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Wheaton Precious Metals 8 November 2021 Update
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Wheaton Precious Metals

Imperturbable

Q321 results

Metals & mining

8 November 2021

Price

C$50.15

Market cap

C$22,583m

C$1.2457/US$, US$1.3462/£

Net cash at end-September (US$m) excluding US$3.1m in lease liabilities.

372.5

Shares in issue

450.3m

Free float

100%

Code

WPM

Primary exchange

TSX

Secondary exchanges

LSE, NYSE

Share price performance

%

1m

3m

12m

Abs

8.6

(10.1)

(20.6)

Rel (local)

2.2

(14.6)

(39.7)

52-week high/low

C$65.61

C$45.11

Business description

Wheaton Precious Metals (WPM) is the world’s pre-eminent ostensibly precious metals streaming company, with 32 high-quality precious metals streaming and early deposit agreements relating to assets in Mexico, Peru, Canada, Brazil, Chile, the United States, Argentina, Sweden, Greece, Portugal and Colombia.

Next events

Q421/FY21 results

March 2022

Q122 results

May 2022

Q222 results

August 2022

Analysts

Lord Ashbourne
(formerly Charles Gibson)

+44 (0)20 3077 5724

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

Notwithstanding a quarter in which COVID-19 related constraints continued to disrupt the industry and in which the palladium price showed notable weakness, Wheaton's Q3 financial and operational results were broadly in line with our prior expectations and have caused us to revise our earnings estimate for FY21 by no more than 0.5%. Revenue, earnings and cash flow for the first nine months of 2021 remained at record levels, as a result of which the company declared a relatively generous dividend of US$0.15/share, representing a 25% increase cf the prior year period.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/19

861.3

242.7

54

36

74.6

0.9

12/20

1,096.2

503.2

112

42

35.9

1.0

12/21e

1,234.6

608.8

135

57

29.8

1.4

12/22e

1,408.0

690.3

153

65

26.3

1.6

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

Refining guidance

At the same time as announcing its Q321 results, Wheaton took the opportunity to refine its guidance. In this case, WPM now estimates that attributable production in 2021 will be approximately 735–765koz gold equivalent (AuE), which is in line with the mid-point of previous guidance, albeit achieved via the production of approximately 12.3% less gold and 11.8% more silver.

Refining FY22 forecasts

As well as honing EPS forecasts for FY21, Edison has also updated its forecasts for FY22. In this case, our basic EPS forecast has declined from US$2.05/share to US$1.53/share, albeit this reduction reflects only a change in our assumed metals prices from US$1,892/oz gold (Au) and US$30.78/oz silver (Ag) to those prevailing currently. While we believe that it is still possible for gold and silver to hit these levels in FY22, we think that it is unlikely that they will average these levels over the course of the full 12-month period. This revision brings our year two forecasts into line with the current consensus estimates (see page 8).

Valuation: History implies US$61.23, peers US$50.43

In normal circumstances and assuming no material purchases of additional streams in the foreseeable future (which we think unlikely), we forecast a value per share for WPM of US$61.23 or C$76.27 or £45.48 in FY23 (cf US$61.99 previously). WPM’s shares are trading on near-term financial ratios that are cheaper than those of its peers on at least 72% of common valuation measures regardless of whether Edison or consensus forecasts are used. Hence, if WPM’s shares were to trade at the same level as the average of its peers, then we calculate that its year one share price should be US$50.43 (C$62.82 or £37.46), based on our forecasts for FY21. Alternatively, if precious metals return to favour and WPM to a premium rating, we believe an US$83.03 (C$104.92 or £61.68) per share valuation is still achievable (see page 12).

Q321 results analysis

Notwithstanding a quarter in which COVID-19 related constraints continued to disrupt the industry and in which the palladium price showed notable weakness, Wheaton's Q3 financial and operational results were broadly in line with our prior expectations (see our note Honing Q321 forecasts, published on 8 October) and within the range of analysts’ forecasts, albeit towards the lower half of the range. Revenue, earnings and cash flow for the first nine months of 2021 remained at record levels. As a result, the company declared a relatively generous dividend of US$0.15/share, representing a 25% increase compared to Q420. Operationally, Antamina, Constancia, Penasquito and San Dimas all outperformed our expectations, although this was offset to a large degree by a greater than expected increase in ounces produced but not yet delivered at Salobo, which continued to suffer from COVID-19 related disruptions and accounted for 20,020oz out of a total gold under-sale of 18,292oz during the period (ie more than 100%). As a consequence, the company narrowed its annual guidance for production to 735–765koz AuE (cf 720–780koz AuE previously), consistent with the mid-point of its previous guidance, but with a slightly different mix of metals (eg more silver and other metals and less gold – see Exhibits 7 & 9).

In general, both gold and silver production during the quarter met or exceeded our forecasts. However, the extent of the under-sale of gold relative to production exceeded our expectations by 10.6koz (effectively being solely attributable to Salobo), which resulted in a US$31.0m (or 10.3%) negative variance in sales relative to our prior forecasts. This was substantially offset by a US$19.4m, or 14.1%, positive (ie lower than expected) variance in total costs, with the difference of US$11.7m effectively falling straight through to the bottom line. A summary of WPM’s financial and operating results in the context of both its results in the preceding quarters and Edison’s prior expectations is provided in the exhibit below:

Exhibit 1: WPM underlying Q221 results versus Q121 and Q221e, by quarter*

US$000s
(unless otherwise stated)

Q120

Q220

Q320

Q420

Q121

Q221

Q321e

Q321a

Change
**(%)

Variance
***(%)

Variance
***(units)

Silver production (koz)

6,704

3,650

6,028

6,509

6,754

6,720

5,757

6,394

-4.9

11.1

637

Gold production (oz)

94,707

88,631

91,770

93,137

77,733

90,290

85,735

85,941

-4.8

0.2

206

Palladium production (koz)

5,312

5,759

5,444

5,672

5,769

5,301

5,561

5,105

-3.7

-8.2

-456

Cobalt production (klbs)

1,161

380

390

370.5

-2.5

-5.0

-20

 

 

 

Silver sales (koz)

4,928

4,729

4,999

4,576

6,657

5,600

5,741

5,487

-2.0

-4.4

-254

Gold sales (oz)

100,405

92,804

90,101

86,243

75,104

90,090

78,212

67,649

-24.9

-13.5

-10,563

Palladium sales (koz)

4,938

4,976

5,546

4,591

5,131

3,869

5,539

5,703

47.4

3.0

164

Cobalt sales (klbs)

132.3

395

400

131.2

-66.8

-67.2

-269

 

 

 

Avg realised Ag price (US$/oz)

17.03

16.73

24.69

24.72

26.12

26.69

24.30

23.80

-10.8

-2.1

-1

Avg realised Au price (US$/oz)

1,589

1,716

1,906

1,882

1,798

1,801

1,790

1,795

-0.3

0.3

5

Avg realised Pd price (US$/oz)

2,298

1,917

2,182

2,348

2,392

2,797

2,452

2,426

-13.3

-1.1

-26

Avg realised Co price (US$/lb)

22.19

19.82

17.65

23.78

20.0

34.7

6

 

 

 

Avg Ag cash cost (US$/oz)

4.50

5.23

5.89

5.51

6.33

6.11

6.15

5.06

-17.2

-17.7

-1

Avg Au cash cost (US$/oz)

436

418

428

433

450

450

433

464

3.1

7.2

31

Avg Pd cash cost (US$/oz)

402

353

383

423

427

503

441

468

-7.0

6.1

27

Avg Co cash cost (US$/lb)

4.98

4.41

4.24

5.15

16.8

21.5

1

 

 

 

Sales

254,789

247,954

307,268

286,213

324,119

330,393

299,971

268,957

-18.6

-10.3

-31,014

Cost of sales

 

 

 

Cost of sales, excluding depletion

66,908

65,211

70,119

64,524

78,783

78,445

73,259

62,529

-20.3

-14.6

-10,730

Depletion

64,841

58,661

60,601

59,786

70,173

70,308

63,599

54,976

-21.8

-13.6

-8,623

Total cost of sales

131,748

123,872

130,720

124,310

148,956

148,753

136,858

117,505

-21.0

-14.1

-19,353

Earnings from operations

123,040

124,082

176,548

161,902

175,164

181,640

163,113

151,452

-16.6

-7.1

-11,661

Expenses and other income

 

 

 

– General and administrative

13,181

21,799

21,326

9,391

11,971

18,465

12,765

13,595

-26.4

6.5

830

– Foreign exchange (gain)/loss

0

0

0

0

N/A

N/A

0

– Net interest paid/(received)

7,118

4,636

2,766

2,196

1,573

1,357

1,240

1,379

1.6

11.2

139

– Other (income)/expense

-1,861

234

391

850

420

136

(684)

-602.9

N/A

-684

Total expenses and other income

18,438

26,669

24,483

12,437

13,964

19,958

14,004

14,290

-28.4

2.0

286

Earnings before income taxes

104,602

97,413

152,065

149,465

161,199

161,682

149,109

137,162

-15.2

-8.0

-11,947

Income tax expense/(recovery)

8,442

59

58

24

67

56

250

75

33.9

-70.0

-175

Marginal tax rate (%)

8.1

0.1

0.0

0.0

0.0

0.0

0.2

0.1

N/A

-50.0

-0.1

Net earnings

96,160

97,354

152,007

149,441

161,132

161,626

148,859

137,087

-15.2

-7.9

-11,772

Average no. shares in issue (000s)

447,805

448,636

449,125

449,320

449,509

450,088

450,271

450,326

0.1

0.0

55

Adjusted basic EPS (US$)

0.215

0.217

0.338

0.333

0.358

0.359

0.331

0.304

-15.3

-8.2

-0.027

Adjusted diluted EPS (US$)

0.214

0.216

0.336

0.331

0.358

0.358

0.330

0.303

-15.4

-8.2

-0.027

DPS (US$)

0.10

0.10

0.10

0.12

0.13

0.14

0.15

0.15

7.1

0.0

0.00

Source: WPM, Edison Investment Research. Note: *As reported by WPM, excluding exceptional items. **Q321 versus Q221. ***Q321 actual versus Q321 estimate.

Operationally, Penasquito, Antamina and Constancia all benefited from some combination of improved grades and metallurgical recoveries, while San Dimas benefited from an increase in throughput coupled with the impact of changing the silver:gold conversion ratio from 90:1 in Q321 to 70:1 in Q321. In the event, Salobo’s production was closely aligned with our prior forecast, which reflected lower grades and throughput after a slower ramp up of operations after a review in Q1 that limited mine movement. Output at Sudbury was affected by the strike that lasted from 1 June until 9 August, but has now been resolved (see our note Honing forecasts, published on 4 August). Stillwater was affected by lower grades, while Wheaton experienced an increase in both inventory held by Wheaton as well as pounds of cobalt produced but not yet delivered from operations at Voisey’s Bay

In the meantime, according to Vale’s most recent performance report, physical completion of the Salobo III mine expansion was 81% at end-Q321 (cf 77% at end-Q221, 73% at end-Q121, 68% at end-Q420, 62% at end-Q3, 54% at end-Q2, 47% at end-Q1, 40% at end-Q419 and 27% at end-Q319) and remains on schedule for start-up in H222.

Ounces produced but not yet delivered, aka inventory

While the extent of Wheaton’s under-sale of silver relative to production held close to its long-term average in Q321 (14.3% cf a long-term average of 11.9%), for gold it increased by 14.4 percentage points relative to its long-term average of 6.9% to 21.3% in Q321 – to all intents and purposes, exclusively attributable to Salobo (see our note Honing Q321 forecasts, published 8 October):

Exhibit 2: Over/(under) sale of silver and gold as a percentage of production, Q112–Q321

Source: Edison Investment Research, WPM. Note: As reported.

As at 30 September, payable ounces attributable to WPM produced but not yet delivered to WPM amounted to 4.1Moz silver and 81,246oz gold (cf 4.0Moz silver and 66,250oz gold as at end-June). This ‘inventory’ currently equates to 1.89 and 2.86 months of Edison’s forecast FY21 silver and gold production, respectively (cf 1.89 and 2.25 months as at end-Q221) and compares with WPM’s target of two months of silver and two to three months of gold and palladium production, respectively:

Exhibit 3: WPM ounces produced but not yet delivered, Q316–Q321 (months of production)

Source: Edison Investment Research, WPM. Note: As reported.

Note that, for these purposes, the use of the term ‘inventory’ reflects ounces of gold and silver 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, where it typically refers to metal in circuit and ore on stockpiles etc.

General and administrative expenses

WPM provided updated guidance for non-stock general and administrative (G&A) expenses of US$42–44m (or US$10.5–11.0m per quarter) in FY21, cf US$42-45m previously and to a guided range of US$40–43m in FY20 and an actual outcome of US$38.7m (ie 3.1% below the bottom of the range), including all employee-related expenses, charitable contributions, etc, but excluding performance share units (PSUs) and equity settled stock-based compensation. In the event, G&A expenses in Q321 were below the pro-rata quarterly rate implied by WPM’s full-year guidance for the third quarter in succession:

Exhibit 4: WPM FY19–FY21 general and administrative expense (US$000s)

Item

FY21e

Q321

Q221

Q121

FY20

Q420

Q320

Q220

Q120

FY19

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

4,283

4,634

4,709

16,733

4,466

4,037

4,095

4,135

13,840

Other (inc. depreciation, donations and professional fees)

5,173

5,852

5,632

22,013

5,957

5,488

6,302

4,266

17,802

Sub-total

9,466

10,486

10,341

38,746

10,423

9,525

10,397

8,401

31,642

Guidance

42,000–45,000

10,500–11,000

10,500–11,000

10,500–11,000

40,000–43,000

10,000–10,750

10,000–10,750

10,000–10,750

10,000–10,750

33,000–36,000

PSU* accrual

2,824

6,672

305

21,520

(2,336)

10,482

10,097

3,277

17,174

Equity settled stock-based compensation

1,315

1,307

1,325

5,432

1,305

1,319

1,305

1,503

5,691

Total general & administrative

13,595

18,465

11,971

65,698

9,392

21,326

21,799

13,181

54,507

Total/sub-total (%)

+43.6

+76.1

+15.8

+69.6

-9.9

+123.9

+109.7

+56.9

+72.3

Source: WPM, Edison Investment Research. Note: *Performance share units.

Compared with non-stock G&A expenses, total G&A expenses are relatively difficult to forecast, given their dependence on the price of WPM’s shares. However, a simple analysis of stock-based G&A expenses over the past eight quarters compared to the change in WPM’s share price (also in US dollars) exhibits a relatively close Pearson product moment (correlation) coefficient between the two of 0.78, which is statistically significant at the 5% level for a directional hypothesis (ie there is less than a 5% probability that this relationship occurred by random chance). The graph relating to the analysis is shown below, including its linear trendline (and with the point relating to the most recent Q321 outcome also marked).

Exhibit 5: Graph of historical share price move (US$/share) versus quarterly stock-based G&A expense, Q419–Q321

Source: Edison Investment Research (underlying data: Bloomberg and Wheaton Precious Metals)

To date, in Q421, Wheaton’s share price has increased by US$2.66, or 7.1%, leading us to believe that, all other things being equal, WPM’s stock-based G&A will be in the order of US$6.2m in Q421. That being the case, we would expect the full G&A expense for the quarter to amount to c US$17.8m, which we have incorporated into our updated financial forecasts, below (albeit with suitable caveats).

Recent developments

Relative to our last note (Honing Q321 forecasts, published 8 October), we have updated our financial forecasts for the remainder of the year for the following four factors, which are briefly described below:

Metals prices: Edison does not believe that there has been a fundamental reversal of the bull market for precious metals. While we believe that the possibility of Fed tapering may remove upward pressure on the gold price, we do not believe that downward pressure will be brought to bear unless and until real interest rates (defined as the Fed Funds rate minus the US CPI) consistently maintain a level of 4% or more (as per 1979–80, see Edison’s gold report of June 2020, A golden future). Such a situation has not pertained since before the year 2000 and we do not predict that the US economy will revert to such an environment in the foreseeable future. As such, we are maintaining our practice of basing our short-term financial forecasts on the metals prices at the time of writing (see Exhibit 6, below). In this case however, we have also now extended these prices to into FY22 (cf nominal prices of US$1,892/oz Au and US$30.78/oz Ag assumed previously). Note that there have been no other changes to our longer-term metals price forecasts.

Exhibit 6: Edison forecast metals prices for remainder of FY21

Metals

Current forecast

Previous forecast

Change

(%)

Gold (US$/oz)

1,792

1,749

+2.5

Silver (US$/oz)

23.40

22.23

+5.3

Palladium (US$/oz)

2,009

1,811

+10.9

Cobalt (US$/lb)

26.40

24.21

+9.0

Simple average

Source: Edison Investment Research

19½ days of lost production and sales at Salobo: on 22 October, Salobo’s operator Vale announced the resumption of conveyor belt operations at Salobo, which had previously been halted for 18 days owing to a fire. Other activities, including mine and maintenance operations, continued as usual during this period but concentrate production was reported to have been interrupted and only resumed on 22 October and ramped up over a three-day period.

A four-day stoppage at Antamina: on 31 October, Antamina’s operating company, Compañía Minera Antamina, announced that operations at Antamina had been temporarily suspended in the face of a spate of blockades against mines in Peru. However, on 2 November, Reuters reported that the blockades would be lifted on Wednesday 3 November upon the commencement of formal talks between the parties. Consequently, Edison has assumed a four-day loss of production and sales from Antamina in Q4.

Constancia: gold and silver production at Constancia increased by 54.6% and 11.3% in Q3 relative to Q221, respectively. Silver production was primarily higher as a result of higher grades, while gold production was higher on account of the start of ore production from the Pampacancha satellite pit, which achieved commercial production in April 2021 and hosts significantly higher gold grades than those mined hitherto at Constancia. Gold production also benefited from the increase in the fixed recoveries attributable to WPM to 70% (cf 55% previously; see our note Solid Q221 results set up H221, published on 18 August 2021). The start of mining at Pampacancha was approximately nine quarters behind schedule; however, it was still approximately two quarters earlier than we had (rather conservatively) assumed previously. In the light of the fact that the benefits of mining at Pampacancha are now already being realised, we have therefore increased our gold production forecast from Constancia by 3,983oz (or 87.5%) to 8,533oz for the final quarter of the year.

In addition to the above developments, on 20 July, Wheaton signed a non-binding term sheet with Rio2 Ltd to enter into a precious metals purchase agreement (PMPA) in connection with the Fenix Gold project located in Chile. Under the terms of the proposed PMPA, Wheaton will acquire 6% of Fenix’s gold production until 90,000oz have been delivered and 4% of its gold production until 140,000oz have been delivered, after which the stream will drop to 3.5% for the remainder of the life of the mine. In consideration for this stream, Wheaton will pay a total upfront cash consideration of US$50m to Rio2, of which US$25m will be payable upon closing and US$25m will be payable upon Rio2’s receipt of its environmental impact assessment (EIA) for the project (subject to conditions). In addition, WPM will make ongoing delivery payments equal to approximately 18% of the spot price of gold until the aggregate value of the gold delivered less the production payment is equal to the upfront consideration of US$50m, at which point the production payment will increase to 22% of the spot gold price.

The Fenix PMPA is subject to, among other matters, the negotiation and completion of definitive documentation and therefore, for the time being, Edison has left it excluded from its financial forecasts for Wheaton. As with a number of its other streams however, once in production, WPM believes that there is ample scope for Fenix to double, treble and potentially even quadruple production relative to its initial output rates and it expects these potential scenarios to be given Rio2 management’s full consideration over the course of the next two years.

FY21 updated forecasts by quarter

In the light of the above developments, Edison’s updated forecasts for WPM for FY21 are as shown in Exhibit 7, below. The forecasts assume that operations will continue throughout the remainder of the year without major interruptions. Apart from precious metals prices, the principal remaining risk to our forecasts relates to the extent to which sales differ from production and therefore the extent to which inventory (in the form of ounces produced but not yet delivered to WPM – see Exhibits 2 and 3) either increases or decreases during the year.

Exhibit 7: WPM FY21 forecast, by quarter*

US$000s
(unless otherwise stated)

FY20

Q121

Q221

Q321

Q421e

(prior)

Q421e

(current)

FY21e

(current)

FY21e

(prior)

Silver production (koz)

22,892

6,754

6,720

6,394

5,773

5,921

25,789

25,004

Gold production (oz)

367,419

77,733

90,290

85,941

95,225

86,650

340,614

348,983

Palladium production (koz)

22,187

5,769

5,301

5,105

5,561

5,561

21,736

22,192

Cobalt production (klb)

1,161

380

370.5

400

400

2,311

2,331

Silver sales (koz)

19,232

6,657

5,600

5,487

5,773

5,921

23,598

23,771

Gold sales (oz)

369,553

75,104

90,090

67,649

95,192

86,617

319,460

338,598

Palladium sales (oz)

20,051

5,131

3,869

5,703

5,539

5,539

20,242

20,078

Cobalt sales (klb)

132.3

395

131.2

400

400

1,058

1,317

Avg realised Ag price (US$/oz)

20.78

26.12

26.69

23.80

22.23

23.42

23.40

24.87

Avg realised Au price (US$/oz)

1,767

1,798

1,801

1,795

1,749

1,787

1,795

1,783

Avg realised Pd price (US$/oz)

2,183

2,392

2,797

2,426

1,811

2,013

2,375

2,326

Avg realised Co price (US$/lb)

20.90

19.82

23.78

18.16

21.79

21.35

18.91

Avg Ag cash cost (US$/oz)

5.28

6.33

6.11

5.06

6.09

5.33

5.27

6.18

Avg Au cash cost (US$/oz)

426

450

450

464

428

430

447

440

Avg Pd cash cost (US$/oz)

389

427

503

468

326

362

435

418

Avg Co cash cost (US$/lb)

4.98

4.41

5.15

4.36

3.92

4.39

4.40

Sales

1,096,224

324,119

330,393

268,957

312,129

311,101

1,234,569

1,266,612

Cost of sales

Cost of sales, excluding depletion

266,763

78,783

78,445

62,529

79,415

72,358

292,115

309,902

Depletion

243,889

70,173

70,308

54,976

75,422

70,790

266,248

279,502

Total cost of sales

510,652

148,956

148,753

117,505

154,837

143,148

558,363

589,404

Earnings from operations

585,572

175,164

181,640

151,452

157,292

167,953

676,206

677,207

Expenses and other income

– General and administrative**

65,698

11,971

18,465

13,595

15,891

17,777

61,808

59,092

– Foreign exchange (gain)/loss

0

0

– Net interest paid/(received)

16,715

1,573

1,357

1,379

1,147

1,249

5,558

5,316

– Other (income)/expense

(387)

420

136

(684)

(128)

556

Total expenses and other income

82,026

13,964

19,958

14,290

17,038

19,025

67,237

64,964

Earnings before income taxes

503,546

161,199

161,682

137,162

140,254

148,927

608,968

612,243

Income tax expense/(recovery)

211

67

56

75

250

250

448

623

Marginal tax rate (%)

0.0

0.0

0.0

0.1

0.2

0.2

0.1

0.1

Net earnings

503,335

161,132

161,626

137,087

140,004

148,677

608,520

611,620

Average no. shares in issue (000s)

448,964

449,509

450,088

450,326

450,271

450,507

450,108

450,035

Basic EPS (US$)

1.12

0.358

0.359

0.304

0.311

0.330

1.35

1.36

Diluted EPS (US$)

1.12

0.358

0.358

0.303

0.310

0.329

1.35

1.36

DPS (US$)

0.42

0.13

0.14

0.15

0.14

0.15

0.57

0.56

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

Readers should note that, consistent with past practice, for the purposes of FY21 we are assuming production and sales are closely aligned and that there is little or no change in the level of ounces produced but not yet delivered. Within this context, our basic EPS forecast of US$1.35/share for FY21 is closely in line with the consensus forecast of US$1.40/share (source: Refinitiv, 5 November 2021) and towards the middle of the range of analysts’ expectations of US$1.29–1.58 per share for the period:

Exhibit 8: WPM FY21e consensus EPS forecasts (US$/share), by quarter

Q121

Q221

Q321e

Q421e

Sum Q1–Q421e

FY21e

Edison forecasts

0.358

0.359

0.304

0.330

1.351

1.35

Mean consensus

0.358

0.359

0.304

0.360

1.381

1.40

High consensus

0.358

0.359

0.304

0.440

1.461

1.58

Low consensus

0.358

0.359

0.304

0.280

1.301

1.29

Source: Refinitiv, Edison Investment Research. Note: As at 5 November 2021.

In the meantime, we have reduced our basic EPS forecast of US$2.05/share (previously) for FY22 to US$1.53/share (see Exhibit 12), albeit this reduction reflects only currently prevailing metals prices and nothing else. Our new estimate compares with a consensus for FY22 of US$1.62/share within a range of US$1.30–2.08/share (source: Refinitiv, 5 November 2021).

FY21 and five-year and 10-year guidance

At the time of its Q420/FY20 results, WPM provided production guidance of 720–780koz AuE for FY21 and well as five-year average production guidance of 810,000oz AuE per annum and maiden 10-year average guidance of 830,000oz AuE per annum. At the same time as announcing its Q321 results however, Wheaton also took the opportunity to refine its guidance. WPM now estimates that attributable production in 2021 will be approximately 735–765koz AuE, which is in line with previous guidance, albeit achieved via a slightly different mix of metals, as shown in the table below (note that Wheaton’s longer-term guidance remains unchanged). This compares with Edison’s updated forecasts in the wake of Q321 results, as follows:

Exhibit 9: WPM precious metals production – Edison forecasts cf guidance

FY21e

*FY22–25 average

FY26–30 average

Previous Edison forecast

Silver production (Moz)

25.0

Gold production (koz)

349.0

Cobalt production (klb)

2,331

Palladium production (koz)

22.2

Gold equivalent (koz)

748

819

804

Current Edison forecast

Silver production (Moz)

25.8

Gold production (koz)

340.6

Cobalt production (klb)

2,311

Palladium production (koz)

21.7

Gold equivalent (koz)

749.4

819

804

WPM updated guidance

Silver production (Moz)

25.5–26.0

Gold production (koz)

330–345

Cobalt & palladium production (koz AuE)

45–55

Palladium production (koz)

N/A

Gold equivalent (koz)

735–765

810

830

WPM original guidance

Silver production (Moz)

22.5–24.0

Gold production (koz)

370–400

Cobalt & palladium production (koz AuE)

40–45

Palladium production (koz)

N/A

Gold equivalent (koz)

720–780

810

830

Source: WPM, Edison Investment Research forecasts. Note: *Edison forecasts include a contribution from Salobo III from FY23e and Rosemont from FY25e.

WPM’s updated five-year and 10-year guidance are now based on standardised pricing assumptions of US$1,800/oz Au, US$25.00/oz Ag, US$2,300/oz palladium (Pd) and US$17.75/lb cobalt (Co). Of note in this context is an implied gold/silver ratio of 72.0x, which compares with its current ratio of 75.2x and a long-term average of 61.5x (since gold was demonetised in August 1971). Self-evidently, at the standardised prices indicated, our gold equivalent production forecast of 749.4koz AuE lies well within WPM’s updated guidance range of 735–765koz AuE. Otherwise, readers will note that Edison’s (unchanged) longer-term production forecasts remain within 3.1% of WPM’s guidance for the period FY22–30.

Short-term organic growth opportunities

In the short 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. In addition, it intends to install a new 3,000tpd high-intensity grinding mill circuit and an autogenous grinding mill in H221 to improve recoveries and reduce operating costs. Production of palladium and gold at Stillwater (operated by Sibanye-Stillwater) will similarly increase under the influence of the Fill-the-Mill project at East Boulder (although the Blitz project has now been delayed by two years, to 2024, following the suspension of growth capital activities due to COVID-19).

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 at that point scheduled for H222 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 for this expansion, which WPM estimates will be c US$550–650m in FY23, in return for which it will be entitled to its full 75% attributable share of expanded gold production. This compares to WPM’s purchase of a 25% stream from Salobo in August 2016 for a consideration of US$800m (see our note 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 it paid for its original 25% stream in February 2013.

According to Vale’s Q321 performance report, the Salobo III mine expansion is now 81% complete (cf 77% at the end of Q221, 73% at the end of Q121, 68% at the end of Q420, 62% at the end of Q320, 54% at the end of Q220, 47% at the end of Q120, 40% at the end of Q419 and 27% at the end of Q319) and remains on schedule for start-up in H222.

Once Salobo III has been completed, however, WPM believes reserves and resources could support a further 33% capacity increase at Salobo, from 90ktpd to 120ktpd (denoted Salobo IV). In addition to its long-term underground mining potential, WPM believes such an expansion could still be supported by output from the open pit. Under the terms of its agreement with Vale, there would be no additional payment due from WPM in respect of this expansion, although Vale could exercise a right to alter the timing of the incremental payment due for Salobo III.

Pascua-Lama

WPM’s contract with Barrick provided for a completion test that, if unfulfilled by 30 June 2020, would result in WPM being entitled to the return of its upfront cash consideration of US$625m less a credit for any silver delivered up to that date from three other Barrick mines (at which point it would have no further streaming interest in the mine). Given the test was unfulfilled, WPM had the right to an estimated US$252.3m (the carrying value of Pascua-Lama in WPM’s accounts) repayment from Barrick in FY20. Given the long-term optionality provided by the Pascua-Lama project, however, WPM instead opted not to enforce the repayment of its entitlement and to instead maintain its streaming interest in the project (which was originally expected to deliver an attributable 1.7–12.0Moz silver pa, averaging 5.2Moz Ag pa, to WPM at a cost of US$3.90/oz (inflating at 1% per year).

Rosemont

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

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

Rosemont’s operator, Hudbay, has received both a Mine Plan of Operations from the US Forest Service and a Section 404 Water Permit from the US Army Corps of Engineers (in March 2019), which was effectively the final material administrative step before the mine could start development. Subsequently, Hudbay indicated it would seek board approval to start construction work by the end of CY19, which would have enabled first production ‘by the end of 2022’. In the meantime, it started early works to run concurrently with financing activities (including a potential joint venture partner).

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

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

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

In response, Hudbay said it believed the ruling to be without precedent and the court had misinterpreted federal mining laws and Forest Service regulations as they apply to Rosemont. It pointed out that the Forest Service issued its decision in 2017 after a ‘thorough process of 10 years involving 17 co-operating agencies at various levels of government, 16 hearings, over 1,000 studies, and 245 days of public comment resulting in more than 36,000 comments’ and with a long list of studies that have examined the potential effects of the proposed mine on the environment. Hudbay also pointed out that various agencies had accepted the company could operate the mine in compliance with environmental laws. As a result, Hudbay has appealed the ruling to the Ninth Circuit Court of Appeals, which it expects to be successful, not least as a result of there being legal precedents for its waste disposal plan. As per its MD&A for the year ended December 2020, final briefs relating to its appeal were filed in November 2020 and the oral hearing was completed in early February 2021, such that Hudbay expects a ruling from the Ninth Circuit in the near future. Nevertheless, as an alternative, it is also able to adapt its mine and waste plan to accommodate its waste dumps on privately owned, patented land alone, if necessary.

In the meantime, Hudbay has continued to explore in and around the area of the mine and, on 22 September, announced the intersection of additional high grade copper sulphide and oxide mineralisation on its wholly owned patented mining claims (Copper World). To date, seven deposits have been identified at Copper World with a combined strike length of over 7km. As of 30 June approximately 166 holes have been completed at Copper World, totalling over 91,000 feet, on the back of which Hudbay expects to publish an initial inferred mineral resource estimate for Copper World before the end of 2021. These mineral resources will then form the basis for a preliminary economic assessment on the project, expected to be released H122. Note, the Copper World discovery is included in Wheaton's area of interest under its PMPA with Hudbay.

Once in production, we estimate Rosemont will contribute c 16,750oz gold and 2.7Moz silver to WPM’s production profile in return for an upfront payment of US$230m in two instalments of US$50m and US$180m (neither of which has yet been paid) and this production is included in our financial forecasts from FY25.

Other potential future growth opportunities

WPM reports that its corporate development team remains ‘exceptionally busy’. While the majority of deals are now reported to be with development companies in the US$100–300m range (with fewer ‘balance sheet repair’ opportunities), it is also reported there have been a number of approaches made by producing companies for transactions to fund expansion and even to fund M&A activity. In the first instance, WPM would fund any such transactions via the US$2bn available under its revolving credit facility, plus US$372.5m in cash (at end-Q321) and, potentially, its US$300m at-the-market equity programme.

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

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

the 30% of the gold output at Constancia that is not subject to any streaming arrangement.

Otherwise, WPM also has streaming agreements with other potential producing mines, including Navidad and Cotabambas, and a recently acquired 2.0% net smelter return royalty interest with the Brewery Creek mine in the Yukon in Canada.

Valuation

Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 30.0x current year basic underlying EPS, excluding impairments (cf 29.8x Edison or 28.7x Refinitiv consensus FY21e – see Exhibit 11).

Exhibit 10: WPM’s historical current year P/E multiples, 2005–20

Source: Edison Investment Research

Applying this 30.0x multiple to our EPS forecast of US$2.04 in FY23 (previously US$2.06) would ordinarily imply a potential value per share for WPM of US$61.222 or C$76.27 in that year. However, the graph above suggests the current year multiple has been on a broadly upward trend between FY12 and FY19, on which basis we would argue that a multiple in excess of 40x (as evidenced by FY18 and FY19) could be supported in the event of a return to favour of precious metals and precious metals stocks (not least given the fact that these years were not subject to the extraordinary trials and tribulations experienced in FY20). In this case, applying a 40.7x earnings multiple (the average of FY18, FY19 and FY20) to our updated EPS forecast of US$2.04 in FY23 implies a potential value per share for WPM in that year of US$83.03 or C$104.92 (note this analysis implicitly assumes metals prices in FY24 would be experiencing the same sort of increases relative to FY23 that they did in FY20 relative to FY19 and the average multiple would probably then contract again in FY24 as EPS ‘caught up’ with the share price). Even at such share price levels, however, a multiple of over 40.7x would put WPM’s shares on no more than par relative to Franco-Nevada (see Exhibit 11).

In the meantime, from a relative perspective, it is notable that WPM has a lower valuation than the average of its royalty/streaming ‘peers’ on seven out of nine valuation measures, regardless of whether Edison or consensus forecasts are used. On an individual basis, it is cheaper than its peers on 75% (27 out of 36) of the valuation measures observed in Exhibit 11 if our estimates are adopted or 72% (26 out of 36) of the same valuation measures if consensus forecasts are adopted.

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 3

Year 1

Year 2

Year 3

Year 1

Year 2

Year 3

Royalty companies

Franco-Nevada

40.3

38.9

37.9

0.8

0.9

0.9

27.4

26.4

25.9

Royal Gold

24.4

26.7

26.6

1.2

1.2

1.2

14.0

14.8

14.6

Sandstorm Gold

39.3

31.9

35.8

0.0

1.1

1.1

15.0

14.1

15.7

Osisko

32.6

28.9

26.3

1.4

1.4

1.4

17.5

15.5

13.2

Average

34.1

31.6

31.7

0.8

1.1

1.1

18.5

17.7

17.3

WPM (Edison forecasts)

29.8

26.3

19.7

1.4

1.6

1.9

20.3

18.0

14.7

WPM (consensus)

28.7

24.9

24.7

1.4

1.6

1.7

20.2

18.2

17.3

Implied WPM share price (US$)*

46.16

48.38

64.58

68.41

58.80

70.32

36.71

39.54

47.52

Source: Refinitiv, Edison Investment Research. Note: Peers priced on 5 November 2021. *Derived using Edison forecasts and average consensus multiples.

Financials: US$372.5m in net cash and growing

At 30 September, WPM had US$372.5m in cash on its balance sheet (cf US$235.4m in Q221, US$191.2m in Q121 and US$192.7m in Q420) and no debt outstanding (cf US$195.0m in Q420) under its US$2bn revolving credit facility, such that (including a modest US$3.1m in leases) it had US$369.4m in net cash overall (cf US$232.1m in Q221, US$187.7m in Q121 and US$6.0m in Q420) after US$201.3m of cash generated by operating activities during the quarter (cf US$216.3m in Q221, US$232.2m in Q121 and US$208.0m in Q420).

Exhibit 12: Financial summary

US$'000s

2016

2017

2018

2019

2020

2021e

2022e

2023e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

891,557

843,215

794,012

861,332

1,096,224

1,234,569

1,408,032

1,650,042

Cost of Sales

(254,434)

(243,801)

(245,794)

(258,559)

(266,763)

(292,115)

(326,130)

(343,504)

Gross Profit

637,123

599,414

548,218

602,773

829,461

942,454

1,081,902

1,306,537

EBITDA

 

 

602,684

564,741

496,568

548,266

763,763

880,646

1,008,586

1,233,221

Operating Profit (before amort. and except.)

 

 

293,982

302,361

244,281

291,440

519,874

614,398

694,697

918,030

Intangible Amortisation

0

0

0

0

0

0

0

0

Exceptionals

(71,000)

(228,680)

245,715

(156,608)

4,469

3,934

0

0

Other

(4,982)

8,129

(5,826)

217

387

128

0

0

Operating Profit

218,000

81,810

484,170

135,049

524,730

618,460

694,697

918,030

Net Interest

(24,193)

(24,993)

(41,187)

(48,730)

(16,715)

(5,558)

(4,406)

1,895

Profit Before Tax (norm)

 

 

269,789

277,368

203,094

242,710

503,159

608,840

690,291

919,925

Profit Before Tax (FRS 3)

 

 

193,807

56,817

442,983

86,319

508,015

612,902

690,291

919,925

Tax

1,330

886

(15,868)

(181)

(211)

(448)

(1,000)

(1,000)

Profit After Tax (norm)

266,137

286,383

181,400

242,746

503,335

608,520

689,291

918,925

Profit After Tax (FRS 3)

195,137

57,703

427,115

86,138

507,804

612,454

689,291

918,925

Average Number of Shares Outstanding (m)

430.5

442.0

443.4

446.0

448.7

450.1

450.5

450.5

EPS - normalised (c)

 

 

62

63

48

54

112

135

153

204

EPS - normalised and fully diluted (c)

 

 

62

63

48

54

112

135

149

199

EPS - (IFRS) (c)

 

 

45

13

96

19

113

136

153

204

Dividend per share (c)

21

33

36

36

42

57

65

78

Gross Margin (%)

71.5

71.1

69.0

70.0

75.7

76.3

76.8

79.2

EBITDA Margin (%)

67.6

67.0

62.5

63.7

69.7

71.3

71.6

74.7

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

33.0

35.9

30.8

33.8

47.4

49.8

49.3

55.6

BALANCE SHEET

Fixed Assets

 

 

6,025,227

5,579,898

6,390,342

6,123,255

5,755,441

5,612,220

5,466,331

5,936,140

Intangible Assets

5,948,443

5,454,106

6,196,187

5,768,883

5,521,632

5,370,267

5,224,378

5,694,187

Tangible Assets

12,163

30,060

29,402

44,615

33,931

34,622

34,622

34,622

Investments

64,621

95,732

164,753

309,757

199,878

207,331

207,331

207,331

Current Assets

 

 

128,092

103,415

79,704

154,752

201,831

517,787

1,062,970

1,160,555

Stocks

1,481

1,700

1,541

43,628

3,265

2,216

2,528

2,962

Debtors

2,316

3,194

2,396

7,138

5,883

3,382

3,858

4,521

Cash

124,295

98,521

75,767

103,986

192,683

512,188

1,056,585

1,153,072

Other

0

0

0

0

0

0

0

0

Current Liabilities

 

 

(19,057)

(12,143)

(28,841)

(64,700)

(31,169)

(46,957)

(50,312)

(52,026)

Creditors

(19,057)

(12,143)

(28,841)

(63,976)

(30,396)

(46,184)

(49,539)

(51,253)

Short term borrowings

0

0

0

(724)

(773)

(773)

(773)

(773)

Long Term Liabilities

 

 

(1,194,274)

(771,506)

(1,269,289)

(887,387)

(211,532)

(16,532)

(16,532)

(16,532)

Long term borrowings

(1,193,000)

(770,000)

(1,264,000)

(878,028)

(197,864)

(2,864)

(2,864)

(2,864)

Other long term liabilities

(1,274)

(1,506)

(5,289)

(9,359)

(13,668)

(13,668)

(13,668)

(13,668)

Net Assets

 

 

4,939,988

4,899,664

5,171,916

5,325,920

5,714,571

6,066,518

6,462,457

7,028,136

CASH FLOW

Operating Cash Flow

 

 

608,503

564,187

518,680

548,301

784,843

900,112

1,011,154

1,233,838

Net Interest

(24,193)

(24,993)

(41,187)

(41,242)

(16,715)

(5,558)

(4,406)

1,895

Tax

28

(326)

0

(5,380)

(2,686)

(448)

(1,000)

(1,000)

Capex

(805,472)

(19,633)

(861,406)

10,571

149,648

(123,027)

(168,000)

(785,000)

Acquisitions/disposals

0

0

0

0

0

0

0

0

Financing

595,140

1,236

1,279

37,198

22,396

0

0

(0)

Dividends

(78,708)

(121,934)

(132,915)

(129,986)

(167,212)

(256,573)

(293,351)

(353,246)

Net Cash Flow

295,298

398,537

(515,549)

419,462

770,274

514,505

544,397

96,487

Opening net debt/(cash)

 

 

1,362,703

1,068,705

671,479

1,188,233

774,766

5,954

(508,551)

(1,052,948)

HP finance leases initiated

0

0

0

0

0

0

0

0

Other

(1,300)

(1,311)

(1,205)

(5,995)

(1,462)

0

0

0

Closing net debt/(cash)

 

 

1,068,705

671,479

1,188,233

774,766

5,954

(508,551)

(1,052,948)

(1,149,435)

Source: Company sources, Edison Investment Research


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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 2021 Edison Investment Research Limited (Edison).

Australia

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

New Zealand

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

United Kingdom

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

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

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

United States

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 £60,000 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 2021 Edison Investment Research Limited (Edison).

Australia

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

New Zealand

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

United Kingdom

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

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

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

United States

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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