Formerly Silver Wheaton (SLW)

Silver Wheaton 18 May 2017 Long Update (4+ pages)
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Wheaton Precious Metals

Formerly Silver Wheaton (SLW)

Q1 results

Metals & mining

 

18 May 2017

Price

C$29.08

Market cap

C$12,838m

C$1.3660/US$

Net debt (US$m) at 31 March 2017

*980.2

*Ex-dividend

Shares in issue

441.5m

Free float

100%

Code

WPM (formerly SLW)

Primary exchange

TSX

Secondary exchange

NYSE

Share price performance

%

1m

3m

12m

Abs

(0.8)

3.1

11.6

Rel (local)

1.9

6.9

1.7

52-week high/low

C$39.7

C$22.8

Business description

Wheaton Precious Metals is the world’s pre-eminent pure 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, the US and Guyana.

Next events

Q217 results

August 2017

Q317 results

October 2017

Analysts

Charles Gibson

+44 (0)20 3077 5724

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

Wheaton Precious Metal’s Q117 results were closely aligned with our prior expectations with the single exception that there was a 1.3Moz under-sale of silver relative to production, resulting in a temporary inventory build at the end of March. For the second quarter in succession, therefore, gold sales exceeded silver sales. Nevertheless, net earnings for the quarter were US$61.2m versus our expectation of US$61.4m.

Year end

Revenue (US$m)

PBT* (US$m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

12/15

648.7

223.6

53

20

40.2

0.9

12/16

891.6

269.8

62

21

34.3

1.0

12/17e

859.6

278.1

63

27

33.8

1.3

12/18e

951.8

396.7

90

28

23.7

1.3

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

Name change to reflect new reality

On 10 May, shareholders voted to change the company’s name from Silver Wheaton to Wheaton Precious Metals (WPM) to better reflect its asset mix. The change became effective on 16 May. Concurrently, it also changed its TSX and NYSE tickers from SLW to WPM and its web domain to www.wheatonpm.com.

Material gearing to a normalisation of the silver price

Our earnings forecasts for FY18 are high relative to the consensus EPS of 78c, despite relatively conservative production expectations. As such, they almost exclusively demonstrate WPM’s operational gearing to (in this case) a normalisation of the silver price relative to the gold price from its current, almost unprecedented Au/Ag ratio of 75.2x to a more typical 56.6x.

…and the potential expansion of Salobo (inter alia)

In the event that Salobo is expanded from 24Mtpa to 48Mtpa by 1 January 2021, we estimate that it would increase our estimate of WPM’s EPS in FY20 by 16%, or US$0.22/share.

Valuation: 25.7% IRR in US$ over four years predicted

Assuming no material purchases of additional streams (which is unlikely), we forecast a per share value for WPM of US$37.52, or C$51.25 (vs US$36.66, or C$49.00, previously), in FY20 (at average precious metals prices of US$23.98/oz Ag and US$1,362/oz Au), implying a 25.7% pa total internal rate of return for investors in US dollar terms over the next four years. These valuations rise to US$43.31, C$59.16 and 29.7% in the event that Vale doubles Salobo’s processing capacity within that same time frame. In the meantime, WPM’s shares are trading on near-term financial ratios that are lower than those of its royalty/streaming ‘peers’ in at least 91% of measures considered, and the miners themselves in at least 50%, despite being associated with materially less operating and cost risk (see Exhibit 5). Additional potential upside then exists in the form of the optionality provided by the development of major assets such as Pascu-Lama.

Q117 in perspective

Wheaton Precious’s results in Q117 were closely aligned with our prior expectations (see our report, Silver Wheaton What a difference a quarter makes, published on 29 March 2017) with the single exception of the fact that there was a 19.8% (or 1.3Moz) under-sale of silver relative to production, resulting in a temporary inventory build as at 31 March. Note that, during the course of a year, WPM almost invariably experiences one quarter of inventory build, which is then, typically, ‘flushed through’ in the final quarter. While revenues were therefore 7.8% below our expectation for the quarter, this was almost exactly offset by a similar reduction in costs, such that net earnings were only 0.3% (or US$0.2m) below our published estimate, at US$61.2m. Moreover, management declared a relatively generous second quarter dividend of 7c/share cf our prior expectation of 6c/share. For the second quarter in succession, gold sales exceeded silver sales, (in this case) in the ratio 54:46.

Exhibit 1: Wheaton Precious Metals Q117 vs Q117e and Q416*

US$000s (unless otherwise stated)

Q116

Q216

Q316

Q416

Q117e

Q117

Chg** (%)

Diff*** (%)

Silver production (koz)

7,570

7,581

7,651

7,589

6,467

6,513

-14.2

0.7

Gold production (oz)

64,942

70,249

109,193

107,332

83,765

84,863

-20.9

1.3

AgE production (koz)

12,733

12,852

15,084

15,218

12,564

12,454

-18.2

-0.9

Silver sales (koz)

7,552

7,142

6,122

7,506

6,467

5,225

-30.4

-19.2

Gold sales (oz)

65,258

70,757

85,063

108,931

83,765

88,397

-18.9

5.5

AgE sales (koz)

12,759

12,451

11,913

15,249

12,564

11,412

-25.2

-9.2

Avg realised Ag price (US$/oz)

14.68

17.18

19.53

16.95

17.41

17.45

2.9

0.2

Avg realised Au price (US$/oz)

1,175

1,267

1,336

1,205

1,218

1,208

0.2

-0.8

Avg realised AgE price (US$/oz)

14.70

17.06

19.57

16.95

17.41

17.35

2.4

-0.3

Avg Ag cash cost (US$/oz)

4.14

4.46

4.51

4.59

4.66

4.54

-1.1

-2.6

Avg Au cash cost (US$/oz)

389

401

390

389

395

391

0.5

-1.0

Avg AgE cash cost (US$/oz)

4.44

4.84

5.10

5.04

5.03

5.11

1.4

1.6

 

 

Sales

187,511

212,351

233,204

258,491

214,611

197,951

-23.4

-7.8

Cost of sales

 

 

Cost of sales, excluding depletion

56,636

60,208

60,776

77,617

63,204

58,291

-24.9

-7.8

Depletion

71,344

75,074

73,919

88,365

74,428

63,943

-27.6

-14.1

Total cost of sales

127,980

135,282

134,695

165,983

137,632

122,234

-26.4

-11.2

Earnings from operations

59,531

77,069

98,509

92,509

76,979

75,717

-18.2

-1.6

Expenses and other income

 

 

- General and administrative

10,844

9,959

9,513

4,123

****8,500

7,898

91.6

-7.1

- Foreign exchange (gain)/loss

0

0

0

0

 

 

- Net interest paid/(received)

6,932

4,590

6,007

6,664

6,225

6,373

-4.4

2.4

- Other (income)/expense

1,160

1,599

1,380

843

843

94

-88.8

-88.8

Total expenses and other income

18,936

16,148

16,900

11,630

15,568

14,365

23.5

-7.7

Earnings before income taxes

40,595

60,921

81,609

80,879

61,411

61,352

-24.1

-0.1

Income tax expense/(recovery)

(384)

615

(1,377)

(184)

0

128

-169.6

N/A

Marginal tax rate (%)

(0.9)

1.0

(1.7)

(0.2)

0.0

0.2

-200.0

N/A

Net earnings

40,979

60,306

82,986

81,063

61,411

61,224

-24.5

-0.3

Avg no. shares in issue (000s)

402,952

436,726

440,635

440,635

440,635

441,484

0.2

0.2

Basic EPS (US$)

0.10

0.14

0.19

0.18

0.14

0.14

-22.2

0.0

Diluted EPS (US$)

0.10

0.14

0.19

0.18

0.14

0.14

-22.2

0.0

Source: Wheaton Precious Metals, Edison Investment Research. Note: *excluding impairments; **Q117 vs Q416; ***Q117 actual vs Q117 estimate; ****forecast excluded stock-based compensation costs.

From an operational perspective, there were notable production outperformances by both Wheaton Precious’s ‘other’ gold and silver assets relative to our expectations, as well as Sudbury, where higher grades and recovery more than offset lower throughput. By contrast, Salobo was affected by conveyor belt and plant repairs during February, as well as by lower grades, while the effects of industrial action had an impact on San Dimas (although operations returned to normal on 18 April, after the quarter’s end).

Ounces produced but not yet delivered – aka inventory

Compared to a 10.4% average historical under-sale of silver relative to production and a 9.3% historical under-sale of gold, sales of silver in Q117 recorded a 19.8% under-sale, while sales of silver recorded a 4.2% over-sale:

Exhibit 2: Over-/(under-) sale of silver and gold as a percentage of production, Q112-Q117

Source: Edison Investment Research, Wheaton Precious Metals

As at 31 March, payable ounces attributable to Wheaton Precious produced but not yet delivered amounted to 3.9Moz silver and 51,500oz gold (cf 3.2Moz silver and 61,700oz gold as at end-December and 3.8Moz silver and 63,300oz gold as at end-September). This ‘inventory’ equates to 1.73 months and 1.85 months of forecast FY17 silver and gold production, respectively (cf 1.25 months and 2.1 months of forecast FY16 production as at end-December, and 1.5 months and 2.3 months as at end-September), or 1.8 months on a silver equivalent basis (cf 1.6 months as at end-December and 1.9 months as at end-September) – still slightly below WPM’s target level of two months.

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 is typically used to refer to metal in circuit (among other things), and may therefore (under certain circumstances) be considered to be a consequence of an operation’s metallurgical recoveries.

FY17 by quarter

Production for the remainder of FY17 will be affected by a number of factors, including:

Penasquito – Goldcorp reports that higher grade ore is expected to be mined in Q217 as further mining occurs in Phase 5. After that, mill feed is expected to consist of lower grade ore and stockpiled material for the remainder of the year. However, this will coincide with increased productivity as a result of a number of initiatives including improved pit conditions (on account of large and wide cut-backs), a continued focus on balancing truck haulage with available shovels and the optimisation of drill-and-blast activities. Finally, pre-stripping of the Chile Colorado pit is reported to have commenced ahead of schedule with the first two benches being mined and ore anticipated to be produced from CY18.

San Dimas – operations at San Dimas resumed on 18 April after strike action and a phased restart of the mine is currently underway. In the aftermath of the strike, Primero’s production guidance for FY17 is now 4.5-5.5Moz Ag. This compares with Wheaton Precious’s guidance at the time of its FY16 results in March (see our note published on 29 March 2017) of 4.0Moz after a three-month strike (vs two months actual) and our current, relatively conservative, expectation of 4.3Moz.

Sudbury – production of gold from Sudbury will be affected after Vale took its second furnace offline in mid-March for a three-month rebuild and expansion ahead of its return to production in Q4, when Sudbury transitions to a single-furnace operation. In addition, Sudbury is scheduled to incur its regular (every 18 months) three-week, surface plant shut-down in Q2.

Miscellaneous financial

On 30 March, Wheaton Precious and certain of its subsidiaries provided a guarantee to the lenders under Primero’s (the operator of San Dimas) existing revolving credit facility (capped at a maximum of US$81.5m plus interest, fees and expenses), in respect of which Primero will pay a fee to Wheaton Precious of 5% in connection with the guarantee. For the purposes of the following financial forecasts, we assume that this will be recognised as a guarantee fee, allocated to ‘Other Income’.

Also in March, WPM amended its silver purchase agreement with Alexco, to make the production payment a function of the silver head grade and spot price in the month in which it is produced. In addition, the area covered by the stream has been expanded to include properties currently owned by Alexco as well as properties acquired by Alexco in the future within a one kilometre radius of its existing holdings in the Keno Hill Silver District. As consideration of the amendments, on 10 April, Alexco issued 3m shares to Wheaton Precious with a fair value of US$5m. For the purposes of the following financial forecasts once again, we assume that this will be reflected as a reduction to the carrying cost of the stream in Q2. NB There is also likely to be a reduction in the depletion rate applied to the Keno Hill silver stream in WPM’s income statement.

In light of the above factors, our revised quarterly operational and financial forecasts for Wheaton Precious for the remainder of FY17 are as follows:

Exhibit 3: Wheaton Precious FY17 forecast, by quarter

US$000s (unless otherwise stated)

Q117

Q217e

Q317e

Q417e

FY17e

(old)

FY17e

(new)

FY18e

(new)

Silver production (koz)

6,513

6,699

6,916

7,156

26,518

27,285

28,282

Gold production (oz)

84,863

81,458

83,765

83,765

335,062

333,852

280,642

AgE production (koz)

12,454

12,726

13,232

13,472

50,269

51,555

44,182

Silver sales (koz)

5,225

6,699

6,916

7,156

26,518

25,997

28,282

Gold sales (oz)

88,397

81,458

83,765

83,765

335,062

337,386

280,642

AgE sales (koz)

11,412

12,726

13,232

13,472

50,269

50,512

44,182

Avg realised Ag price (US$/oz)

17.45

17.11

16.79

16.79

17.50

17.00

21.54

Avg realised Au price (US$/oz)

1,208

1,248

1,248

1,248

1,241

1,238

1,220

Avg realised AgE price (US$/oz)

17.35

17.11

16.79

16.79

17.50

17.02

21.54

Avg Ag cash cost (US$/oz)

4.54

4.50

4.49

4.48

4.66

4.50

4.89

Avg Au cash cost (US$/oz)

391

395

395

395

395

394

396

Avg AgE cash cost (US$/oz)

5.11

4.93

4.88

4.87

5.09

4.95

5.64

Sales

197,951

216,284

220,666

224,696

879,732

859,596

951,821

Cost of sales

Cost of sales, excluding depletion

58,291

62,322

64,134

65,171

255,822

249,918

249,386

Depletion

63,943

68,262

70,354

70,704

298,435

273,263

255,972

Total cost of sales

122,234

130,584

134,488

135,876

554,258

523,181

505,359

Earnings from operations

75,717

85,700

86,178

88,820

325,474

336,415

446,463

Expenses and other income

- General and administrative*

7,898

8,500

8,500

8,500

34,000

33,398

33,398

- Foreign exchange (gain)/loss

0

0

- Net interest paid/(received)

6,373

6,176

6,176

6,176

24,901

24,901

16,356

- Other (income)/expense

94

0

0

0

3,372

94

Total expenses and other income

14,365

14,676

14,676

14,676

62,273

58,393

49,754

Earnings before income taxes

61,352

71,024

71,502

74,144

263,202

278,022

396,708

Income tax expense/(recovery)

128

0

128

Marginal tax rate (%)

0.2

0.0

0.0

0.0

0.0

0.0

0.0

Net earnings

61,224

71,024

71,502

74,144

263,202

277,894

396,708

Avg no. shares in issue (000s)

441,484

441,484

441,484

441,484

441,484

441,484

441,484

Basic EPS (US$)

0.14

0.16

0.16

0.17

0.60

0.63

0.90

Diluted EPS (US$)

0.14

0.16

0.16

0.17

0.60

0.63

0.90

Source: Wheaton Precious Metals, Edison Investment Research. Note: *Forecasts exclude stock-based compensation costs.

Note that our FY17 forecasts of 27.3Moz Ag and 333,852oz Au produced compare with WPM’s (reiterated) guidance for the full year of 28Moz Ag and 340,000oz Au.

Our updated basic EPS estimate of 63c for FY17 (see Exhibit 3 for revisions) represents a 3cps upgrade relative to our previous forecasts (see our note published on 29 March 2017), but is notable for the fact that it is achieved despite expectations of lower average precious metals’ prices for the year. It also compares to an average consensus estimate (source: Bloomberg, 18 May 2017) of 64.3c within a (rising) range of 58-74c (cf a consensus of 62.4 within a range 42-74c on 8 May, immediately prior to WPM’s results).

Edison’s slightly revised financial forecasts for FY18 are high relative to the consensus average of 78c, within a range of 49-97c, which is noteworthy for the fact that our production forecasts are at or near the bottom of the range of expectations (especially for gold). As such, they therefore almost exclusively demonstrate Wheaton Precious’s operational gearing to (in this case) a normalisation of the silver price relative to the gold price from its current, almost unprecedented Au/Ag ratio of 75.2x to a more typical 56.6x.

Valuation and sensitivities

Excluding FY04 (part year) and FY08 (when there was an exceptional write-down), WPM’s shares have historically traded on an average P/E multiple of 26.5x current year basic EPS (cf 33.8x Edison FY17e and 23.7x Edison FY18e – see Exhibit 5).

Exhibit 4: Wheaton Precious’s historical current year P/E multiples

Source: Edison Investment Research. Note: FY14 EPS excludes impairment charge.

Applying this multiple to our long-term EPS forecast (upgraded to reflect revised Keno Hill mine plan and terms) of US$1.41 in FY20 (at Edison’s average long-term precious metals prices of US$23.98/oz Ag and US$1,362/oz Au in FY20), implies a potential share value for WPM shares of US$37.52, or C$51.25, in that year.

Currently, Edison makes no provision for either future expansion at Salobo or related expansion payments in its long-term forecasts. However, in the event that Salobo were to be expanded from 24Mtpa to 48Mtpa by the addition of a further two 12Mtpa processing lines by 1 January 2021 – thereby attracting the maximum incremental payment from Wheaton Precious to Vale – we estimate that it would increase our estimate of WPM’s earnings in FY20 by a material US$0.22/share. This, in turn, would increase our forecast value per share for the company to US$43.31 (C$59.16 at prevailing forex rates), implying an internal rate of return to investors buying Wheaton Precious shares currently at C$29.08, equivalent to 29.7% pa in US dollar terms over four years.

In the meantime, from a relative perspective, it is notable that WPM is cheaper than its royalty/streaming ‘peers’ on at least 91% of the valuation measures used in Exhibit 5 on an individual company basis (ie in 22 out of 24 measures) and on multiples that are lower than the miners themselves in at least 50% of the same valuation measures (ie 45 out of 90 measures), despite being associated with materially less operational and cost risk, in particular.

Exhibit 5: Wheaton Precious valuation cf a sample of major 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

76.6

65.4

1.2

1.2

28.5

26.3

Royal Gold

51.8

41.0

1.2

1.2

19.2

17.2

Sandstorm Gold

68.2

63.5

0.0

0.0

13.6

14.2

Osisko

50.5

47.3

1.1

1.1

28.1

27.5

Average

61.8

54.3

0.9

0.9

22.4

21.3

Wheaton Precious (Edison forecasts)

33.8

23.7

1.3

1.3

16.9

14.4

WPM (consensus)

33.1

27.3

1.4

1.4

16.6

15.1

Gold producers

Barrick

21.6

20.8

0.7

0.7

6.9

7.6

Newmont

32.3

27.5

0.7

0.8

8.9

8.0

Goldcorp

39.8

29.2

0.6

0.6

9.8

8.4

Newcrest

28.4

22.1

0.9

1.3

11.2

10.3

Kinross

76.3

47.5

0.0

0.0

5.5

5.1

Agnico-Eagle

76.7

58.0

0.8

0.8

14.7

13.9

Eldorado

46.0

21.9

0.2

0.2

14.1

9.1

Yamana

77.9

18.6

1.0

1.6

5.3

3.6

Randgold Resources

29.8

24.4

1.7

2.1

17.4

15.2

Average

47.6

30.0

0.7

0.9

10.4

9.0

Silver producers

Hecla

38.1

28.0

0.2

0.1

11.6

9.8

Pan American

28.3

34.6

0.5

0.6

12.7

9.5

Coeur Mining

33.8

16.5

0.0

0.0

8.6

6.8

First Majestic

77.7

33.3

0.0

0.0

13.9

10.2

Hocschild

34.1

19.0

1.2

1.6

6.7

5.3

Fresnillo

35.4

26.3

1.3

1.7

19.7

14.7

Average

41.2

26.3

0.5

0.7

12.2

9.4

Source: Bloomberg, Edison Investment Research. Note: Peers priced on 18 May 2017.

Financials

As at 31 March, WPM had US$83.8m in cash (ex-dividend) and US$1,064m of debt outstanding under its US$2bn revolving credit facility, such that it had net debt of US$980.2m overall, after US$119.9m of cash inflows (US$0.27/share) from operating activities during the quarter. Relative to the company’s equity, this level of net debt equates to a financial gearing (net debt/equity) ratio of 19.7% and a leverage (net debt/[net debt+equity]) ratio of 16.4%. It also compares with a net debt position of US$1,068.7m as at the end of December 2016, US$1,219.5m as at the end of September 2016 and US$1,362.7m as at the end of December 2015 and is consistent with WPM continuing to generate c US$100-150m per quarter from operating activities before financing and investing activities. Most recently, these investing activities involved the acquisition of an additional 25% of the gold output from the Salobo mine in Brazil for an immediate cash payment of US$800m, announced in August 2016 (see our note Going for gold, published on 30 August). Otherwise, assuming the operational performance set out in Exhibits 3 and 6, we estimate that WPM’s net debt position will decline organically, to US$702.0m by the end of FY17 (equating to gearing of 13.8% and leverage of 12.1%), and that WPM will be net debt free in early FY19, all other things being equal and contingent on its making no further major acquisitions (which is unlikely). 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 (which was US$4,975.0m as at end-March 2016 and which we forecast to be US$5,099.8m as at end-December 2017); and

interest should be no less than 3x covered by EBITDA (we estimate that net interest will be 23.1x covered in FY17).

On 27 February 2017, the term of the revolving term loan was extended, such that it now matures on 27 February 2022.

Note that the C$191.7m letter of guarantee that WPM has posted re 50% of the disputed taxes relating to its dispute with the Canadian Revenue Agency (CRA) (see below) has been determined under a separate agreement and is therefore specifically excluded from calculations regarding WPM’s banking covenants. In the meantime, WPM’s revolving debt facility attracts an interest rate of Libor plus 120-220bp.

Future developments

Penasquito – Goldcorp reports that earthwork activities are now complete at the Pyrite Leach project, that concrete works are underway and that mechanical works installation will commence in Q217. A carbon pre-flotation facility is also now being incorporated into the project, which is designed to allow Penasquito to process ore that was previously considered to be uneconomic (including ‘significant amounts’ already reported to be in stockpiles).

Rosemont – Hudbay has now completed an updated feasibility study for its Rosemont project in Arizona, according to which the mine will be a traditional open pit, truck and shovel operation with an expected 19-year mine life. Hitherto, Hudbay has indicated that a precondition for its development of Rosemont is a copper price of US$3.00/lb (cf US$2.50/lb at the time of writing). Nevertheless, it has stated that it expects the Record of Decision from the Coronado National Forest Supervisor (one of two key federal permits outstanding) to be signed in June 2017. The other outstanding permit is the Section 404 Water Permit from the US Army Corps of Engineers.

Market potential

Although the nature of the streams that it is in negotiations to buy has changed from ‘balance sheet repair’ to ‘development’ opportunities broadly within the range US$100-400m, WPM estimates the size of the potential market open to it to be the 70% of c 870Moz of silver production in FY16 that was produced as a by-product of either gold or base metals mines (ie approximately 609Moz silver per year). This compares with WPM’s production in FY16 of 30.4Moz Ag – ie WPM estimates that, to date, it has penetrated only c 5.0% of its potential market.

CRA

There have been no further substantive developments regarding WPM’s dispute with the CRA since our update note of 15 February 2016.

WPM notes that the CRA’s position is that the transfer pricing provisions of the Income Tax Act (Canada) in relation to income earned by WPM’s foreign subsidiaries should apply “such that the income of Silver Wheaton [sic] subject to tax in Canada should be increased by an amount equal to substantially all of the income earned outside of Canada by the Company’s foreign subsidiaries for the 2005-2010 taxation years”. Should this interpretation be upheld, we would expect it to have potentially profound consequences for Canada’s status as a supplier of finance and capital to overseas destinations in general (ie not just to the mining industry).

Earlier this year, Wheaton Precious’s CEO, Randy Smallwood, was quoted as saying that the company is willing to settle its tax dispute with the CRA via a payment of C$5-10m “with gritted teeth” but still believes no payment should be required. As such, the C$5-10m quoted reflects no admission or error, but rather an appreciation of the costs involved in going to a full trial and also of the effect that the issue is having on WPM’s share price rating relative to its peers (see Exhibit 5).

In the meantime, Wheaton Precious is approximately halfway through the case ‘discovery process’ with the CRA, designed to provide both sides with the opportunity to arrive at an out-of-court settlement before formal proceedings commence. This discovery process is likely to end in July 2017. Any potential settlement therefore is likely to occur shortly after this date. Otherwise, however, the company has stated that it is willing to go to trial if a ‘principled’ settlement is not possible (which is likely to be towards the middle of 2018).

Exhibit 6: Financial summary

US$'000s

2012

2013

2014

2015

2016

2017e

2018e

Dec

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

849,560

706,472

620,176

648,687

891,557

859,596

951,821

Cost of Sales

(117,489)

(139,352)

(151,097)

(190,214)

(254,434)

(249,918)

(249,386)

Gross Profit

732,071

567,120

469,079

458,473

637,123

609,678

702,435

EBITDA

 

 

701,232

531,812

431,219

426,236

602,684

576,280

669,037

Operating Profit (before amort. and except.)

600,003

387,659

271,039

227,655

293,982

303,017

413,065

Intangible Amortisation

0

0

0

0

0

0

0

Exceptionals

0

0

(68,151)

(384,922)

(71,000)

0

0

Other

788

(11,202)

(1,830)

(4,076)

(4,982)

(94)

0

Operating Profit

600,791

376,457

201,058

(161,343)

218,000

302,923

413,065

Net Interest

0

(6,083)

(2,277)

(4,090)

(24,193)

(24,901)

(16,356)

Profit Before Tax (norm)

 

 

600,003

381,576

268,762

223,565

269,789

278,116

396,708

Profit Before Tax (FRS 3)

 

 

600,791

370,374

198,781

(165,433)

193,807

278,022

396,708

Tax

(14,755)

5,121

1,045

3,391

1,330

(128)

0

Profit After Tax (norm)

586,036

375,495

267,977

222,880

266,137

277,894

396,708

Profit After Tax (FRS 3)

586,036

375,495

199,826

(162,042)

195,137

277,894

396,708

Average Number of Shares Outstanding (m)

353.9

355.6

359.4

395.8

430.5

441.5

441.5

EPS - normalised (c)

 

 

166

106

75

53

62

63

90

EPS - normalised and fully diluted (c)

 

165

105

74

53

62

63

90

EPS - (IFRS) (c)

 

 

166

106

56

(-41)

45

63

90

Dividend per share (c)

35

45

26

20

21

27

28

Gross Margin (%)

86.2

80.3

75.6

70.7

71.5

70.9

73.8

EBITDA Margin (%)

82.5

75.3

69.5

65.7

67.6

67.0

70.3

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

70.6

54.9

43.7

35.1

33.0

35.3

43.4

BALANCE SHEET

Fixed Assets

 

 

2,403,958

4,288,557

4,309,270

5,526,335

6,025,227

5,823,964

5,639,992

Intangible Assets

2,281,234

4,242,086

4,270,971

5,494,244

5,948,443

5,747,180

5,563,208

Tangible Assets

1,347

5,670

5,427

12,315

12,163

12,163

12,163

Investments

121,377

40,801

32,872

19,776

64,621

64,621

64,621

Current Assets

 

 

785,379

101,287

338,493

105,876

128,092

494,905

949,864

Stocks

966

845

26,263

1,455

1,481

1,543

1,709

Debtors

6,197

4,619

4,132

1,124

2,316

2,355

2,608

Cash

778,216

95,823

308,098

103,297

124,295

491,007

945,548

Other

0

0

0

0

0

0

0

Current Liabilities

 

 

(49,458)

(21,134)

(16,171)

(12,568)

(19,057)

(24,877)

(24,825)

Creditors

(20,898)

(21,134)

(16,171)

(12,568)

(19,057)

(24,877)

(24,825)

Short term borrowings

(28,560)

0

0

0

0

0

0

Long Term Liabilities

 

 

(32,805)

(1,002,164)

(1,002,856)

(1,468,908)

(1,194,274)

(1,194,146)

(1,194,146)

Long term borrowings

(21,500)

(998,136)

(998,518)

(1,466,000)

(1,193,000)

(1,193,000)

(1,193,000)

Other long term liabilities

(11,305)

(4,028)

(4,338)

(2,908)

(1,274)

(1,146)

(1,146)

Net Assets

 

 

3,107,074

3,366,546

3,628,736

4,150,735

4,939,988

5,099,846

5,370,885

CASH FLOW

Operating Cash Flow

 

 

720,209

540,597

434,582

435,783

608,503

581,905

668,566

Net Interest

0

(6,083)

(2,277)

(4,090)

(24,193)

(24,901)

(16,356)

Tax

(725)

(154)

(204)

(208)

28

(256)

0

Capex

(641,976)

(2,050,681)

(146,249)

(1,791,275)

(805,472)

(72,000)

(72,000)

Acquisitions/disposals

0

0

0

0

0

0

0

Financing

12,919

58,004

6,819

761,824

595,140

0

0

Dividends

(123,852)

(160,013)

(79,775)

(68,593)

(78,708)

(118,036)

(125,669)

Net Cash Flow

(33,425)

(1,618,330)

212,896

(666,559)

295,298

366,712

454,541

Opening net debt/(cash)

 

 

(761,581)

(728,156)

902,313

690,420

1,362,703

1,068,705

701,993

HP finance leases initiated

0

0

0

0

0

0

0

Other

0

(12,139)

(1,003)

(5,724)

(1,300)

0

0

Closing net debt/(cash)

 

 

(728,156)

902,313

690,420

1,362,703

1,068,705

701,993

247,452

Source: Company sources, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Wheaton Precious Metals Metals and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Wheaton Precious Metals Metals and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie without taking into account the particular financial situation or goals of any person). 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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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