Forging ahead

Wheaton Precious Metals 12 May 2020 Update
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Wheaton Precious Metals

Forging ahead

Q120 results

Metals & mining

12 May 2020

Price

C$59.48

Market cap

C$27bn

C$1.4081/US$

Net debt (US$m) at 31 March 2020*

588.8

*Excluding US$3.9m lease liabilities

Shares in issue

448.3m

Free float

100%

Code

WPM

Primary exchange

TSX

Secondary exchange

NYSE

Share price performance

%

1m

3m

12m

Abs

  33.7

52.8

121.1

Rel (local)

25.4

79.9

138.6

52-week high/low

C$61.2

C$26.6

Business description

Wheaton Precious Metals is the world’s pre-eminent ostensibly precious metals streaming company, with 29 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

Q220 results

August 2020

Q320 results

November 2020

Analyst

Charles Gibson

+44 (0)20 3077 5724

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

After an exceptional Q419, WPM’s operational performance moderated in Q120, but was nevertheless robust within the broader macro-environment with underlying net earnings during the quarter within 2.6% of our prior forecasts. They would have exceeded our forecasts (by 6.0%) had it not been for a rare (albeit non-cash) tax charge relating to a reversal of deferred income tax assets. In the wake of Q120 results, we have reduced our precious metals price expectations for the balance of FY20 fractionally and our production expectations by 5koz AuE (ie <1%). However, these changes are more than balanced by a lower anticipated interest charge for the remainder of the year, such that our adjusted EPS forecast for FY20 has increased by 1.9c, from 84c to 85.9c. Note that, on its current trajectory, there is a real possibility that WPM could become net debt free in a year’s time, which could presage a change in its dividend policy.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/18

794.0

203.1

48

36

88.0

0.9

12/19

861.3

242.7

56

36

75.4

0.9

12/20e

974.3

392.2

86

42

49.2

1.0

12/21e

1,175.7

503.7

112

53

37.6

1.2

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

Swings and roundabouts

Of WPM’s eight major mines, Penasquito recorded a notably exceptional production performance, with output increasing by 40.3% or 763koz Ag compared with Q419 – 28.9% above both our expectations and the operator’s long-term guidance – largely as a result of mining higher grades. Higher grades also contributed to a better than expected production performance at Antamina, although this mine was subsequently furloughed by its operator, Glencore, in mid-April. As at the time of writing, six of WPM’s partners’ mines (accounting for c 36% of gold equivalent production) are in furlough. Edison’s forecasts assume that they will remain so for the balance of Q2, before emerging from lockdown in Q320.

Valuation: Potentially C$66.32 per share in FY21

Under normal circumstances, and assuming no material purchases of additional streams in the foreseeable future (which we think unlikely), we would ordinarily forecast a value per share for WPM of US$33.08, or C$46.59, in FY21. However, we believe that WPM can support a premium valuation of US$47.10, or C$66.32 per share in the current environment of higher precious metals prices and simultaneously strong demand for their derivative assets as safe haven investments. Note that both of these valuations exclude the value of 20.2m shares in First Majestic held by WPM, with an immediate value of C$227.1m, or US$0.36 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 58% of financial measures considered in Exhibit 11, and the miners themselves in at least 23% of the same measures, regardless of whether Edison or consensus forecasts are used and despite being associated with materially less operating and cost risk.

Q120 results

After a strong Q419, in which all but one of its major mines either met or exceeded Edison’s production expectations, WPM’s operational performance moderated in Q120, with seven assets (out of 15 currently producing operations) outperforming our production expectations (largely in its silver division) approximately balanced by six assets underperforming (largely in the gold division). While auguring well for the future – particularly with respect to the silver division – sales, in general, struggled to keep up with production (especially in the silver division), albeit with the notable exception of Salobo, which once again recorded a material (12,369oz, or 19.8%) Q1 over-sale of metal not dissimilar to the over-sales that it recorded in Q119 and Q218. From a financial perspective, total sales were US$10.0m less than our expectations, although this was more than offset by a US$12.6m variance to the good in the total cost of sales (see Exhibit 1). Unusually, this overall positive variance to our estimates until the PBT level was itself offset by a (rare) tax charge in the income statement relating to a reversal of deferred income tax assets (which therefore had no effect on cash flows). Underlying net earnings during the quarter were within US$2.6m (or 2.6%) of our prior forecasts. A full analysis of WPM’s Q120 income statement relative to both Q419 and our prior expectations is as follows:

Exhibit 1: Wheaton Precious Metals underlying Q419 results vs Q319 and Q419e, by quarter*

US$000s
(unless otherwise stated)

Q119

Q219

Q319

Q419

Q120e

Q120

Change **
(%)

Variance ***
(%)

Variance ***
(units)

Silver production (koz)

5,614

4,834

6,095

5,962

5,851

6,704

12.4

14.6

853

Gold production (oz)

93,585

100,577

104,175

107,225

96,410

94,707

-11.7

-1.8

-1,703

Palladium production (koz)

4,729

5,736

5,471

6,057

5,938

5,312

-12.3

-10.5

-626

 

 

 

Silver sales (koz)

4,294

4,241

4,484

4,684

5,851

4,928

5.2

-15.8

-923

Gold sales (oz)

115,020

90,077

94,766

89,223

96,373

100,405

12.5

4.2

4,032

Palladium sales (koz)

5,189

5,273

4,907

5,312

5,914

4,938

-7.0

-16.5

-976

 

 

 

Avg realised Ag price (US$/oz)

15.64

14.93

17.09

17.36

16.89

17.03

-1.9

0.8

0.14

Avg realised Au price (US$/oz)

1,308

1,320

1,471

1,483

1,581

1,589

7.1

0.5

8

Avg realised Pd price (US$/oz)

1,443

1,381

1,535

1,804

2,296

2,298

27.4

0.1

2

 

 

 

Avg Ag cash cost (US$/oz)

4.64

5.14

5.16

5.13

5.15

4.50

-12.3

-12.6

-0.65

Avg Au cash cost (US$/oz)

417

420

424

426

425

436

2.3

2.6

11

Avg Pd cash cost (US$/oz)

254

247

271

321

413

402

25.2

-2.7

-11

 

 

 

Sales

225,049

189,466

223,595

223,222

264,771

254,789

14.1

-3.8

-9,982

Cost of sales

 

 

 

Cost of sales, excluding depletion

69,214

60,957

64,624

63,764

73,550

66,908

4.9

-9.0

-6,642

Depletion

68,381

61,404

63,396

63,645

70,808

64,841

1.9

-8.4

-5,967

Total cost of sales

137,595

122,361

128,020

127,408

144,358

131,748

3.4

-8.7

-12,610

Earnings from operations

87,454

67,105

95,575

95,814

120,412

123,040

28.4

2.2

2,628

Expenses and other income

 

 

 

– General and administrative**

16,535

12,249

14,028

11,695

13,627

13,181

12.7

-3.3

-446

– Foreign exchange (gain)/loss

0

0

 

 

0

– Net interest paid/(received)

13,946

13,306

11,871

9,607

7,830

7,118

-25.9

-9.1

-712

– Other (income)/expense

(266)

(500)

(265)

814

-1,861

-328.6

N/A

-1,861

Total expenses and other income

30,215

25,055

25,634

22,116

21,457

18,438

-16.6

-14.1

-3,019

Earnings before income taxes

57,239

42,050

69,941

73,698

98,955

104,602

41.9

5.7

5,647

Income tax expense/(recovery)

(110)

(2,758)

(2,751)

(3,447)

250

8,442

-344.9

3,276.8

8,192

Marginal tax rate (%)

(0.2)

(6.6)

(3.9)

(4.7)

0.3

8.1

-272.3

2,600.0

7.8

Net earnings

57,349

44,808

72,692

77,145

98,705

96,160

24.6

-2.6

-2,545

Average no. shares in issue (000s)

444,389

445,769

446,802

446,802

447,500

447,805

0.2

0.1

305

Basic EPS (US$)

0.13

0.10

0.16

0.17

0.22

0.215

26.5

-2.3

-0.005

Diluted EPS (US$)

0.13

0.10

0.16

0.17

0.22

0.214

25.9

-2.7

-0.006

DPS (US$)

0.09

0.09

0.09

0.09

0.10

0.10

11.1

0.0

0.000

Source: Wheaton Precious Metals, Edison Investment Research. Note: *As reported by WPM, excluding exceptional items. **Q120 vs Q419. ***Q120 actual vs Q120 estimate.

Within the context of the above results, it was notable that our all-in forecast for general and administrative costs was within 3.3% of the actual outcome, suggesting both that central costs for the full year are trending towards the same level as FY19 (given that our quarterly forecasts are now based on the average level of quarterly costs in FY19) and that non-stock G&A expenses are trending below the company’s guided range of US$40–43m (or US$10.0–10.75m per quarter) for the full year.

Exhibit 2: WPM FY19 general and administrative expense (US$000s)

Item

Q120

Q419

FY19

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

4,135

7,434

31,642

Other (inc. depreciation, donations and professional fees)

4,266

Sub-total

8,401

7,434

31,642

PSU* accrual

3,277

2,830

17,174

Equity settled stock-based compensation

1,503

1,432

5,691

Total general & administrative

13,181

11,696

54,507

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

Of WPM’s eight major mines, Penasquito recorded a notably exceptional production performance, with output increasing by 40.3% or 763koz Ag compared with Q419 – 28.9% above both our expectations and the operator’s long-term guidance including the pyrite leach project – largely as a result of mining higher grades as the Chile Colorado pit contributes to mill feed and grades improve once again at the main Penasco pit with mine sequencing through until 2021. As noted previously, Salobo recorded a notably strong sales performance. In addition, higher grades contributed to a better than expected production performance (relative to our expectations) also at Antamina, although this mine was subsequently furloughed by its operator, Glencore, in mid-April and (as of 27 April) the date of its restart is still reported to be ‘uncertain’. By contrast, lower grades were encountered at Sudbury, Constancia and San Dimas, although, in the case of the latter, these were more than offset by higher throughput to result in a positive production outcome.

Exhibit 3: Penasquito production attributable to WPM (koz Ag), Q112–Q419

Source: Edison Investment Research, Wheaton Precious Metals.

Ounces produced but not yet delivered, aka inventory

Since Q112, the average level of silver under-sale relative to production has been 12.4%, although this is also accompanied by a degree of volatility, with the standard deviation of under-sales amounting to 9.5 percentage points around the mean. In Q120 therefore, the under-sale for WPM’s silver division was more than one standard deviation beyond the mean, registering a 26.5% (or 1.8Moz) under-sale relative to production – the largest since Q312 – largely accounted for by WPM’s ‘other’ silver assets. In contrast, WPM’s gold division, which historically records a 7.7% average under-sale of metal relative to production (± a larger standard deviation of 19.6 percentage points about the mean) recorded a 6.0% over-sale in Q120, albeit this result was within the normal historical range:

Exhibit 4: Over(/under) sale of silver and gold as a % of production, Q112–Q120

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

As at 31 March, payable ounces attributable to WPM produced but not yet delivered to WPM amounted to 5.3Moz silver and 88,431oz gold (vs 4.5Moz silver and a fractionally restated 98,475oz gold at end-December). This ‘inventory’ equates to 3.17 and 2.78 months of FY20 forecast silver and gold production, respectively, and compares to WPM’s target level of two months of silver and two to three months of gold and palladium production, respectively.

Exhibit 5: WPM ounces produced but not yet delivered, Q316–Q120 (months of production)

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

All other things being equal therefore, we would expect the level of silver ‘inventory’ at WPM, in particular, to reduce to within WPM’s target range in the near future, in all probability as a result of a near-term over-sale of silver relative to production. 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). In response to COVID-19 however, on 1 April, WPM suspended its production guidance. At the time, five operating partner mines had been (or were in the process of being) furloughed, namely Constancia, Yauliyacu, Penasquito, San Dimas and Los Filos (plus Voisey’s Bay, although WPM is not scheduled to take delivery of any metal from Voisey’s until FY21). Since then, operations at Antamina have also been suspended.

For the five-year period ending in FY24, the company’s guidance was for average annual gold equivalent production of 750,000oz pa. These compare with WPM’s and Edison’s current and previous guidance/forecasts, as follows:

Exhibit 6: WPM precious metals production – Edison forecasts vs guidance

FY19

FY20e

FY21e

FY22e

FY23e**

FY24e

Previous Edison forecast

Silver production (Moz)

21.7

20.3

20.7

20.5

17.4

17.3

Gold production (koz)

394

381

400

389

380

325

Cobalt production (klb)

0

0

2,100

2,100

2,100

2,814

Palladium production (koz)

21

24

27

27

30

30

Gold equivalent (koz)

605

781

764

713

671

Current Edison forecast

Silver production (Moz)

20.2

20.7

20.5

17.4

17.3

Gold production (koz)

381

400

389

380

325

Cobalt production (klb)

0

2,100

2,100

2,100

2,814

Palladium production (koz)

23.125

27

27

30

30

Gold equivalent (koz)

600

781

764

713

671

Withdrawn WPM guidance

Silver production (Moz)

*22.6

22.0–23.5

Gold production (koz)

*406.7

390–410

Cobalt production (klb)

*0

0

Palladium production (koz)

*22.0

23.0–24.5

Gold equivalent (koz)

685–725

750

750

750

750

Source: Wheaton Precious Metals prior guidance, Edison Investment Research forecasts. Note: *Actual; **Edison forecast includes a contribution from Salobo III in FY23e.

With respect to Edison’s forecasts, we believe that there is upside potential to our gold production forecast at Minto, in particular, and downside risk to the silver production forecast at Constancia owing to mine sequencing ahead of its (delayed) development of the high-grade Pampacancha satellite deposit (see below).

Otherwise, 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 113x and Edison assumes that the ratio will revert to closer its long-term average of 61x from FY21. Note that, at WPM’s prices, Edison’s gold equivalent production forecast in FY20 is 654koz, rather than 600koz (which assumes a gold price of US$1,691/oz for the balance of the year and a silver price of US$15.03/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 H220 in order to further improve recoveries and reduce operating costs. Production of palladium and gold at Stillwater mine will similarly increase into FY21 under the influence of the Fill-the-Mill and Blitz projects.

By contrast, production is expected to remain at lower levels at Constancia, 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 for the Pampacancha deposit and expects to begin mining ore from the satellite deposit in late FY20 (all other things being equal). Nevertheless, in lieu of the delay, WPM is entitled to receive an additional 2,005oz gold per quarter from Hudbay during FY20 relative to its precious metals purchase agreement.

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 in the range US$550–650m in FY23, in return for which it will be entitled to its full 75% attributable share of gold production. Note: 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 Q120 performance report, the Salobo III mine expansion is now 47% complete (cf 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 the current time it is, to all intents and purposes, impossible for Pascua-Lama to pass a completion test on 30 June 2020. As a result, Edison calculates that WPM has the right to an estimated US$273.4m repayment from Barrick in FY20. Given the long-term optionality provided by the Pascua-Lama project however, Wheaton has indicated that it is unlikely to enforce the repayment of its entitlement and that it prefers instead to maintain its streaming interest in the project.

Rosemont

Another major project with which WPM has a streaming agreement is Rosemont copper in Arizona.

The proposed Rosemont development is located 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 will 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 (MPO) 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 commence construction work by the end of CY19, which would have enabled first production ‘by the end of 2022’. In the meantime, it commenced early works to run concurrently with financing activities (including a potential joint venture partner).

On 31 July 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 Coronado Forest Service had ‘no factual basis to determine that Rosemont had valid unpatented mining claims’ on 2,447 acres and that the claims were invalid under the Mining Law of 1872.

In its reaction to the ruling, Hudbay said that it believed that the ruling was without precedent and that 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 ten 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. In conclusion, it said that it will appeal the ruling to the Ninth Circuit Court of Appeals.

Edison estimates that Rosemont could contribute an average c US$0.11 per share (15.1%) to WPM’s basic EPS in its first nine years of its official 18 year life from FY22–30 for an upfront payment of US$230m (equivalent to US$0.513/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 at least, removed any contribution from Rosemont from all of 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 856Moz in CY18 (down from 894Moz in CY15) that was produced as a by-product of either gold or base metal mines (ie approximately 300Moz pa silver vs 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 far from saturated or mature.

As a consequence, WPM reports that it is busy on the corporate development front, albeit with the caveat that COVID-19 has inevitably slowed the pace of progress. 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 looking to strengthen their balance sheets with mooted transactions in the >US$1bn range, which WPM would fund, in the first instance, via the US$1,282.5m available under its revolving credit facility, plus US$126.7m in cash and its ATM programme (see below).

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.

Otherwise, WPM has streaming agreements with other potential producing mines, including (but not limited to) Navidad, Keno Hill and Cotabambas.

Precious metals prices

Gold is a traditional beneficiary of negative real interest rates (and therefore falling nominal interest rates, assuming constant inflation) and central bank expansion of balance sheets in the form of either quantitative easing or otherwise. It has fallen back from a recent high of US$1,741/oz on 14 April 2020, but only by a relatively modest 2.9%. Its year-to-date performance of 11.7% (cf -2.7% in late March) so far during the coronavirus crisis nevertheless dwarfs the equivalent performances of its equity market rivals (eg Dow Jones -17% and FTSE100 Index -27% in US dollar terms) and it remains the only major financial and monetary asset that is not another counterparty’s liability as well as being a credible store of value and, in extremis, medium of exchange.

Edison’s nominal gold and silver price forecasts, set out in our report, Portents of economic weakness: Gold – doves in the ascendant, published in August 2019, are as follows:

Exhibit 7: Edison gold price forecasts

US$/oz

2020e**

2021e

2022e

2023e

Nominal gold price forecast (US$/oz)

1,635

1,509

1,560

1,421

Nominal silver price forecast (US$/oz)

26.74

24.76

25.56

23.38

Source: Edison Investment Research. Note: *See Portents of economic weakness: Gold – doves in the ascendant. **Gold price forecast as published in 2019. Current FY20 estimate of US$1,586/oz is year-to-date average plus spot for the rest of the year.

In common with Edison’s stated practice however, we use prevailing prices (ie US$1,691/oz Au, US$15.03/oz Ag and US$1,814/oz Pd) to generate our forecasts for the remainder of the current year, followed by long-term forecasts (above) thereafter. Investors should note that our long-term forecasts (above) assume an eventual normalisation of the gold/silver ratio from an unprecedented 113x currently to something closer its long-term average of 61x from FY21.

General and administrative expenses

WPM has provided updated guidance for non-stock general & administrative 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 PSUs and equity settled stock based compensation (see Exhibit 2). Investors should note that stock-based compensation costs and PSUs are now included in our financial forecasts in Exhibits 8 and 12 notwithstanding their somewhat unpredictable nature.

FY20e by quarter

Our updated forecasts for WPM for FY20 are as shown in Exhibit 8, below. As before, our forecasts assume that Yauliyacu, Constancia, Penasquito, San Dimas and Los Filos all remain closed for the entirety of Q220. However, these have now been joined by Antamina, from mid-April. Clearly, there exists risk associated with both the potential lifting of existing lockdowns in this respect (upside) and the imposition of new lockdown restrictions (downside). The other notable change compared with our previous assumptions relates to the terms of the San Dimas precious metals purchase agreement (PMPA). Under the terms of the San Dimas PMPA, Wheaton is entitled to an amount equal to 25% of the payable gold production plus an additional amount of gold equal to 25% of the payable silver production converted to gold at a fixed gold/silver exchange ratio of 70:1. If the gold/silver price ratio decreases to less than 50:1 or increases to more than 90:1 for a period of six months or more, however, then the 70 is revised to either 90 or 50, as appropriate. In this case, the ratio has been more than 90 for a period of six months. Consequently, from 1 April, the effective ratio has been adjusted to 90 for the purposes of the San Dimas PMPA, until such time as it reverts to between 50 and 90 for a period of six months once again, in which case the 70:1 ratio will be re-adopted.

Apart from precious metals prices, the principal remaining risk to our forecasts relates to the extent to which sales differ from production and therefore, by extension, the extent to which inventory (in the form of ounces produced but not yet delivered to Wheaton) either increases or decreases during the course of the year.

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

US$000s
(unless otherwise stated)

FY19

Q120

Q220e

Q320e

Q420e

FY20e

(current)

FY20e

(previous)

Silver production (koz)

22,562

6,704

1,593

5,926

5,926

20,150

20,282

Gold production (oz)

406,675

94,707

86,688

100,044

100,044

381,482

386,223

Palladium production (koz)

21,993

5,312

5,938

5,938

5,938

23,125

23,750

Silver sales (koz)

17,703

4,928

1,593

5,926

5,926

18,374

20,282

Gold sales (oz)

389,086

100,405

86,651

100,007

100,007

387,071

386,078

Palladium sales (oz)

20,681

4,938

5,914

5,914

5,914

22,679

23,655

Avg realised Ag price (US$/oz)

16.29

17.03

15.05

15.03

15.03

15.57

15.56

Avg realised Au price (US$/oz)

1,391

1,589

1,690

1,691

1,691

1,664

1,671

Avg realised Pd price (US$/oz)

1,542

2,298

1,906

1,814

1,814

1,943

2,032

Avg Ag cash cost (US$/oz)

5.02

4.50

5.51

4.75

4.75

4.75

5.12

Avg Au cash cost (US$/oz)

421

436

403

422

422

419

420

Avg Pd cash cost (US$/oz)

273

402

343

327

327

347

366

Sales

861,332

254,789

181,672

268,912

268,912

974,286

1,009,023

Cost of sales

Cost of sales, excluding depletion

258,559

66,908

45,756

72,336

72,336

257,335

274,782

Depletion

256,826

64,841

44,512

70,827

70,827

251,007

272,844

Total cost of sales

515,385

131,748

90,268

143,163

143,163

508,342

547,626

Earnings from operations

345,947

123,040

91,403

125,750

125,750

465,944

461,397

Expenses and other income

– General and administrative**

54,507

13,181

13,627

13,627

13,627

54,061

54,507

– Foreign exchange (gain)/loss

0

0

0

– Net interest paid/(received)

48,730

7,118

5,445

4,378

2,745

19,686

31,320

– Other (income)/expense

(217)

(1,861)

(1,861)

0

Total expenses and other income

103,020

18,438

19,072

18,005

16,372

71,887

85,827

Earnings before income taxes

242,927

104,602

72,332

107,744

109,378

394,057

375,570

Income tax expense/(recovery)

(9,066)

8,442

250

250

250

9,192

1,000

Marginal tax rate (%)

(3.7)

8.1

0.3

0.2

0.2

2.3

0.3

Net earnings

251,993

96,160

72,082

107,494

109,128

384,865

374,570

Ave. no. shares in issue (000s)

446,021

447,805

448,300

448,300

448,300

448,176

447,725

Basic EPS (US$)

0.56

0.215

0.161

0.240

0.243

0.859

0.84

Diluted EPS (US$)

0.56

0.214

0.160

0.239

0.243

0.857

0.84

DPS (US$)

0.36

0.10

0.10

0.10

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.

Our basic EPS forecast of US$0.859/share for FY20 is 3.5% below the consensus forecast of US$0.89/share (source: Refinitiv, 7 May 2020) within a range of US$0.78–1.03per share:

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

Q120

Q220e

Q320e

Q420e

Sum Q1-Q420

FY20

Mean

0.215

0.20

0.23

0.23

0.875

0.89

High

0.215

0.25

0.27

0.28

1.015

1.03

Low

0.215

0.14

0.19

0.18

0.725

0.78

Source: Refinitiv, Edison Investment Research. Note: As at 7 May 2020.

Our US$1.12 basic EPS forecast for FY21 (see Exhibit 12) compares with a consensus of US$1.02 (source: Refinitiv, 7 May 2020) within a range US$0.85-1.44 and is materially higher than the equivalent figures of US$0.88 within a range US$0.76-1.15 of mid-March (source: Refinitiv, 19 March 2020). This estimate is predicated on an average gold price during the year of US$1,509/oz and an average silver price of US$24.76/oz, which assumes, among other things, that the gold/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 remain at current levels however (US$15.03/oz and US$1,691/oz at the time of writing), we forecast that WPM would instead earn US$0.87 per share in FY21.

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 49.2x Edison or 47.4x 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 updated EPS forecast of US$1.12 in FY21 implies a potential value per share for WPM of US$33.08 or C$46.59 in that year (vs US$33.46, or C$47.27 previously). However, it is clearly apparent from the graph above that WPM’s current year multiple has been trading higher for some time and the last two years would suggest that a multiple in excess of 40x earnings is sustainable – notwithstanding the fact that these years were not subject to the extraordinary trials and tribulations being experienced in FY20. Even at such elevated levels however, a multiple of over 40x would still leave WPM’s shares at a discount to those of its obvious peers, as demonstrated in Exhibit 11. In this case, applying a 42.0x earnings multiple (the average of FY18 and FY19) to our updated EPS forecast of US$1.12 in FY21 implies a potential value per share for WPM of US$47.10 or C$66.32 in that year and/or for as long as the current coronavirus crisis lasts and precious metals prices (especially gold) remain elevated.

Note that neither of these valuations include the value of 20.2m shares in First Majestic currently held by WPM, with an immediate value (7 May) of C$227.1m, or US$0.36 per WPM share.

In the meantime, from a relative perspective, it is notable that WPM has a lower relative valuation than its royalty/streaming ‘peers’ on at least 58% (14 out of 24) of the valuation measures used in Exhibit 11 and based on multiples that are cheaper even than the miners themselves in at least 23% (18 out of 78) of the same valuation measures (regardless 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 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

64.1

57.2

0.7

0.7

37.7

34.0

Royal Gold

50.3

41.3

0.9

0.9

25.0

22.2

Sandstorm Gold

75.4

51.2

0.0

0.0

23.3

20.2

Osisko

42.8

29.5

1.5

1.5

18.8

14.9

Average

58.1

44.8

0.8

0.8

26.2

22.8

WPM (Edison forecasts)

49.2

37.6

1.0

1.2

27.2

23.1

WPM (consensus)

47.4

40.8

1.0

1.1

28.6

25.1

Gold producers

Barrick

34.6

29.2

0.9

0.9

11.1

10.4

Newmont

28.9

20.6

1.4

1.6

13.0

10.5

Newcrest

21.5

18.3

1.2

1.3

11.7

9.2

Kinross

13.8

12.6

0.0

0.0

5.9

5.4

Agnico-Eagle

49.1

28.8

1.1

1.2

14.7

10.6

Eldorado

11.0

16.2

0.0

0.0

4.3

5.2

Yamana

27.9

19.6

1.2

1.2

7.4

6.4

Average

26.7

20.7

0.8

0.9

9.7

8.3

Silver producers

Hecla

N/A 

25.2

0.4

0.3

9.7

6.4

Pan American

30.8

15.5

0.7

1.0

11.9

7.8

Coeur Mining

N/A 

19.9

0.0

0.0

6.9

4.6

First Majestic

51.4

34.2

0.0

0.0

19.8

9.8

Hochschild

20.7

10.5

1.7

2.3

4.7

3.0

Fresnillo

32.7

19.8

1.4

2.3

9.0

8.4

Average

33.9

20.9

0.7

1.0

10.3

6.7

Source: Refinitiv, Edison Investment Research. Note: Peers priced on 6 May 2020.

Financials: Solid equity base

As at 31 March 2020, WPM had US$126.7m in cash cum-dividend (cf US$104.0m at the end of Q419) and US$715.5m of debt outstanding (cf US$874.5m at end-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$3.9m in leases) it had net debt of US$592.7m (cf US$774.8 at end-Q4 and US$865.5m at end-Q3) overall, after US$177.6m of cash generated by operating activities during the quarter (cf US$131.9m in Q419). Relative to the company’s balance sheet equity of US$5,238.2m, this level of net debt equates to a financial gearing (net debt/equity) ratio of 11.3% (cf 14.5% and end-Q4 and 16.6% at end-Q3) and a leverage (net debt/[net debt+equity]) ratio of 10.2% (cf 12.7% at end-Q4 and 14.2% at end-Q3). 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 33.7x 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 late in H121 (even after including anticipated dividend payments).

At-the-market equity programme

WPM has initiated 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. 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 that 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, Edison has excluded from its forecasts the assumption of any such issues of shares under the programme.

Exhibit 12: Financial summary

US$'000s

2012

2013

2014

2015

2016

2017

2018

2019

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

849,560

706,472

620,176

648,687

891,557

843,215

794,012

861,332

974,286

1,175,686

Cost of Sales

(117,489)

(139,352)

(151,097)

(190,214)

(254,434)

(243,801)

(245,794)

(258,559)

(257,335)

(293,905)

Gross Profit

732,071

567,120

469,079

458,473

637,123

599,414

548,218

602,773

716,951

881,782

EBITDA

 

 

701,232

531,812

431,219

426,236

602,684

564,741

496,568

548,266

662,889

827,720

Operating Profit (before amort. and except.)

600,003

387,659

271,039

227,655

293,982

302,361

244,281

291,440

411,882

514,574

Intangible Amortisation

0

0

0

0

0

0

0

0

0

0

Exceptionals

0

0

(68,151)

(384,922)

(71,000)

(228,680)

245,715

(165,855)

(1,264)

0

Other

788

(11,202)

(1,830)

(4,076)

(4,982)

8,129

(5,826)

217

1,861

0

Operating Profit

600,791

376,457

201,058

(161,343)

218,000

81,810

484,170

125,802

412,479

514,574

Net Interest

0

(6,083)

(2,277)

(4,090)

(24,193)

(24,993)

(41,187)

(48,730)

(19,686)

(10,870)

Profit Before Tax (norm)

 

 

600,003

381,576

268,762

223,565

269,789

277,368

203,094

242,710

392,196

503,704

Profit Before Tax (FRS 3)

 

 

600,791

370,374

198,781

(165,433)

193,807

56,817

442,983

77,072

392,793

503,704

Tax

(14,755)

5,121

1,045

3,391

1,330

886

(15,868)

9,066

(9,192)

(1,000)

Profit After Tax (norm)

586,036

375,495

267,977

222,880

266,137

286,383

181,400

251,993

384,865

502,705

Profit After Tax (FRS 3)

586,036

375,495

199,826

(162,042)

195,137

57,703

427,115

86,138

383,601

502,704

Average Number of Shares Outstanding (m)

353.9

355.6

359.4

395.8

430.5

442.0

443.4

446.0

448.2

447.8

EPS - normalised (c)

166

106

75

53

62

63

48

56.5

85.9

112.3

EPS - normalised and fully diluted (c) 

165

105

74

53

62

63

48

56

86

112

EPS - (IFRS) (c)

 

 

166

106

56

(41)

45

13

96

19

86

112

Dividend per share (c)

35

45

26

20

21

33

36

36

42

53

Gross Margin (%)

86.2

80.3

75.6

70.7

71.5

71.1

69.0

70.0

73.6

75.0

EBITDA Margin (%)

82.5

75.3

69.5

65.7

67.6

67.0

62.5

63.7

68.0

70.4

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

70.6

54.9

43.7

35.1

33.0

35.9

30.8

33.8

42.3

43.8

BALANCE SHEET

Fixed Assets

 

 

2,403,958

4,288,557

4,309,270

5,526,335

6,025,227

5,579,898

6,390,342

6,123,255

5,874,248

5,563,102

Intangible Assets

2,281,234

4,242,086

4,270,971

5,494,244

5,948,443

5,454,106

6,196,187

5,768,883

5,519,876

5,208,730

Tangible Assets

1,347

5,670

5,427

12,315

12,163

30,060

29,402

44,615

44,615

44,615

Investments

121,377

40,801

32,872

19,776

64,621

95,732

164,753

309,757

309,757

309,757

Current Assets

 

 

785,379

101,287

338,493

105,876

128,092

103,415

79,704

154,752

614,274

1,195,373

Stocks

966

845

26,263

1,455

1,481

1,700

1,541

43,628

1,749

2,111

Debtors

6,197

4,619

4,132

1,124

2,316

3,194

2,396

7,138

2,669

3,221

Cash

778,216

95,823

308,098

103,297

124,295

98,521

75,767

103,986

609,856

1,190,041

Other

0

0

0

0

0

0

0

0

0

0

Current Liabilities

 

 

(49,458)

(21,134)

(16,171)

(12,568)

(19,057)

(12,143)

(28,841)

(64,700)

(78,287)

(81,894)

Creditors

(20,898)

(21,134)

(16,171)

(12,568)

(19,057)

(12,143)

(28,841)

(63,976)

(77,563)

(81,170)

Short term borrowings

(28,560)

0

0

0

0

0

0

(724)

(724)

(724)

Long Term Liabilities

 

 

(32,805)

(1,002,164)

(1,002,856)

(1,468,908)

(1,194,274)

(771,506)

(1,269,289)

(887,387)

(887,387)

(887,387)

Long term borrowings

(21,500)

(998,136)

(998,518)

(1,466,000)

(1,193,000)

(770,000)

(1,264,000)

(878,028)

(878,028)

(878,028)

Other long term liabilities

(11,305)

(4,028)

(4,338)

(2,908)

(1,274)

(1,506)

(5,289)

(9,359)

(9,359)

(9,359)

Net Assets

 

 

3,107,074

3,366,546

3,628,736

4,150,735

4,939,988

4,899,664

5,171,916

5,325,920

5,522,848

5,789,195

CASH FLOW

Operating Cash Flow

 

 

720,209

540,597

434,582

435,783

608,503

564,187

518,680

548,301

724,685

830,414

Net Interest

0

(6,083)

(2,277)

(4,090)

(24,193)

(24,993)

(41,187)

(41,242)

(19,686)

(10,870)

Tax

(725)

(154)

(204)

(208)

28

(326)

0

(5,380)

(9,192)

(1,000)

Capex

(641,976)

(2,050,681)

(146,249)

(1,791,275)

(805,472)

(19,633)

(861,406)

10,571

(2,000)

(2,000)

Acquisitions/disposals

0

0

0

0

0

0

0

0

0

0

Financing

12,919

58,004

6,819

761,824

595,140

1,236

1,279

37,198

0

0

Dividends

(123,852)

(160,013)

(79,775)

(68,593)

(78,708)

(121,934)

(132,915)

(129,986)

(187,937)

(236,358)

Net Cash Flow

(33,425)

(1,618,330)

212,896

(666,559)

295,298

398,537

(515,549)

419,462

505,870

580,186

Opening net debt/(cash)

 

 

(761,581)

(728,156)

902,313

690,420

1,362,703

1,068,705

671,479

1,188,233

774,766

268,896

HP finance leases initiated

0

0

0

0

0

0

0

0

0

0

Other

0

(12,139)

(1,003)

(5,724)

(1,300)

(1,311)

(1,205)

(5,995)

0

0

Closing net debt/(cash)

 

 

(728,156)

902,313

690,420

1,362,703

1,068,705

671,479

1,188,233

774,766

268,896

(311,289)

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

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

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

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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