In the right place at the right time

Wheaton Precious Metals 23 March 2020 Outlook
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Wheaton Precious Metals

In the right place at the right time

Q419/FY19 results

Metals & mining

23 March 2020

Price

C$37.32

Market cap

C$17bn

C$1.4520/US$

Net debt (US$m) at 31 December 2019*

770.5

*Excluding US$4.3m lease liabilities

Shares in issue

446.3m

Free float

100%

Code

WPM

Primary exchange

TSX

Secondary exchange

NYSE

Share price performance

%

1m

3m

12m

Abs

(19.2)

(2.9)

14.0

Rel (local)

22.3

40.2

55.5

52-week high/low

C$44.28

C$26.56

Business description

Wheaton Precious Metals is the world’s pre-eminent ostensibly precious metals streaming company, with 29 high-quality precious metals streaming and early deposit agreements relating to assets in Mexico, Peru, Canada, Brazil, Chile, Argentina, Sweden, Greece, Portugal and the US.

Next events

Q120 results

May 2020

Q220 results

August 2020

Q320 results

November 2020

Analyst

Charles Gibson

+44 (0)20 3077 5724

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

Attributable production of gold at Wheaton Precious Metals (WPM) reached a record in FY19, breaching the 400koz level for the first time ever. Record production begat record sales, although sales struggled to keep pace with production and, as a result, there was a slightly uncharacteristic (for the fourth quarter) increase in the number of ounces of metal produced but not yet delivered to WPM from its underlying streaming assets. From a financial perspective however, underlying net earnings during the quarter were within US$1m of our prior forecasts, auguring well for FY20 in terms of both EPS and DPS.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/18

794.0

203.1

48

36

53.5

1.4

12/19

861.3

242.7

56

36

45.9

1.4

12/20e

937.8

289.2

65

42

39.8

1.6

12/21e

1,154.6

507.1

113

52

22.7

2.0

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

Q4 outperformance at 11 out of 19 mines

Out of 19 mines, production at 11 (and five out of eight major assets) was in excess of our forecasts in Q4, with the outperformance generally being attributed to higher grades. In addition, WPM provided estimated attributable production guidance of 390–410koz gold, 22.0–23.5Moz silver and 23.0–24.5koz of palladium in FY20 to result in gold equivalent production of c 685–725koz (see pages 5–6). For the five-year period ending FY24, the company has reiterated its average annual gold equivalent production guidance at 750,000oz pa.

Minimum quarterly dividend in FY20 increased 11%

At the same time as declaring its financial results for Q419 and FY19, WPM declared a first quarterly dividend of US$0.10/share for Q1, payable to shareholders of record on 26 March 2020. To minimise volatility in quarterly dividends, WPM has set a minimum quarterly dividend of US$0.10/share for the duration of FY20, representing an 11% increase relative to FY19 (albeit remaining at the discretion of the board of directors).

Valuation: C$48.47 per share in FY21

We have honed our EPS forecasts to 65c for FY20 and to 113c for FY21 in the wake of the recent turmoil in the precious metals markets. Assuming no material purchases of additional streams (which we think unlikely), we forecast a value per share for WPM of US$33.38, or C$48.47, in FY21. This valuation excludes the value of 20.2m shares in First Majestic held by WPM, with an immediate value of C$150.2m, or US$0.23 per WPM share. In the meantime, WPM’s shares are trading on near-term financial ratios that are cheaper than those of its royalty/streaming ‘peers’ in at least 54% of financial measures considered in Exhibit 11, and the miners themselves in at least 26% of the same measures, despite being associated with materially less operating and cost risk.

Investment summary

Company description: Pre-eminent precious metals streamer

Wheaton Precious Metals acquires the right to purchase streams of precious metals from producing or near-producing mines in return for a combination of a fixed upfront payment and an ongoing payment (in US$/oz). Typically, it focuses on by-product precious metal streams as this offers the greatest arbitrage opportunity between the perceived value of the stream to the producer and the perceived value of the stream to WPM. Specifically, however, it seeks to build long-term value by entering streaming agreements with large, financially stable counterparties operating premium, high-margin projects in the lowest quartile (and certainly the lowest half) of the cost curve.

Valuation: Base case C$48.47/share in FY21

Edison has honed its EPS forecasts to 65c for FY20 (from a range of 80-130c, depending upon precious metal prices assumed) and to 113c for FY21 (cf 115c previously). Excluding FY04, WPM’s shares have historically traded on an average P/E multiple of 29.5x current year basic underlying EPS (cf 39.8x Edison or 28.9x consensus FY20e, currently). Applying this multiple to our long-term EPS forecast of US$1.13 in FY21 implies a potential value for WPM shares of US$33.38, or C$48.47, in that year (cf US$32.78, or C$43.37, previously).

Financials: 12.7% financial leverage

As at 31 December 2019, WPM had US$104.0m in cash and US$874.5m of debt outstanding under its US$2bn revolving credit facility, such that (including a modest US$4.3m in leases) it had net debt of US$774.8m after US$131.9m of cash generated by operating activities in Q419. Relative to the company’s balance sheet equity of US$5,325.9m (cf US$5,201.4m at end-Q3), this level of net debt equates to a financial gearing (net debt/equity) ratio of 14.5% (cf 16.6% at end-Q3) and a leverage (net debt/[net debt+equity]) ratio of 12.7% (cf 14.2% at end-Q3). It also compares with a net debt position of US$865.5m as at end-September, US$1,012.8m as at end-June, US$1,057.7m as at end-March, US$1,188.2m as at end-December 2018 and US$1,261.1m as at end-September 2018. All other things being equal and subject to its making no further major acquisitions (which is unlikely in our view), on our current cash flow projections WPM will be net debt free late in FY21.

Growth potential

WPM has immediate growth potential in the form of its existing precious metal streaming agreements relating to the Salobo III mine expansion, Penasquito, Constancia, Pascua-Lama, Rosemont, Navidad, Keno Hill and Cotabambas to name a few. Aside from these, WPM estimates the size of the potential market open to it to be the lower half of the cost curve of the 70% of global silver production of c 856Moz in CY18 that was produced as a by-product of either gold or base metal mines (ie approximately 300Moz pa silver, compared with which WPM’s silver production of 22.5Moz in FY19 represented a market penetration rate of only 7.5%). Inevitably, WPM’s investible universe may be further refined by the requirement for the operations to be located in good mining jurisdictions, with relatively low political risk. Nevertheless, such figures serve to illustrate the fact that WPM’s marketplace is far from saturated or mature.

Sensitivities: Metals prices ±10% changes EPS by ±15c/share

Our financial forecasts for FY20 are conducted at precious metals prices of US$12.00/oz Ag and US$1,479/oz Au. A ±10% change in these prices results in a ±US$0.15 (23.1%) change in our EPS forecasts.

Q419 and FY19 results

With just one exception (Sudbury), all of Wheaton’s major mines either met or exceeded our production expectations for Q419 and, to all intents and purposes, Wheaton’s (see Exhibit 4). As a result, attributable production of gold at WPM reached a record in FY19, breaching the 400koz level for the first time ever. Record production begat record sales volumes of gold as well, although there was some evidence that sales volumes struggled to keep pace with production. Consequently, there was a (slightly uncharacteristic for the fourth quarter) increase in stocks of metals produced but not yet delivered. From a financial perspective however, underlying net earnings during the quarter were, once again, within US$1m of our prior forecasts. Otherwise, readers should note that the difference between Edison FY19 underlying EPS forecast of US$0.57 and the reported number of US$0.56 could be explained purely in terms of rounding: the reported number coming to 56.498c, rather than Edison’s 56.670c to three decimal places.

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

US$000s
(unless otherwise stated)

Q418

Q119

Q219

Q319

Q419e

Q419a

Change ***
(%)

Variance ****
(%)

Variance ****
(units)

FY19e

FY19a

Silver production (koz)

5,499

5,614

4,834

6,095

5,140

5,962

-2.2

16.0

822

21,683

22,562

Gold production (oz)

107,567

93,585

100,577

104,175

95,419

107,225

2.9

12.4

11,806

393,756

406,675

Palladium production (koz)

5,869

4,729

5,736

5,471

5,500

6,057

10.7

10.1

557

21,436

21,993

 

 

 

Silver sales (koz)

4,400

4,294

4,241

4,484

4,740

4,684

4.5

-1.2

-56

17,759

17,703

Gold sales (oz)

102,813

115,020

90,077

94,766

95,383

89,223

-5.8

-6.5

-6,160

395,246

389,086

Palladium sales (koz)

5,049

5,189

5,273

4,907

5,478

5,312

8.3

-3.0

-166

20,847

20,681

 

 

 

Avg realised Ag price (US$/oz)

14.66

15.64

14.93

17.09

17.18

17.36

1.6

1.0

0.18

16.25

16.29

Avg realised Au price (US$/oz)

1,229

1,308

1,320

1,471

1,472

1,483

0.8

0.7

11

1,389

1,391

Avg realised Pd price (US$/oz)

1,137

1,443

1,381

1,535

1,721

1,804

17.5

4.8

83

1,522

1,542

 

 

 

Avg Ag cash cost (US$/oz)

4.66

4.64

5.14

5.16

5.31

5.13

-0.6

-3.4

-0.18

5.07

5.02

Avg Au cash cost (US$/oz)

409

417

420

424

421

426

0.5

1.2

5

420

421

Avg Pd cash cost (US$/oz)

205

254

247

271

310

321

18.5

3.5

11

271

273

 

 

 

Sales

196,591

225,049

189,466

223,595

231,266

223,222

-0.2

-3.5

-8,044

869,376

861,332

Cost of sales

 

 

 

Cost of sales, excluding depletion

63,598

69,214

60,957

64,624

67,092

63,764

-1.3

-5.0

-3,328

261,887

258,559

Depletion

67,844

68,381

61,404

63,396

66,665

63,645

0.4

-4.5

-3,020

259,846

256,826

Total cost of sales

131,442

137,595

122,361

128,020

133,756

127,408

-0.5

-4.7

-6,348

521,733

515,385

Earnings from operations

65,149

87,454

67,105

95,575

97,510

95,814

0.3

-1.7

-1,696

347,643

345,947

Expenses and other income

 

 

 

– General and administrative**

16,597

16,535

12,249

14,028

9,250

11,695

-16.6

26.4

2,445

52,062

54,507

– Foreign exchange (gain)/loss

144

0

0

N/A

N/A

0

0

0

– Net interest paid/(received)

12,743

13,946

13,306

11,871

10,145

9,607

-19.1

-5.3

-538

49,268

48,730

– Other (income)/expense

581

(266)

(500)

(265)

814

-407.2

N/A

814

(1,031)

(217)

Total expenses and other income

30,065

30,215

25,055

25,634

19,395

22,116

-13.7

14.0

2,721

100,299

103,020

Earnings before income taxes

35,084

57,239

42,050

69,941

78,115

73,698

5.4

-5.7

-4,417

247,344

242,927

Income tax expense/(recovery)

(1,662)

(110)

(2,758)

(2,751)

250

(3,447)

25.3

-1,478.8

-3,697

(5,369)

(9,066)

Marginal tax rate (%)

(4.7)

(0.2)

(6.6)

(3.9)

0.3

(4.7)

20.5

-1,666.7

-5.0

(2.2)

(3.7)

Net earnings

36,745

57,349

44,808

72,692

77,865

77,145

6.1

-0.9

-720

252,713

251,993

Average no. shares in issue (000s)

444,057

444,389

445,769

446,802

446,802

446,802

0.0

0.0

0

445,941

446,021

Basic EPS (US$)

0.08

0.13

0.10

0.16

0.17

0.17

6.3

0.0

0.00

0.57

0.56

Diluted EPS (US$)

0.08

0.13

0.10

0.16

0.17

0.17

6.3

0.0

0.00

0.57

0.56

DPS (US$)

0.09

0.09

0.09

0.09

0.09

0.09

0.0

0.0

0.00

0.36

0.36

Source: Wheaton Precious Metals, Edison Investment Research. Note: *As reported by WPM, excluding exceptional items. **Quarterly forecasts exclude stock-based compensation costs. ***Q419 vs Q319. ****Q419 actual vs Q419 estimate.

The only other significant departure from our expectations was the level of the general and administrative charge, albeit 36.4% of the total charge could be accounted for by equity settled stock-based compensation and performance share unit (PSU) accrual related to the anticipated fair value of the PSUs issued. Excluding these two factors, WPM’s general and administrative cost for the year would have been below the guided range of US$36–38m for the year as a whole.

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

Item

Q419

FY19

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

7,434

31,642

PSU*

2,830

17,174

Sub-total

10,264

48,816

Equity settled stock based compensation

1,432

5,691

Total general & administrative

11,696

54,507

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

Out of 19 mines, production at 11 (and five out of eight major assets) was in excess of our forecasts in Q4, with the outperformance generally being attributed to higher grades (eg Penasquito, San Dimas and Antamina). Once again, Salobo reported an exceptionally strong quarter, contributing its fourth highest quarterly number of ounces ever to WPM, after Q418, Q417 and Q416, albeit 16,579oz of production remained unsold at the end of the quarter (cf 10,551oz in Q319). Newmont’s Penasquito mine also reported one of its strongest production performances ever, made all the more impressive by the fact that the illegal blockade that began there on 15 September was only lifted towards the end of October:

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

Source: Edison Investment Research, Wheaton Precious Metals.

Ounces produced but not yet delivered – aka inventory

In contrast to 11 out of 19 mines outperforming our production expectations during the quarter, only five outperformed our sales expectations, with the result that there was a 16.8% under-sale of gold relative to production and a 21.4% under-sale of silver (cf long-term averages of 7.8% and 11.7%, respectively):

Exhibit 4: Over(/under) sale of silver and gold as a % of production, Q112–Q419

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

As at 31 December, payable ounces attributable to WPM produced but not yet delivered to WPM amounted to 4.5Moz silver and 98,626oz gold (vs a fractionally restated 4.1Moz silver and 85,335oz gold at end September). This ‘inventory’ equates to 2.42 months and 2.92 months of FY19 silver and gold production and compares to WPM’s target level of two months of silver and two to three months of gold and palladium production, respectively.

Exhibit 5: WPM ounces produced but not yet delivered, Q316–Q419 (months of production)

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

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

Medium-term outlook

In FY20, WPM has provided more detailed estimated attributable production guidance of 390–410koz gold, 22.0–23.5Moz silver and 23.0–24.5koz of palladium to result in gold equivalent production of c 685–725koz (based on an assumed gold price of US$1,500/oz, an assumed silver price of US$18.00/oz and an assumed palladium price of US$2,000/oz), which compares with (unsegmented) prior guidance of 750,000oz (albeit at different assumed gold, silver and palladium prices). For the five-year period ending in FY24, the company has maintained its average annual gold equivalent production at 750,000oz pa. These compare with WPM’s and Edison’s current and previous guidance/forecasts, as follows:

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

FY19

FY20e

FY21e

FY22e

FY23e**

FY24e

Previous Edison forecast

Silver production (Moz)

21.7

21.8

20.7

20.5

17.4

Gold production (koz)

394

388

386

356

369

Cobalt production (klbs)

0

0

2,100

2,100

2,100

Palladium production (koz)

21

27

27

27

30

Gold equivalent (koz)

691

781

744

716

Current Edison forecast

Silver production (Moz)

23.7

20.7

20.5

17.4

17.3

Gold production (koz)

388

386

356

369

423

Cobalt production (klbs)

0

2,100

2,100

2,100

2,814

Palladium production (koz)

23.75

27

27

30

30

Gold equivalent (koz)

624.4

767

731

701

768

Current WPM guidance

Silver production (Moz)

*22.6

22.0–23.5

Gold production (koz)

*406.7

390–410

Cobalt production (klbs)

*0

0

Palladium production (koz)

*22.0

23.0–24.5

Gold equivalent (koz)

685–725

750

750

750

750

Previous WPM guidance

Silver production (Moz)

21.0

Gold production (koz)

390

Cobalt production (klb)

0

Palladium production (koz)

22

Gold equivalent (koz)

750

750

750

750

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

While Edison’s updated forecasts are within 1% of WPM’s expected range in FY20, we believe that there is upside potential to its gold production forecast at Minto, in particular, and downside risk to its silver production forecast at Constancia owing to mine sequencing ahead of its (delayed) development of the high-grade Pampacancha satellite deposit (see below).

Otherwise, the major differences between Edison’s gold equivalent production forecasts and Wheaton’s can be attributed to the ratio of the gold price to the silver price. Whereas Wheaton assumes an 83.33x ratio (based on a gold price of US$1,500/oz and a silver price of US$18.00/oz), the current ratio is closer to 123x and Edison assumes that the ratio will revert to closer its long-term average of 61x from FY21. Note that, at WPM’s prices, Edison’s gold equivalent production forecast in FY20 is 704.5koz, rather than 624.4koz (which assumes a gold price of US$1,479/oz for the balance of the year and a silver price of US$12.00/oz). In addition, Edison is also expecting a production contribution from Salobo III from FY23 (albeit nothing from Rosemont).

In the medium term, silver output from Penasquito attributable to WPM is expected to recover back to its steady-state level of 7Moz as the Chile Colorado pit contributes to mill feed and grades improve once again at the main Penasco pit with mine sequencing through to 2021. It will also benefit from the development of the Pyrite Leach Project, which will add an additional 1.0–1.5Moz of silver attributable to WPM per year by recovering 48% of the silver that previously reported to tailings. At the same time, First Majestic has announced plans to increase production at San Dimas by restarting mining operations at the past-producing Tayoltita mine by the end of Q120 and expects to ramp up production to add another 300tpd (12%) to throughput by the end of FY20. In addition, it intends to install a new 3,000tpd high-intensity grinding mill circuit and an autogenous grinding mill in H220 in order to further improve recoveries and reduce operating costs. Production of palladium and gold at Stillwater mine will similarly increase into FY21 under the influence of the Fill-the-Mill and Blitz projects. By contrast, production is expected to remain at lower levels at Constancia, owing to delays in mining the Pampacancha satellite deposit (which hosts significantly higher gold grades than those mined hitherto). However, Hudbay reports that it has now secured the surface rights for the Pampacancha deposit and expects to begin mining ore from the satellite deposit in late FY20. Nevertheless, in lieu of the delay, WPM is entitled to receive an additional 2,005oz gold per quarter from Hudbay during FY20 relative to its precious metals purchase agreement.

Longer-term outlook

Salobo

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

According to Vale’s Q419 performance report, physical completion of the Salobo III mine expansion is now 40% complete (cf 27% at the end of Q3) and remains on schedule for start-up in H122.

Pascua-Lama

Wheaton’s contract with Barrick provides for a completion test that, if unfulfilled by 30 June 2020, results in WPM being entitled to the return of its upfront cash consideration of US$625m less a credit for any silver delivered up to that date from three other Barrick mines. At the current time it is, to all intents and purposes, impossible for Pascua-Lama to pass a completion test on 30 June 2020, as a result of which Edison had presumed that WPM would be the recipient of c US$273.4m in FY20. Given the long-term optionality provided by the Pascua-Lama project however, Wheaton has indicated that it is unlikely to enforce the repayment of its entitlement and that it prefers instead to maintain its streaming interest in the project.

Rosemont

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

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

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

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

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

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

In its reaction to the ruling, Hudbay said that it believed that the ruling was without precedent and that the court had misinterpreted federal mining laws and Forest Service regulations as they apply to Rosemont. It pointed out that the Forest Service issued its decision in 2017 after a ‘thorough process of ten years involving 17 co-operating agencies at various levels of government, 16 hearings, over 1,000 studies, and 245 days of public comment resulting in more than 36,000 comments’ and with a long list of studies that have examined the potential effects of the proposed mine on the environment. Hudbay also pointed out that various agencies had accepted that the company could operate the mine in compliance with environmental laws. In conclusion, it said that it will appeal the ruling to the Ninth Circuit Court of Appeals.

Edison estimates that Rosemont could contribute an average c US$0.11 per share (12.6%) to WPM’s basic EPS in its first nine years of operations from FY22–30 for an upfront payment of US$230m (equivalent to US$0.515/share) in two instalments of US$50m and US$180m (of which neither has yet been paid). Nevertheless, in the light of the uncertainty about the timing and development of the project we have, for the moment at least, removed any contribution from Rosemont from all of our forecasts.

Other potential future growth

WPM is ostensibly a precious metals streaming company (plus one cobalt stream). Considering only the silver component of its investible universe, WPM estimates the size of the potential market open to it to be the lower half of the cost curve of the 70% of global silver production of c 856Moz in CY18 (down from 894Moz in CY15) that was produced as a by-product of either gold or base metal mines (ie approximately 300Moz pa silver vs WPM’s attributable production of 22.6Moz Ag in FY19). Inevitably, WPM’s investible universe may be further refined by the requirement for the operations to be located in good mining jurisdictions, with relatively low political risk. Nevertheless, such figures serve to illustrate the fact that WPM’s marketplace is far from saturated or mature.

As a consequence, WPM reports that it is busy on the corporate development front. Whereas potential deals in FY19 were generally reported to be with development companies in the US$100–350m range, more recent overtures are reported to have been from producing companies looking to strengthen their balance sheets with mooted transactions in the >US$1bn range, which WPM would fund, in the first instance, via the US$1,125m available under its revolving credit facility, plus US$104m in cash and its proposed ATM programme (see below).

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

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

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

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

Precious metals prices

Gold is a traditional beneficiary of negative real interest rates (and therefore falling nominal interest rates, assuming constant inflation) and central bank expansion of balance sheets in the form of either quantitative easing or otherwise. From a recent high of US$1,683/oz on 6 March 2020 however, the gold price has fallen approximately 12% as it has been caught between its traditional role as a safe haven in times of crisis and liquidation and profit taking in order to make margin calls in other sections of investors’ portfolios. Its year-to-date performance of -2.7% so far during the coronavirus crisis nevertheless dwarfs the equivalent performances of its equity market rivals (eg Dow Jones -25% and FTSE100 Index -37% in US dollar terms) and it remains the only major financial and monetary asset that is not another counterparty’s liability as well as being a credible store of value and, in extremis, medium of exchange.

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

Exhibit 7: Edison gold price forecasts

US$/oz

2020e**

2021e

2022e

2023e

Nominal gold price forecast (US$/oz)

1,635

1,509

1,560

1,421

Nominal silver price forecast (US$/oz)

26.74

24.76

25.56

23.38

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

While the current gold price (which accounted for 60% of WPM’s net earnings from operations in Q419) of US$1,479/oz is within 10% of Edison’s previous CY20 forecast, above, the silver price of US$12.00/oz is at a 55.1% discount to our forecast (which assumes a normalisation of the gold/silver ratio in the foreseeable future). In common with Edison’s stated practice, we use prevailing prices to generate our forecasts for the remainder of the current year, followed by long-term forecasts (above) thereafter.

General and administrative expenses

WPM has provided guidance for non-stock general & administrative expenses of US$38–40m (or US$9.5–10.0m per quarter) in FY20, compared to a range of US$33–36m in FY19 (reduced from an earlier estimate of US$36–38m), an actual FY19 outcome of US$31.6m and guidance of US$34–36m in FY18 cf an actual outcome of US$36.7m, including all employee-related expenses, charitable contributions, etc, but excluding PSUs and equity settled stock based compensation (see Exhibit 2). Investors should note that stock-based compensation costs and PSUs are excluded from our financial forecasts in Exhibits 8 and 12 owing to their inherently unpredictable nature.

FY20e by quarter

In our update note of 18 November 2019, we stated that, our FY20 EPS forecasts ‘exist within a wide range depending on the metal prices assumed, from 80c (at spot prices) to 130c (at our higher long-term prices)’. Taking into account all of the aforementioned considerations, we have now been able to corral our forecasts for WPM for FY20, at updated metals prices to reflect the recent turmoil, by quarter, as follows:

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

US$000s
(unless otherwise stated)

FY19

Q120e

Q220e

Q320e

Q420e

FY20e

Silver production (koz)

22,562

5,926

5,926

5,926

5,926

23,705

Gold production (oz)

406,675

97,105

97,105

97,105

97,105

388,419

Palladium production (koz)

21,993

5,938

5,938

5,938

5,938

23,750

Silver sales (koz)

17,703

5,926

5,926

5,926

5,926

23,705

Gold sales (oz)

389,086

97,068

97,068

97,068

97,068

388,274

Palladium sales (oz)

20,681

5,914

5,914

5,914

5,914

23,655

Avg realised Ag price (US$/oz)

16.29

16.56

12.00

12.00

12.00

13.14

Avg realised Au price (US$/oz)

1,391

1,566

1,479

1,479

1,479

1,501

Avg realised Pd price (US$/oz)

1,542

2,238

1,713

1,713

1,713

1,844

Avg Ag cash cost (US$/oz)

5.02

5.15

4.97

4.98

4.98

5.02

Avg Au cash cost (US$/oz)

421

425

425

425

425

425

Avg Pd cash cost (US$/oz)

273

413

355

355

355

370

Sales

861,332

263,401

224,810

224,810

224,810

937,831

Cost of sales

Cost of sales, excluding depletion

258,559

74,133

72,521

72,562

72,562

291,778

Depletion

256,826

71,623

71,623

71,623

71,623

286,490

Total cost of sales

515,385

145,756

144,144

144,184

144,184

578,268

Earnings from operations

345,947

117,645

80,666

80,626

80,626

359,563

Expenses and other income

– General and administrative**

54,507

9,750

9,750

9,750

9,750

39,000

– Foreign exchange (gain)/loss

0

0

– Net interest paid/(received)

48,730

7,830

7,830

7,830

7,830

31,320

– Other (income)/expense

(217)

0

Total expenses and other income

103,020

17,580

17,580

17,580

17,580

70,320

Earnings before income taxes

242,927

100,065

63,086

63,046

63,046

289,243

Income tax expense/(recovery)

(9,066)

250

250

250

250

1,000

Marginal tax rate (%)

(3.7)

0.2

0.4

0.4

0.4

0.3

Net earnings

251,993

99,815

62,836

62,796

62,796

288,243

Ave. no. shares in issue (000s)

446,021

446,802

446,802

446,802

446,802

446,802

Basic EPS (US$)

0.56

0.22

0.14

0.14

0.14

0.65

Diluted EPS (US$)

0.56

0.22

0.14

0.14

0.14

0.64

DPS (US$)

0.36

0.10

0.12

0.10

0.10

0.42

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

Our basic EPS forecast of US$0.65/share for FY20 is 27.0% below the consensus forecast of US$0.89/share (source: Refinitiv, 19 March 2020) within a range of US$0.80–1.05per share – albeit we believe that this accurately reflects current circumstances in the market and, in particular, prevailing precious metals prices:

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

Sum Q1–Q4

Q1

Q2

Q3

Q4

FY20

Mean

0.88

0.22

0.22

0.22

0.22

0.89

High

1.07

0.29

0.28

0.25

0.25

1.05

Low

0.76

0.17

0.19

0.19

0.21

0.80

Source: Refinitiv, Edison Investment Research. Note: As at 19 March 2020.

Our US$1.13 basic EPS forecast for FY21 (see Exhibit 12) compares with a consensus of US$0.88 (source: Refinitiv, 19 March 2020), within a range of US$0.76–1.15. This estimate is predicated on an average gold price during the year of US$1,509/oz and an average silver price of US$24.76/oz, which is more than double the current spot price. One of the central assumptions behind our silver price forecast is that it will, at some point, revert to the long-term correlation that it has exhibited with gold since the latter was formally demonetised in 1971. In the event that both metals remain at current levels however (US$12.00/oz and US$1,479/oz at the time of writing), we forecast that WPM would instead earn US$0.57 per share in FY21.

Valuation

Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 29.5x current year basic underlying EPS, excluding impairments (vs 39.8x Edison or 28.9x Refinitiv consensus FY20e, currently – see Exhibit 11).

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

Source: Edison Investment Research

Applying this 29.5x multiple to our updated EPS forecast of US$1.13 in FY21 implies a potential value per share for WPM of US$33.38, or C$48.47, in that year (vs US$32.78, or C$43.37 previously). Note that this valuation excludes the value of 20.2m shares in First Majestic currently held by WPM, with an immediate value (19 March) of C$150.2m, or US$0.23 per WPM share.

In the meantime, from a relative perspective, it is notable that WPM is cheaper than its royalty/streaming ‘peers’ on at least 54% (13 out of 24) of the valuation measures used in Exhibit 11 and on multiples that are cheaper even than the miners themselves in at least 26% (21 out of 78) of the same valuation measures, despite being associated with materially less operational and cost risk (since WPM’s costs are contractually predetermined) – although we believe that earnings forecasts for many of WPM’s peers may not yet have caught up with current conditions in the marketplace and, in particular, prevailing precious metals prices.

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

P/E (x)

Yield (%)

P/CF (x)

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

Royalty companies

Franco-Nevada

45.3

44.9

0.9

0.9

26.6

25.6

Royal Gold

26.6

25.6

1.6

1.6

13.5

12.6

Sandstorm Gold

39.3

31.7

0.0

0.0

12.6

11.9

Osisko

33.2

26.8

2.0

2.0

13.4

12.0

Average

36.1

32.3

1.1

1.1

16.5

15.5

WPM (Edison forecasts)

39.8

22.7

1.6

2.0

18.0

14.1

WPM (consensus)

28.9

29.3

1.7

1.9

17.0

16.5

Gold producers

Barrick

20.6

19.4

1.3

1.2

6.7

6.6

Newmont

20.6

18.1

2.3

2.5

8.6

8.2

Newcrest

14.4

13.5

1.4

1.4

8.0

6.7

Kinross

10.2

10.3

0.0

0.0

4.0

3.8

Agnico-Eagle

27.1

20.6

1.8

1.8

8.1

7.1

Eldorado

6.9

13.8

0.0

0.0

2.7

3.5

Yamana

19.2

17.1

1.5

1.5

4.6

4.2

Average

17.0

16.1

1.2

1.2

6.1

5.7

Silver producers

Hecla

107.3

21.6

0.6

0.4

5.0

4.2

Pan American

17.4

9.9

1.1

1.4

5.7

4.7

Coeur Mining

192.0

13.2

0.0

0.0

4.2

3.0

First Majestic

26.2

25.0

0.0

0.0

11.0

6.9

Hochschild

7.4

7.0

4.0

4.3

2.4

2.2

Fresnillo

23.2

18.2

2.0

2.5

7.9

7.6

Average

62.3

15.8

1.3

1.4

6.0

4.8

Source: Refinitiv, Edison Investment Research. Note: Peers priced on 19 March 2020.

Financials: Solid equity base

As at 31 December 2019, WPM had US$104.0m in cash (cf US$151.6m at the end of Q319) and US$874.5m of debt outstanding (cf US$1,017.1m at end-Q319) under its US$2bn revolving credit facility (which attracts an interest rate of Libor plus 120–220bp and now matures in February 2025), such that (including a modest US$4.3m in leases) it had net debt of US$774.8m (cf US$865.5m at end-Q3) overall, after US$131.9m of cash generated by operating activities during the quarter. Relative to the company’s balance sheet equity of US$5,325.9m (cf US$5,201.4m at end-Q3), this level of net debt equates to a financial gearing (net debt/equity) ratio of 14.5% (cf 16.6% at end-Q3) and a leverage (net debt/[net debt+equity]) ratio of 12.7% (cf 14.2% at end-Q3). It also compares with a net debt position of US$865.5m as at end-September, US$1,012.8m as at end-June, US$1,057.7m as at end-March, US$1,188.2m as at end-December 2018 and US$1,261.1m as at end-September 2018. Self-evidently, such a level of debt is well within the tolerances required by its banking covenants that:

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

interest should be no less than 3x covered by EBITDA (we estimate that it was covered 11.3x in FY19 and that it will be covered 19.4x in FY20).

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

At-The-Market Equity Programme

In addition to its results, WPM announced that it intends to initiate an at-the-market equity programme that would allow it to issue up to US$300m of common shares from treasury to the public, from time to time, at the prevailing market price or other prices through the Toronto Stock Exchange, the New York Stock Exchange or any other marketplace on which its shares are traded. The volume and timing of distributions under the programme, if any, will be determined at the company’s sole discretion, subject to applicable regulatory limitations. At the moment, the programme remains subject to the negotiation of definitive agreements with Canadian and US agents, the filing of the prospectus supplement with Canadian securities regulators and the US Securities & Exchange Commission (SEC) and receipt of all of the appropriate regulatory approvals (the conditions of which are anticipated to be satisfied in April). WPM intends that the proceeds from the programme, if any, will be available as one potential sources of funding for stream acquisitions and/or other general corporate purposes, including the repayment of indebtedness. Details of the programme will be provided upon the filing of a prospectus supplement with the Canadian securities regulators and the SEC in early April and sales of shares via the programme, if any, will be made pursuant to the terms of an equity distribution agreement. Nevertheless, owing to inherent uncertainties as to price and size, for the moment, at least, Edison has excluded from its forecasts the assumption of any such issues of shares under the programme.

Exhibit 12: Financial summary

US$'000s

2012

2013

2014

2015

2016

2017

2018

2019

2020e

2021e

Dec

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

849,560

706,472

620,176

648,687

891,557

843,215

794,012

861,332

937,831

1,154,559

Cost of Sales

(117,489)

(139,352)

(151,097)

(190,214)

(254,434)

(243,801)

(245,794)

(258,559)

(291,778)

(288,135)

Gross Profit

732,071

567,120

469,079

458,473

637,123

599,414

548,218

602,773

646,053

866,424

EBITDA

 

 

701,232

531,812

431,219

426,236

602,684

564,741

496,568

548,266

607,053

827,424

Operating Profit (before amort. and except.)

600,003

387,659

271,039

227,655

293,982

302,361

244,281

291,440

320,563

520,201

Intangible Amortisation

0

0

0

0

0

0

0

0

0

0

Exceptionals

0

0

(68,151)

(384,922)

(71,000)

(228,680)

245,715

(165,855)

0

0

Other

788

(11,202)

(1,830)

(4,076)

(4,982)

8,129

(5,826)

217

0

0

Operating Profit

600,791

376,457

201,058

(161,343)

218,000

81,810

484,170

125,802

320,563

520,201

Net Interest

0

(6,083)

(2,277)

(4,090)

(24,193)

(24,993)

(41,187)

(48,730)

(31,320)

(13,098)

Profit Before Tax (norm)

 

 

600,003

381,576

268,762

223,565

269,789

277,368

203,094

242,710

289,243

507,103

Profit Before Tax (FRS 3)

 

 

600,791

370,374

198,781

(165,433)

193,807

56,817

442,983

77,072

289,243

507,103

Tax

(14,755)

5,121

1,045

3,391

1,330

886

(15,868)

9,066

(1,000)

(1,000)

Profit After Tax (norm)

586,036

375,495

267,977

222,880

266,137

286,383

181,400

251,993

288,243

506,104

Profit After Tax (FRS 3)

586,036

375,495

199,826

(162,042)

195,137

57,703

427,115

86,138

288,243

506,103

Average Number of Shares Outstanding (m)

353.9

355.6

359.4

395.8

430.5

442.0

443.4

446.0

446.8

446.8

EPS - normalised (c)

 

 

166

106

75

53

62

63

48

56

65

113

EPS - normalised and fully diluted (c)

 

165

105

74

53

62

63

48

56

64

113

EPS - (IFRS) (c)

 

 

166

106

56

(-41)

45

13

96

19

65

113

Dividend per share (c)

35

45

26

20

21

33

36

36

42

52

Gross Margin (%)

86.2

80.3

75.6

70.7

71.5

71.1

69.0

70.0

68.9

75.0

EBITDA Margin (%)

82.5

75.3

69.5

65.7

67.6

67.0

62.5

63.7

64.7

71.7

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

70.6

54.9

43.7

35.1

33.0

35.9

30.8

33.8

34.2

45.1

BALANCE SHEET

Fixed Assets

 

 

2,403,958

4,288,557

4,309,270

5,526,335

6,025,227

5,579,898

6,390,342

6,123,255

5,838,765

5,533,541

Intangible Assets

2,281,234

4,242,086

4,270,971

5,494,244

5,948,443

5,454,106

6,196,187

5,768,883

5,484,393

5,179,169

Tangible Assets

1,347

5,670

5,427

12,315

12,163

30,060

29,402

44,615

44,615

44,615

Investments

121,377

40,801

32,872

19,776

64,621

95,732

164,753

309,757

309,757

309,757

Current Assets

 

 

785,379

101,287

338,493

105,876

128,092

103,415

79,704

154,752

558,998

1,139,401

Stocks

966

845

26,263

1,455

1,481

1,700

1,541

43,628

1,684

2,073

Debtors

6,197

4,619

4,132

1,124

2,316

3,194

2,396

7,138

2,569

3,163

Cash

778,216

95,823

308,098

103,297

124,295

98,521

75,767

103,986

554,745

1,134,165

Other

0

0

0

0

0

0

0

0

0

0

Current Liabilities

 

 

(49,458)

(21,134)

(16,171)

(12,568)

(19,057)

(12,143)

(28,841)

(64,700)

(81,684)

(81,325)

Creditors

(20,898)

(21,134)

(16,171)

(12,568)

(19,057)

(12,143)

(28,841)

(63,976)

(80,960)

(80,601)

Short term borrowings

(28,560)

0

0

0

0

0

0

(724)

(724)

(724)

Long Term Liabilities

 

 

(32,805)

(1,002,164)

(1,002,856)

(1,468,908)

(1,194,274)

(771,506)

(1,269,289)

(887,387)

(887,387)

(887,387)

Long term borrowings

(21,500)

(998,136)

(998,518)

(1,466,000)

(1,193,000)

(770,000)

(1,264,000)

(878,028)

(878,028)

(878,028)

Other long term liabilities

(11,305)

(4,028)

(4,338)

(2,908)

(1,274)

(1,506)

(5,289)

(9,359)

(9,359)

(9,359)

Net Assets

 

 

3,107,074

3,366,546

3,628,736

4,150,735

4,939,988

4,899,664

5,171,916

5,325,920

5,428,691

5,704,230

CASH FLOW

Operating Cash Flow

 

 

720,209

540,597

434,582

435,783

608,503

564,187

518,680

548,301

670,550

826,082

Net Interest

0

(6,083)

(2,277)

(4,090)

(24,193)

(24,993)

(41,187)

(41,242)

(31,320)

(13,098)

Tax

(725)

(154)

(204)

(208)

28

(326)

0

(5,380)

(1,000)

(1,000)

Capex

(641,976)

(2,050,681)

(146,249)

(1,791,275)

(805,472)

(19,633)

(861,406)

10,571

(2,000)

(2,000)

Acquisitions/disposals

0

0

0

0

0

0

0

0

0

0

Financing

12,919

58,004

6,819

761,824

595,140

1,236

1,279

37,198

0

0

Dividends

(123,852)

(160,013)

(79,775)

(68,593)

(78,708)

(121,934)

(132,915)

(129,986)

(185,472)

(230,564)

Net Cash Flow

(33,425)

(1,618,330)

212,896

(666,559)

295,298

398,537

(515,549)

419,462

450,759

579,421

Opening net debt/(cash)

 

 

(761,581)

(728,156)

902,313

690,420

1,362,703

1,068,705

671,479

1,188,233

774,766

324,007

HP finance leases initiated

0

0

0

0

0

0

0

0

0

0

Other

0

(12,139)

(1,003)

(5,724)

(1,300)

(1,311)

(1,205)

(5,995)

0

0

Closing net debt/(cash)

 

 

(728,156)

902,313

690,420

1,362,703

1,068,705

671,479

1,188,233

774,766

324,007

(255,413)

Source: Company sources, Edison Investment Research

Contact details

Revenue by geography

Wheaton Precious Metals
666 Burrard Street, Suite 3150
Vancouver, British Columbia V6C 2X8
Canada
+1 604 684 9648
www.silverwheaton.com

Contact details

Wheaton Precious Metals
666 Burrard Street, Suite 3150
Vancouver, British Columbia V6C 2X8
Canada
+1 604 684 9648
www.silverwheaton.com

Revenue by geography

Management team

President and chief executive officer: Randy Smallwood

Senior vice president and chief financial officer: Gary Brown

Mr Smallwood holds a geological engineering degree from the University of British Columbia and is one of the founding members of WPM. Before joining the original Wheaton River group in 1993 as an exploration geologist, he worked for Homestake, Teck and Westmin Resources. In 2007, he joined WPM full time as executive vice president of corporate development, before being appointed president in January 2010 and CEO in April 2011.

Mr Brown brings 25 years of experience as a finance professional to WPM and holds professional designations as a chartered accountant and a chartered financial analyst, as well as having earned a master’s degree in accounting from the University of Waterloo. Prior to joining WPM in 2008, he was the chief financial officer of TIR Systems. He is a director of Redzone Resources and has held senior finance roles with CAE Inc, Westcoast Energy and Creo Inc among others.

Chairman: Douglas Holtby

Senior vice president, corporate development: Haytham Hodaly

Mr Holtby is the vice chairman of the board and lead director of Goldcorp. He is also a director of the BC Cancer Foundation and president and CEO of Holtby Capital Corporation, a private investment company. He has a long history of serving in a variety of senior board positions since 1982, including, among others, WIC Western International Communications, Canadian Satellite Communications Inc and Allarcom. He is a fellow chartered accountant and a graduate of the Institute of Corporate Directors – Director Education Program at the University of Toronto, Rotman School of Management.

Mr Hodaly is an engineer with a BASc in mining and mineral processing engineering and a master’s in engineering, specialising in mineral economics. He brings over 17 years of experience in the North American securities industry to WPM. Prior to joining WPM, he was a director at RBC Capital Markets with responsibility for global mining research. Before that, he was co-director of research and senior mining analyst at Salman Partners Inc. During his tenure, he helped to establish Salman Partners as a leading independent, resource-focused and research-driven investment dealer.

Management team

President and chief executive officer: Randy Smallwood

Mr Smallwood holds a geological engineering degree from the University of British Columbia and is one of the founding members of WPM. Before joining the original Wheaton River group in 1993 as an exploration geologist, he worked for Homestake, Teck and Westmin Resources. In 2007, he joined WPM full time as executive vice president of corporate development, before being appointed president in January 2010 and CEO in April 2011.

Senior vice president and chief financial officer: Gary Brown

Mr Brown brings 25 years of experience as a finance professional to WPM and holds professional designations as a chartered accountant and a chartered financial analyst, as well as having earned a master’s degree in accounting from the University of Waterloo. Prior to joining WPM in 2008, he was the chief financial officer of TIR Systems. He is a director of Redzone Resources and has held senior finance roles with CAE Inc, Westcoast Energy and Creo Inc among others.

Chairman: Douglas Holtby

Mr Holtby is the vice chairman of the board and lead director of Goldcorp. He is also a director of the BC Cancer Foundation and president and CEO of Holtby Capital Corporation, a private investment company. He has a long history of serving in a variety of senior board positions since 1982, including, among others, WIC Western International Communications, Canadian Satellite Communications Inc and Allarcom. He is a fellow chartered accountant and a graduate of the Institute of Corporate Directors – Director Education Program at the University of Toronto, Rotman School of Management.

Senior vice president, corporate development: Haytham Hodaly

Mr Hodaly is an engineer with a BASc in mining and mineral processing engineering and a master’s in engineering, specialising in mineral economics. He brings over 17 years of experience in the North American securities industry to WPM. Prior to joining WPM, he was a director at RBC Capital Markets with responsibility for global mining research. Before that, he was co-director of research and senior mining analyst at Salman Partners Inc. During his tenure, he helped to establish Salman Partners as a leading independent, resource-focused and research-driven investment dealer.

Principal shareholders

(%)

Franklin Resources Inc

18.11

BlackRock Inc

9.80

First Eagle Inv Mgt LLC

5.35

Van Eck Assoc Corp

5.24

The Vanguard Group Inc

2.87

FMR LLC

2.17

FIL Ltd

1.73

Companies named in this report

Homestake, Teck, Westmin Resources, Redzone Resources, Franco-Nevada, Royal Gold, Sandstorm, Osisko, Barrick, Newmont, Newcrest, Kinross, Agnico-Eagle, Eldorado, Hecla, Pan American, Coeur Mining, First Majestic, Hochschild, Fresnillo.


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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.

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

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

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

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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.

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

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General disclaimer and copyright

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

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

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

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

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

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

Australia

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

New Zealand

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

United Kingdom

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

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

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

United States

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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