/low

C$30.2

C$20.1

Business description

Wheaton Precious Metals is the world’s pre-eminent ostensibly precious metals streaming company, with c 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

Q119 dividend payment

18 April 2019

Q119 results

8 May 2019

Q219 results

8 August 2019

Q319 results

14 November 2019

Analyst

Charles Gibson

+44 (0)20 3077 5724

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

Wheaton Precious Metals’ (WPM’s) FY18 production outcome exceeded guidance for all of its products (namely gold, silver and palladium) to the point at which gold production and sales also achieved new records. Not only was gold production during the quarter ahead of guidance (which was expected), but it was also materially ahead of our prior expectations, driven by a 12.2% increase in production attributable from Salobo, and accounted for 64.3% of WPM sales. Of note was the fact that unit cash costs for both gold and silver declined compared with Q318.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/17

843.2

277.4

63

33

36.4

1.4

12/18

794.0

203.1

48

36

47.8

1.6

12/19e

875.0

234.5

53

36

43.6

1.6

12/20e

1,140.3

530.6

119

49

19.2

2.2

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

Plenty of growth still in the pipeline

In the near term, WPM will benefit from production increases at Penasquito, Constancia and Stillwater. In the longer term, it will benefit from the Salobo III expansion and the (now distinctly likely) development of Hudbay’s Rosemont mine in Arizona and perhaps even Pascua-Lama. Additional corporate opportunities include a number of development projects in the range US$100–300m, for which the initial upfront capital commitment from WPM would be immaterial.

Current guidance excludes Rosemont

WPM has provided production guidance to the market to the effect that output of precious metals is ‘forecast to be approximately 365,000 ounces of gold, 24.5 million ounces of silver and 22,000 ounces of palladium, resulting in gold equivalent production of approximately 690,000 ounces’ vs 688,120oz in FY18. For the five-year period ending in FY23, the company estimates that average annual gold equivalent production will amount to 750,000 ounces a year, which aligns closely with both our current and prior expectations with the exception of the fact that we are also anticipating a production contribution from Rosemont from FY22 (see page 6), which WPM excludes from its guidance.

Valuation: C$45.18 in FY20

Assuming no material purchases of additional streams (which we think unlikely), we now forecast a value per share for WPM of US$33.97, or C$45.18 in FY20 at (unchanged) average precious metals prices of US$25.95/oz Ag and US$1,482/oz Au (vs US$31.95, or C$42.77, previously). This valuation excludes the value of 20.9m shares in First Majestic held by WPM, with an immediate value of C$144.4m, or US$0.26 per WPM share. In the meantime, WPM’s shares are trading on near-term financial ratios that are cheaper than those of its royalty/streaming ‘peers’ in at least 95% of financial measures considered in Exhibit 7, and the averages of the miners themselves in 50% of the same measures, despite being associated with materially less operating and cost risk.

Investment summary

Wheaton’s FY18 production outcome exceeded guidance for all of its products (namely gold, silver and palladium) to the point at which gold production and sales also achieved new annual records. Not only was gold production ahead of guidance (which was expected), but it was also materially ahead of our prior expectation, driven by a 12.2% quarter-on-quarter increase in production attributable from Salobo, in contrast to our expectation of a moderation in output from already high levels. Sales of gold also amounted to 95.6% of gold production (relative to a prior long-term average of 91.0% of production), whereas silver sales fell to 80.0% of production (relative to a prior long-term average of 89.6%), with the result that sales of gold amounted to 64.3% of WPM sales, while sales of silver amounted to just 32.8% of the total (almost exactly the reverse of the situation as recently as Q415 when silver sales were dominant). With these two effects (effectively) offsetting one another, group sales for both the year and the quarter were within US$1.2m of our prior expectations. General and administrative expenses were higher than our expectations owing to accruals relating to performance share units (which we decline to forecast); however, this was almost exactly offset by improvements in the total cost of sales, including depletion. Net interest and taxes were also modestly better than our prior expectations, such that net earnings for both the quarter and the full year were US$2.5m ahead of our forecasts. A full analysis of both WPM’s Q4 results and its FY18 results in relation to our prior forecasts, on both an underlying and a headline basis, are provided in the table below:

Exhibit 1: Wheaton Precious Metals Q418/FY18 results vs Q318 and Q418e, by quarter*

US$000s
(unless otherwise stated)

Q318

Q418e
(underlying)

Q418e
(headline)

Q418

Q418 (underlying)

FY18e
(underlying)

FY18e
(headline)

FY18

FY18
(underlying)

Silver production (koz)

5,701

5,623

5,623

5,499

5,499

24,843

24,843

24,474

24,474

Gold production (oz)

101,552

89,516

89,516

107,567

107,567

356,017

356,017

373,239

373,239

Palladium production (koz)

8,817

5,200

5,200

5,869

5,869

14,017

14,017

14,686

14,686

Silver sales (koz)

5,018

5,627

5,627

4,400

4,400

22,960

22,960

21,733

21,733

Gold sales (oz)

89,242

89,914

89,914

102,813

102,813

336,269

336,269

349,168

349,168

Palladium sales (koz)

3,668

5,179

5,179

5,049

5,049

8,847

8,847

8,717

8,717

Avg realised Ag price (US$/oz)

14.80

14.32

14.32

14.66

14.66

15.66

15.66

15.81

15.81

Avg realised Au price (US$/oz)

1,210

1,213

1,213

1,229

1,229

1,261

1,261

1,264

1,264

Avg realised Pd price (US$/oz)

955

1,111

1,111

1,137

1,137

1,046

1,046

1,060

1,060

Avg Ag cash cost (US$/oz)

5.04

4.88

4.88

4.66

4.66

4.72

4.72

4.67

4.67

Avg Au cash cost (US$/oz)

418

415

415

409

409

410

410

409

409

Avg Pd cash cost (US$/oz)

169

200

200

205

205

187

187

190

190

Sales

185,769

195,403

195,403

196,591

196,591

792,824

792,824

794,012

794,012

Cost of sales

Cost of sales, excluding depletion

63,202

65,809

65,809

63,598

63,598

248,005

248,005

245,794

245,794

Depletion

64,684

71,579

71,579

67,844

67,844

256,022

256,022

252,287

252,287

Total cost of sales

127,886

137,388

137,388

131,442

131,442

504,027

504,027

498,081

498,081

Earnings from operations

57,883

58,015

58,015

65,149

65,149

288,797

288,797

295,931

295,931

Expenses and other income

- General and administrative**

8,779

8,750

15,250

21,142

16,597

39,258

45,758

51,650

47,105

- Foreign exchange (gain)/loss

0

144

144

(144)

(144)

- Net interest paid/(received)

12,877

14,970

18,470

17,060

12,743

39,097

42,597

41,187

36,870

- Other (income)/expense

1,301

1,302

581

4,524

4,524

5,826

2,640

Total expenses and other income

22,957

23,720

33,720

39,648

30,065

82,735

92,735

98,663

86,615

Earnings before income taxes

34,926

34,295

24,295

25,501

35,084

206,062

196,062

197,268

209,316

Income tax expense/(recovery)

905

20,000

18,672

(1,662)

-2,804

17,196

15,868

(4,466)

Marginal tax rate (%)

2.6

0.0

82.3

73.2

(4.7)

(1.4)

8.8

8.0

(2.1)

Net earnings

34,021

34,295

4,295

6,828

36,745

208,866

178,866

181,400

213,782

Avg no. shares in issue (000s)

443,634

443,634

443,634

444,057

444,057

443,297

443,297

443,407

443,407

Basic EPS (US$)

0.08

0.08

0.01

0.02

0.08

0.47

0.40

0.41

0.48

Diluted EPS (US$)

0.08

0.08

0.01

0.02

0.08

0.47

0.40

0.41

0.48

DPS (US$)

0.09

0.07

0.07

0.09

0.09

0.34

0.34

0.36

0.36

Source: Wheaton Precious Metals, Edison Investment Research. Note: *As reported by WPM, excluding exceptional items. **Quarterly forecasts exclude stock-based compensation costs.

From an operational perspective, the star performer of the quarter was Salobo. Other assets that outperformed our expectations included Stillwater, Neves-Corvo and Aljustrel, while Penasquito and Sudbury underperformed, relatively speaking. Not only was Penasquito affected by the ongoing commissioning of the Pyrite Leach Project (PLP) during the quarter (which was expected), but also by higher than expected ore hardness, which endured beyond Q3 and adversely affected mill throughput. Nevertheless, it achieved commercial production as of 31 December 2018 and grades are anticipated to improve in FY19 (from the main Penasco pit) at the same time as the PLP adds c 1Moz gold and 44Moz silver to production over the life of the mine and c 1.0–1.5Moz silver per year, by recovering 40% of the gold and 48% of the silver that currently report to tailings.

Ounces produced but not yet delivered – aka inventory

After recording a quarter that reflected long-term averages in Q3, sales of gold and silver relative to production diverged in Q4. Sales of gold, in particular, were just 4.4% less than production (vs a long-term average of 9.0%), while sales of silver were 20.0% less (vs a long-term average of 10.4%), as shown in the Exhibit below:

Exhibit 2: Over/(under) sale of silver and gold as a % of production, Q112–Q418

Source: Edison Investment Research, Wheaton Precious Metals

As at 31 December, payable ounces attributable to WPM produced but not yet delivered amounted to 3.3Moz silver and 77,500oz gold (vs 4.5Moz silver and 77,100oz gold in September, 4.3Moz silver and 75,600oz gold in June, and 4.8Moz silver and 84,400oz gold in March). This ‘inventory’ equates to 2.17 months and 2.60 months of forecast FY18 silver and gold production respectively (vs 2.17 months and 2.60 months in Q3, 2.12 months and 2.59 months in Q218, and 2.06 months and 2.72 months in Q1) and compares with WPM’s target level of two months of annualised production for silver, and two to three months of annualised gold and palladium production.

Exhibit 3: WPM ounces produced but not yet delivered, Q316–Q418 (months of production)

Source: Edison Investment Research, Wheaton Precious Metals

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 may therefore be considered to be a consequence of metallurgical recoveries in the plant.

Medium-term outlook

WPM has provided production guidance to the market to the effect that output of precious metals is ‘forecast to be approximately 365,000 ounces of gold, 24.5 million ounces of silver and 22,000 ounces of palladium, resulting in gold equivalent production of approximately 690,000 ounces.’ For the five-year period ending in FY23, the company estimates that average annual gold equivalent production will amount to 750,000 ounces per year. This aligns closely with both our current and prior expectations with the exception of the fact that we are also anticipating a production contribution from Rosemont (see below) from FY22.

Exhibit 4: WPM precious metals production – Edison forecasts vs guidance

FY19e

FY20e

FY21e

FY22e*

FY23e*

Previous Edison forecast

Silver production (Moz)

22.5

23.0

21.3

23.0

Gold production (koz)

372

348

335

344

Cobalt production (klbs)

0

0

2,100

2,100

Palladium production (koz)

27

27

27

27

Current Edison forecast

Silver production (Moz)

23.2

23.0

21.3

23.0

21.1

Gold production (koz)

372

347

325

344

356

Cobalt production (klbs)

2,100

2,100

2,100

Palladium production (koz)

22

27

27

27

30

Gold equivalent (koz)

680

770

755

812

793

Company guidance

Silver production (Moz)

24.5

Gold production (koz)

365

Cobalt production (klbs)

0

Palladium production (koz)

22

Gold equivalent (koz)

690

765

765

765

765

Previous company guidance

Silver production (Moz)

25.0

25.0

25.0

25.0

Gold production (koz)

385

385

385

385

Cobalt production (klbs)

0

0

2,100

2,100

Palladium production (koz)

27

27

27

27

Source: Company guidance, Edison Investment Research forecasts. Note: *Edison forecast includes a contribution from Rosemont in these years.

In the immediate future, silver output from Penasquito attributable to WPM is expected to recover back to its steady-state level of 7Moz as the Chile Colorado pit contributes to mill feed and grades improve once again with mine sequencing. It will also benefit from the development of the Pyrite Leach Project, which will add an additional 1.0–1.5Moz of silver attributable to WPM per year. At the same time, mining at Constancia will start at the Pampacancha pit in FY19, which hosts significantly higher gold grades than those mined hitherto and of which WPM will now be entitled to an increased portion. The company also expects palladium and gold production at Stillwater to increase as the Blitz project ramps up to full capacity in FY21.

Longer-term outlook

Salobo

On 24 October, 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, if throughput is expanded above 28Mtpa within a predetermined period and, depending on the grade of the material processed, WPM will be required to make an additional payment to Vale, which WPM estimates to be in the range US$550–650m in FY23, in return for which it is entitled to its full 75% attributable share of gold production. As such, the expansion is equivalent to WPM buying a 37.5% stream for US$603m (Edison estimate), which compares to its purchase of a 25% stream in August 2017 for an estimated consideration of US$820.8m (including renegotiated warrants and cost inflation terms) and the US$900m it paid in March 2015 (when the gold price averaged US$1,179/oz) for another 25% gold stream from Salobo (see our note, Silver Wheaton: Going for gold, published on 30 August 2016).

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 870Moz in FY17 that is produced as a by-product of either gold or base metal mines (ie approximately 305Moz pa silver vs WPM’s production of 28.5Moz Ag in FY17). 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 far from saturated or mature.

As a consequence, WPM reports that it is busy on the corporate development front. It has the potential for up to six deals with a value in the range US$100–300m, thus fully financeable via the c US$0.81bn available to WPM under its revolving credit facility as at end-FY18.

While it is difficult, or impossible, to predict potential future stream acquisition targets with any degree of certainty, it is perhaps 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; and

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

One further, major project rapidly moving closer to development is the Rosemont copper project in Arizona, after its operator, Hudbay, announced that it had received a Section 404 Water Permit from the US Army Corps of Engineers and that it expects to receive Rosemont’s Mine Plan of Operations from the US Forest Service ‘shortly’. The Section 404 permit regulates the discharge of fill material into waterways according to the Clean Water Act and is effectively the final material administrative step before the mine can be developed. The proposed mine is located near a number of large porphyry-type producing copper mines and is expected to be one of the largest 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 will be c 2.7Moz Ag pa and c 16,100oz Au pa and we estimate it will contribute an average c US$0.135 per share to WPM’s basic EPS in its first nine years of operations from FY22–30 for an upfront payment of US$230m (equivalent to US$0.52/share) in two instalments (vs three previously) of US$50m and US$180m. Note that, for the purposes of our financial modelling, we have assumed that these instalments will be paid from WPM to Hudbay in FY20 and FY21, respectively.

Other matters

General and administrative expenses

WPM has forecast non-stock general and administrative expenses for FY19 in the range US$36–38m, or US$9.0–9.5m per quarter (vs a comparable forecast of US$34–36m, or US$8.5–9.0m per quarter, for FY18), including all employee-related expenses, charitable contributions etc. Investors should note that our financial forecasts in Exhibits 5 and 8 exclude stock-based compensation costs.

FY19 by quarter

Taking into account the aforementioned considerations, our updated forecasts for FY19 for WPM, by quarter, are now as shown below:

Exhibit 5: Wheaton Precious Metals FY18 forecast, by quarter*

US$000s
(unless otherwise stated)

Q118

Q218

Q318

Q418

Q119

Q219

Q319

Q419

FY19

FY19

(previous)

Silver production (koz)

7,428

6,091

5,701

5,499

5,807

5,807

5,807

5,807

23,228

22,525

Gold production (oz)

79,657

85,292

101,552

107,567

93,011

93,011

93,011

93,011

372,043

372,043

Palladium production (oz)

0

0

8,817

5,869

5,500

5,500

5,500

5,500

22,000

27,000

Silver sales (koz)

6,343

5,972

5,018

4,400

5,807

5,807

5,807

5,807

23,228

22,525

Gold sales (oz)

69,973

87,140

89,242

102,813

92,975

92,975

92,975

92,975

371,898

371,898

Palladium sales (oz)

0

0

3,668

5,049

5,478

5,478

5,478

5,478

21,912

27,000

Avg realised Ag price (US$/oz)

16.73

16.52

14.80

14.66

15.59

15.59

15.59

15.59

15.59

15.30

Avg realised Au price (US$/oz)

1,330

1,305

1,210

1,229

1,304

1,318

1,263

1,263

1,287

1,263

Avg realised Pd price (US$/oz)

N/A

N/A

955

1,137

1,441

1,607

1,607

1,607

1,565

1,128

Avg Ag cash cost (US$/oz)

4.49

4.54

5.04

4.66

4.76

4.76

4.76

4.76

4.76

4.43

Avg Au cash cost (US$/oz)

399

407

418

409

420

420

420

420

420

424

Avg Pd cash cost (US$/oz)

N/A

N/A

169

205

259

289

289

289

281

203

Sales

199,252

212,400

185,769

196,591

219,665

221,876

216,735

216,735

875,012

844,565

Cost of sales

Cost of sales, excluding depletion

56,414

62,580

63,202

63,598

68,141

68,314

68,278

68,278

273,013

262,755

Depletion

57,265

62,494

64,684

67,844

70,615

70,615

70,615

70,615

282,458

276,713

Total cost of sales

113,679

125,074

127,886

131,442

138,756

138,929

138,893

138,893

555,471

539,467

Earnings from operations

85,573

87,326

57,883

65,149

80,909

82,948

77,842

77,842

319,541

305,098

Expenses and other income

- General and administrative**

9,757

11,972

8,779

21,142

9,250

9,250

9,250

9,250

37,000

45,758

- Foreign exchange (gain)/loss

(170)

26

0

144

0

- Net interest paid/(received)

5,591

5,659

12,877

17,060

12,009

12,009

12,009

12,009

48,034

50,522

- Other (income)/expense

2,757

466

1,301

1,302

0

Total expenses and other income

17,935

18,123

22,957

39,648

21,259

21,259

21,259

21,259

85,034

96,280

Earnings before income taxes

67,638

69,203

34,926

25,501

59,651

61,689

56,583

56,583

234,507

208,818

Income tax expense/(recovery)

(485)

(3,224)

905

18,672

250

250

250

250

1,000

1,000

Marginal tax rate (%)

(0.7)

(4.7)

2.6

73.2

0.4

0.4

0.4

0.4

0.4

0.0

Net earnings

68,123

72,427

34,021

6,828

59,401

61,439

56,333

56,333

233,507

207,818

Ave. no. shares in issue (000s)

442,728

443,191

443,634

444,057

444,057

444,057

444,057

444,057

444,057

443,634

Basic EPS (US$)

0.15

0.16

0.08

0.02

0.13

0.14

0.13

0.13

0.53

0.47

Diluted EPS (US$)

0.15

0.16

0.08

0.02

0.13

0.14

0.13

0.13

0.53

0.47

DPS (US$)

0.09

0.09

0.09

0.09

0.09

0.09

0.09

0.09

0.36

0.32

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

Our forecast basic EPS of US$0.53/share for FY19 compares with a consensus forecast of US$0.52/share (source: Refinitiv, 22 March 2019), within a range of US$0.37–0.72 per share.

Our US$1.19 basic EPS forecast for FY20 (see Exhibit 8) compares with a consensus of US$0.63 (source: Refinitiv, 22 March), within a range of US$0.37–0.81. However, our estimate is predicated on an average gold price during the year of US$1,482/oz and an average silver price of US$25.95/oz. These are 12.4% and 66.5% above current spot prices, respectively, but are consistent with our historical practice and, in particular, assume that silver will, at some point, revert to the long-term correlation that it has exhibited with gold since the latter was demonetised in 1971. In the event that precious metals’ prices remain at current levels (US$1,318/oz Au and US$15.59/oz Ag at the time of writing), we forecast that WPM instead earns US$0.56 per share in FY20.

Valuation

Excluding FY04 (part-year), WPM’s shares have historically traded on a contemporary average P/E multiple of 28.5x current year basic underlying EPS, ie excluding impairments (vs 43.6x Edison or 46.3x Refinitiv consensus FY19e, currently – see Exhibit 7).

Exhibit 6: WPM’s historical current year P/E multiples

Source: Edison Investment Research

Applying this multiple to our updated EPS forecast of US$1.19 in FY20 (vs US$1.18 previously) implies a potential value per share for WPM of US$33.97, or C$45.18 in that year (vs US$32.48, or C$42.97 previously). Note that this valuation excludes the value of 20.9m shares in First Majestic currently held by WPM, with an immediate value of C$144.4m, or US$0.26 per WPM share (priced as at 15 November).

In the meantime, from a relative perspective, it is notable that WPM is cheaper than its royalty/streaming ‘peers’ in at least 95% (23 out of 24) of the valuation measures used in Exhibit 7 and on multiples that are cheaper even than the miners themselves in at least 35% (30 out of 84) of the same valuation measures (irrespective of whether Edison or consensus forecasts are used), despite being associated with materially less operational and cost risk (since WPM’s costs are contractually predetermined).

Exhibit 7: WPM comparative valuation vs a sample of operating and royalty/streaming companies

P/E (x)

Yield (%)

P/VS (x)

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

Royalty companies

Franco-Nevada

57.6

49.7

1.3

1.3

25.5

22.8

Royal Gold

57.2

41.6

1.1

1.1

20.6

19.0

Sandstorm Gold

67.5

60.0

0.0

0.0

20.9

20.0

Osisko

85.5

61.2

1.3

1.3

24.3

21.8

Average

67.0

53.1

0.9

1.0

22.8

20.9

WPM (Edison forecasts)

43.6

19.2

1.6

2.2

19.5

12.7

WPM (consensus)

46.3

38.3

1.4

1.6

20.8

18.9

Gold producers

Barrick

34.4

28.2

1.1

1.0

9.0

8.0

Newmont

28.7

27.1

1.6

1.6

8.7

8.9

Goldcorp

36.4

23.5

0.7

0.7

7.0

5.7

Newcrest

25.4

20.0

1.1

1.2

11.1

9.3

Kinross

31.9

25.0

0.0

0.0

4.4

4.2

Agnico-Eagle

71.0

37.8

1.0

1.0

13.5

10.4

Eldorado

37.3

8.5

0.1

0.4

4.1

2.5

Yamana

26.3

16.7

0.8

0.8

4.6

3.8

Average

36.4

23.4

0.8

0.8

7.8

6.6

Silver producers

Hecla

N/A

41.6

0.4

0.4

9.2

6.4

Pan American

40.5

19.2

1.1

1.1

7.9

5.4

Coeur Mining

N/A

29.1

0.0

0.0

6.4

4.8

First Majestic

N/A

124.1

0.0

0.0

13.4

9.5

Hocschild

26.3

21.1

1.5

1.6

5.6

5.5

Fresnillo

21.9

17.8

2.4

2.8

10.4

9.8

Average

64.8

42.1

0.9

1.0

8.8

6.9

Source: Refinitiv, Edison Investment Research. Note: Peers priced on 22 March 2019.

Financials: Solid equity base

As at 31 December 2018, WPM had US$75.8m in cash and US$1,264.0m of debt outstanding under its US$2bn revolving credit facility (which attracts an interest rate of Libor plus 120–220bp and matures in February 2024 – now a year later than previously), such that it had net debt of US$1,188.2m overall, after US$108.5m (US$0.24/share) of cash inflows from operating activities during the quarter. Relative to the company’s Q4 balance sheet equity of US$5,171.9m, this level of net debt equated to a financial gearing (net debt/equity) ratio of 23.0% and a leverage (net debt/[net debt+equity]) ratio of 18.7%. It also compares with a net debt position of US$1,261.1m as at end-September, US$863.8m as at end-June and US$547.4m as at end-March 2018. 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 12.1x in FY18).

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 in early 2021.

Exhibit 8: Financial summary

US$'000s

2014

2015

2016

2017

2018

2019e

2020e

Dec

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

620,176

648,687

891,557

843,215

794,012

875,012

1,140,345

Cost of Sales

(151,097)

(190,214)

(254,434)

(243,801)

(245,794)

(273,013)

(268,026)

Gross Profit

469,079

458,473

637,123

599,414

548,218

601,999

872,319

EBITDA

 

 

431,219

426,236

602,684

564,741

496,568

564,999

835,319

Operating Profit (before amort. and except.)

271,039

227,655

293,982

302,361

244,281

282,541

563,902

Intangible Amortisation

0

0

0

0

0

0

0

Exceptionals

(68,151)

(384,922)

(71,000)

(228,680)

245,715

0

0

Other

(1,830)

(4,076)

(4,982)

8,129

(5,826)

0

0

Operating Profit

201,058

(161,343)

218,000

81,810

484,170

282,541

563,902

Net Interest

(2,277)

(4,090)

(24,193)

(24,993)

(41,187)

(48,034)

(33,307)

Profit Before Tax (norm)

 

 

268,762

223,565

269,789

277,368

203,094

234,507

530,595

Profit Before Tax (FRS 3)

 

 

198,781

(165,433)

193,807

56,817

442,983

234,507

530,595

Tax

1,045

3,391

1,330

886

(15,868)

(1,000)

(1,000)

Profit After Tax (norm)

267,977

222,880

266,137

286,383

181,400

233,507

529,595

Profit After Tax (FRS 3)

199,826

(162,042)

195,137

57,703

427,115

233,507

529,595

Average Number of Shares Outstanding (m)

359.4

395.8

430.5

442.0

443.4

444.1

444.1

EPS - normalised (c)

 

 

75

53

62

63

48

52.6

119.3

EPS - normalised and fully diluted (c)

 

74

53

62

63

48

53

119

EPS - (IFRS) (c)

 

 

56

(-41)

45

13

96

53

119

Dividend per share (c)

26

20

21

33

36

36

49

Gross Margin (%)

75.6

70.7

71.5

71.1

69.0

68.8

76.5

EBITDA Margin (%)

69.5

65.7

67.6

67.0

62.5

64.6

73.3

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

43.7

35.1

33.0

35.9

30.8

32.3

49.5

BALANCE SHEET

Fixed Assets

 

 

4,309,270

5,526,335

6,025,227

5,579,898

6,390,342

6,109,884

5,617,108

Intangible Assets

4,270,971

5,494,244

5,948,443

5,454,106

6,196,187

5,915,729

5,422,953

Tangible Assets

5,427

12,315

12,163

30,060

29,402

29,402

29,402

Investments

32,872

19,776

64,621

95,732

164,753

164,753

164,753

Current Assets

 

 

338,493

105,876

128,092

103,415

79,704

444,043

1,246,852

Stocks

26,263

1,455

1,481

1,700

1,541

1,571

2,047

Debtors

4,132

1,124

2,316

3,194

2,396

2,397

3,124

Cash

308,098

103,297

124,295

98,521

75,767

440,075

1,241,680

Other

0

0

0

0

0

0

0

Current Liabilities

 

 

(16,171)

(12,568)

(19,057)

(12,143)

(28,841)

(35,885)

(35,393)

Creditors

(16,171)

(12,568)

(19,057)

(12,143)

(28,841)

(35,885)

(35,393)

Short term borrowings

0

0

0

0

0

0

0

Long Term Liabilities

 

 

(1,002,856)

(1,468,908)

(1,194,274)

(771,506)

(1,269,289)

(1,269,289)

(1,269,289)

Long term borrowings

(998,518)

(1,466,000)

(1,193,000)

(770,000)

(1,264,000)

(1,264,000)

(1,264,000)

Other long term liabilities

(4,338)

(2,908)

(1,274)

(1,506)

(5,289)

(5,289)

(5,289)

Net Assets

 

 

3,628,736

4,150,735

4,939,988

4,899,664

5,171,916

5,248,752

5,559,278

CASH FLOW

Operating Cash Flow

 

 

434,582

435,783

608,503

564,187

518,680

572,012

833,623

Net Interest

(2,277)

(4,090)

(24,193)

(24,993)

(41,187)

(48,034)

(33,307)

Tax

(204)

(208)

28

(326)

0

(1,000)

(1,000)

Capex

(146,249)

(1,791,275)

(805,472)

(19,633)

(861,406)

(2,000)

221,359

Acquisitions/disposals

0

0

0

0

0

0

0

Financing

6,819

761,824

595,140

1,236

1,279

0

0

Dividends

(79,775)

(68,593)

(78,708)

(121,934)

(132,915)

(156,670)

(219,070)

Net Cash Flow

212,896

(666,559)

295,298

398,537

(515,549)

364,308

801,605

Opening net debt/(cash)

 

 

902,313

690,420

1,362,703

1,068,705

671,479

1,188,233

823,925

HP finance leases initiated

0

0

0

0

0

0

0

Other

(1,003)

(5,724)

(1,300)

(1,311)

(1,205)

(0)

0

Closing net debt/(cash)

 

 

690,420

1,362,703

1,068,705

671,479

1,188,233

823,925

22,320

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 Edison analyst 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.

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Frankfurt +49 (0)69 78 8076 960

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New York +1 646 653 7026

1,185 Avenue of the Americas

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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

1,185 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

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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

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

1,185 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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