Kobold ex machina

Wheaton Precious Metals 21 June 2018 Update
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Wheaton Precious Metals

Kobold ex machina

Cobalt stream investment

Metals & mining

21 June 2018

Price

C$29.32

Market cap

C$12,983m

C$1.3231/US$

Net debt* (US$m) at 31 March 2017
*Cum-dividend of US$39.9m

547.4

Shares in issue

442.8m

Free float

100%

Code

WPM

Primary exchange

TSX

Secondary exchange

NYSE

Share price performance

%

1m

3m

12m

Abs

4.2

14.6

14.6

Rel (local)

2.6

9.0

5.8

52-week high/low

C$29.3

C$23.4

Business description

Wheaton Precious Metals is the world’s pre-eminent pure precious metals streaming company, with c 30 high-quality, precious metals streaming and early deposit agreements relating to assets in Mexico, Peru, Canada, Brazil, Chile, Argentina, Sweden, Greece, Portugal, the US and Guyana.

Next events

Q218 results

August 2018

Third quarterly dividend announced

August 2018

Q318 results

November 2018

Fourth quarterly dividend announced

November 2018

Analyst

Charles Gibson

+44 (0)20 3077 5724

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

On 11 June, Wheaton Precious Metals (WPM) announced that it had entered into an agreement with Vale to acquire 42.4% of cobalt production from Voisey’s Bay from FY21 for an upfront cash consideration of US$390m. We estimate that this acquisition will increase WPM’s silver-equivalent production by 3.1Moz and 4.7Moz and its basic EPS by 4.7c and 9.3c in FY21 and FY24, respectively.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16

891.6

269.8

62

21

35.7

0.9

12/17

843.2

277.4

63

33

35.2

1.5

12/18e

826.5

281.1

63

36

35.2

1.6

12/19e

961.9

385.0

87

41

25.5

1.9

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

Too precious or not too precious

While not traditionally regarded as a precious metal, at current levels, the price of cobalt at US$82,250/t is equivalent to US$2.56/oz, ie where the silver price was in May 1973 and not far from where it was as recently as March 1993 (US$3.56/oz). Moreover, like silver, the vast majority of cobalt is produced as a by-product of either copper or nickel mining. As such, WPM’s acquisition of the Voisey’s Bay cobalt stream is approximately equivalent to a gold stream of c 75-80koz pa or a silver stream of c 5.7-6.2Moz pa (at current prices). Even so, the consideration paid by WPM is less than half the amount it has paid in the last three years for similar streams at Antamina and, in particular, Salobo, which has the same counterparty (namely Vale) as Voisey’s Bay. As a result, returns from the Voisey’s Bay stream are protected approximately at or above the level of the Antamina and Salobo streams down to a cobalt price approximately half of its current level (ie c US$41,125/t).

Valuation: Potential 28.4% IRR to shareholders

Assuming no material purchases of additional streams (which is unlikely), we forecast a per-share value for WPM of US$34.11, or C$45.14 in FY20 (cf US$35.07, or C$44.78 previously) at average precious metals prices of US$25.95/oz Ag and US$1,482/oz Au. Note that the change is solely accounted for by changes in the interest charge for that year, owing to the change in the debt repayment profile on account of the US$390m Voisey’s Bay stream acquisition, and foreign exchange rates. Note that this valuation excludes the value of 20.9m shares in First Majestic currently held by WPM, with an immediate value of C$206.2m, or US$0.35 per WPM share. It also implies a 28.4% pa total internal rate of return (IRR) for investors in US dollar terms over the next 2.5 years. In the meantime, WPM’s shares are trading on near-term financial ratios that are cheaper than those of its royalty/streaming ‘peers’ in 91% of financial measures considered in Exhibit 7, and the miners themselves in at least 37% of the same measures, despite being associated with materially less operating and cost risk. Additional potential upside still then exists in the form of the optionality provided by the development (or further development) of major assets such as Salobo, Navidad etc.

Voisey’s Bay cobalt stream acquisition

On 11 June, WPM announced that it had entered into an agreement with Vale to acquire 42.4% of cobalt production from Voisey’s Bay for an upfront cash consideration of US$390m. Salient features of the agreement are as follows:

Effective 1 January 2021 (coincident with the anticipated ramp-up in underground production from Voisey’s Bay), WPM will be entitled to receive from Vale an amount of cobalt equal to 42.4% of the Voisey’s Bay mine production of cobalt (Co) until the delivery of 31Mlbs Co; thereafter, it will be entitled to 21.2% of production (ie half of the initial percentage) until the end of the life of the mine.

WPM will make ongoing payments of 18% of the Metal Bulletin market price per pound of cobalt delivered, initially; once the balance of the upfront cash consideration has been reduced to zero, WPM will make ongoing payments of 22% of the cobalt spot price per pound of cobalt delivered.

WPM will take physical deliveries of high-quality, finished cobalt by way of warehouse certificates.

The transaction is exactly coincident with another streaming agreement between Vale and Cobalt 27 Capital Corp for a transaction consideration of US$300m for initial entitlement over 32.6% of cobalt production such that WPM and Cobalt 27 together own streams accounting for 75% of Voisey’s Bay cobalt output, while Vale retains the remaining 25%.

Voisey’s Bay underground mine development background

Below is a table of reserves and resources, attributable to WPM, at Voisey’s Bay.

Exhibit 1: Voisey’s Bay reserves & resources, attributable to WPM (31 December 2017)

Category

Tonnage
(Mt)

Percent of total
(%)

Grade Co
(%)

Contained Co
(Mlbs)

Percent of total
(%)

Reserves

Proven

4.6

41.4

0.14

13.9

42.6

Probable

6.5

58.6

0.13

18.7

57.4

Proven & Probable

11.1

100.0

0.13

32.6

100.0

Resources

Measured

0.0

0.0

0.00

0.0

0.0

Indicated

2.2

36.1

0.04

2.0

18.9

Measured & Indicated

2.2

36.1

0.04

2.0

18.9

Inferred

3.9

63.9

0.10

8.6

81.1

Total

6.1

100.0

0.08

10.6

100.0

Source: Wheaton Precious Metals. Note: Resources stated exclusive of reserves. Attributable reserves & resources have been calculated on the 42.4%/21.2% basis.

In July 2015, Vale’s board of directors sanctioned the development of the underground expansion of Voisey’s Bay, comprising the development of two separate deposits, namely Reid Brook and Eastern Deeps, via declines to access the ore bodies, underground crushing & conveying and an underground paste/backfill plant. At peak production, the underground mines are expected to produce c 45,000tpa of nickel-in-concentrate (which will be shipped to Vale’s processing facility in Long Harbour) and to extend the life of operations until at least 2034. The construction phase of the expansion began in 2016 and is scheduled to be completed in 2022.

As is typical for WPM, in entering a new streaming agreement (albeit with a professional counterparty, with which it has many years of dealing previously), there is a completion test which, if not met, will result in the return of WPM’s deposit. In addition, risk is further mitigated by the fact that the Voisey’s Bay plant is already operational, processing output from its open pit mines.

Effect on WPM

Attributable cobalt production is forecast to average 2.0-2.2Mlbs pa in the first three years of production, 2.6Mlbs pa for the first 10 years of production and 2.4Mlbs pa for the life of the mine. Payable rates for cobalt in concentrate have “generally been fixed at 93.3%”, with the result we forecast the following production, sales and pre-tax cash flows attributable to WPM over the course of the 14 years following ramp-up:

Exhibit 2: Voisey’s Bay estimated production, sales and pre-tax cash flows attributable to WPM, 2021-34e

Year

FY21e

FY22e

FY23e

FY24e

FY25e

FY26e

FY27e

FY28e

FY29e

FY30e

FY31e

FY32e

FY33e

FY34e

Production (oz Au)

2,100

2,100

2,100

2,814

2,814

2,814

2,814

2,814

2,814

2,814

1,842

1,842

1,842

553

Sales (koz Ag)

1,959

1,959

1,959

2,625

2,625

2,625

2,625

2,625

2,625

2,625

1,719

1,719

1,719

516

Pre-tax cash flows to WPM (US$m)

59.9

59.9

59.9

80.3

80.3

80.3

76.4

76.4

76.4

76.4

50.0

50.0

50.0

15.0

Source: Edison Investment Research, Wheaton Precious Metals

Within the context of an initial, upfront payment of US$390m in FY18, these cash flows imply an internal rate of return to WPM of 10.5% in US dollar terms from FY18 to FY34. However, mineralisation is reported to extend “well below” the current resource boundaries and, assuming it is eventually brought within Vale’s mine plan, will (all other things being equal) augment the ultimate return to the company.

Investors should note the decline in cash flows between years FY26 and FY27, which corresponds to the point at which we estimate that the balance of WPM’s upfront consideration will have reduced to zero and thus WPM will make ongoing payments at 22% of the spot price of cobalt (cf 18% beforehand). Similarly, the stream will be subject to Newfoundland and Canadian tax (at an estimated 30% rate), but only at the point at which WPM has recouped its original investment.

Depending on prices and ongoing costs, the above cobalt stream is approximately equivalent to a gold stream of c 75-80koz pa or a silver stream of c 5.7-6.2Moz pa (at current prices). As such, it may be compared to recent deals concluded by WPM of a similar size, as follows:

Exhibit 3: Recent comparable WPM transactions

Salobo II

Antamina

Salobo III

Voisey’s Bay

Date

Q215

Q415

Q316

Q218

Counterparty

Vale

Glencore

Vale

Vale

Consideration

US$900m

US$900m

c US$818.4m*

US$390m

Approximate metal attributable to WPM pa

70koz Au

5.1Moz Ag for 2yrs then 4.7Moz pa Ag

70koz Au

2.4Mlbs Co pa, equivalent to c 75-80koz Au or 5.7-6.2Moz Ag pa

Source: Edison Investment Research. Note: *See our note, Going for gold, published on 30 August 2016.

Of note, within the context of the above table, is the materially lower consideration paid by WPM for the Voisey’s Bay stream compared to either of the Salobo streams or the Antamina stream, which affords it a proportionally greater degree of protection from commodity price risk. In this case, returns from the Voisey’s Bay stream are therefore protected approximately at or above the level of the Antamina and Salobo streams down to a cobalt price approximately half of its current level (ie c US$41,125/t).

Medium term

Hitherto, management estimates over the next five years, including FY18, have been of average annual production of approximately 25Moz of silver and 370,000oz of gold. This compares with our expectations, which are, on average, 6.6% more conservative than guidance (simple average). However, we now expect that the Voisey’s Bay stream acquisition will add in excess of 3Moz silver equivalent, or 7-8%, to production immediately, and more in subsequent years.

Exhibit 4: Edison forecast WPM precious metals production

FY18e

FY19e

FY20e

FY21e

FY22e

Previous

Silver production (Moz)

24.0

22.3

23.0

23.9

23.7

Gold production (koz)

345

370

337

333

339

Cobalt production (klbs)

0

0

0

0

0

Silver-equivalent production (Moz)

51.4

43.3

42.3

42.9

43.0

Current

Silver production (Moz)

24.0

22.3

23.0

23.9

23.7

Gold production (koz)

345

370

337

333

339

Cobalt production (klbs)

0

0

0

2,100

2,100

Silver-equivalent production (Moz)

51.4

43.3

42.3

46.0

46.4

Source: Edison Investment Research.

Over the course of the first 10 years of production from FY21 to FY30 inclusive, we expect the Voisey’s Bay cobalt stream acquisition to add 6.3c to WPM’s basic EPS per annum (simple average), as follows:

Exhibit 5: Voisey’s Bay estimated EPS enhancement, 2021-30e

Year

FY21e

FY22e

FY23e

FY24e

FY25e

FY26e

FY27e

FY28e

FY29e

FY30e

Production (oz Au)

2,100

2,100

2,100

2,814

2,814

2,814

2,814

2,814

2,814

2,814

Sales (koz Ag)

1,959

1,959

1,959

2,625

2,625

2,625

2,625

2,625

2,625

2,625

EPS enhancement (US cents)

4.7

4.7

4.7

9.3

9.3

6.5

5.9

5.9

5.9

5.9

EPS enhancement (%)

4.0

5.0

6.0

12.5

13.2

8.4

9.3

8.7

10.5

13.8

Source: Edison Investment Research, Wheaton Precious Metals

Potential future growth

WPM is a pure precious metals streaming company. Hitherto, it has been formally interested in potential gold, silver and platinum streams. However, apart from strategic considerations, its diversification into cobalt may be rationalised by the fact that the current price of cobalt, at US$82,250/t (source: Bloomberg, 11 June 2018) is the equivalent of US$2.56/oz – ie where the silver price was in May 1973 and not far from where the silver price was as recently as March 1993 (US$3.56/oz).

Considering only the silver component of its investible universe, WPM estimates the size of the potential market open to it to be the lower half of the cost curve of the 70% of global silver production of c 870Moz in FY17 that is produced as a by-product of either gold or base metal mines (ie approximately 305Moz silver per year cf WPM’s production of 28.5Moz Ag in FY17). Inevitably, WPM’s investible universe would 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, with the potential for “a couple” more transactions this financial year, each with a value in the range US$100–600m and thus fully financeable via the c US$1.2bn estimated by Edison to be available to WPM under its revolving credit facility as at end Q218.

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

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

the 75% of the silver output at Pascua-Lama that is currently not subject to any streaming arrangement (subject to permitting and development); and

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

The main source of potential organic production growth for WPM is Salobo (which accounted for 77% of WPM’s gold division’s output in Q118). The operator, Vale, is studying expansion scenarios and is deploying four drill rigs to test the deposit at depth. Given the open-ended nature of the deposit, and depending on the work that Vale carries out and the decision that it makes, any expansion could add as much as 100% to gold output attributable to WPM from Salobo per year – albeit at the cost of an additional payment from WPM. Mill throughput at the Salobo mine was reported to be running at 98% of its 24Mtpa nameplate capacity in Q118. If throughput capacity is expanded within a predetermined period and depending on the grade of material processed, WPM will be required to make an additional payment to Vale regarding its 75% gold stream. The additional payments range in size from US$113m if throughput is expanded beyond 28Mtpa by 1 January 2036, to (effectively) c US$900m if throughput were to be expanded beyond 40Mtpa by 2022. In the event that Salobo were to be expanded from 24Mtpa to 36Mtpa by the addition of a further 12Mtpa processing line by 1 January 2023, for example – thereby attracting an estimated c US$603m incremental payment from WPM to Vale – we estimate that it would increase our estimate of WPM’s earnings by a material c US$0.11 per share from the date of the expansion (ie on a par with the EPS enhancement implied by the acquisition of the Voisey’s Bay stream – see Exhibit 5).

One further, major project moving closer to fruition is the Rosemont copper project in Arizona, after Coronado National Forest Supervisor Kerwin Dewberry signed the final Record of Decision (ROD) for the Rosemont copper project earlier this month. The ROD outlines the supervisor’s decision to select the Barrel Alternative and approve the mine plan of operations once amended, and to amend the 1986 Coronado National Forest Plan by creating a new management area around the mine site. This advance follows a preliminary green light provided by the US Forest Service when the latter announced the release of a draft record of decision earlier this year, saying that the project, as it now stands, meets current law which, in turn, allowed other federal agencies to proceed with permitting requests. The proposed mine, which is owned by Hudbay Minerals, is located near a number of large porphyry-type producing copper mines and is expected to be one of the largest copper mines in the US with output of c 112,000t copper in concentrate per annum 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, or c 3.9Moz silver equivalent pa, and we estimate that it will contribute an average c US$0.14 per share to WPM’s basic EPS in its first 10 years of operations for an upfront payment of US$230m spread over three years.

Cobalt as a rational diversifier

Cobalt is unique among alloying constituents in steel in that it is the only element that has a negative effect on the hardenability of steel by accelerating the decomposition of austenite. However, the presence of cobalt in the steel improves its durability and hardness at higher temperatures and reduces the fall in hardness of austenite and ferrite under the influence of temperature increase and is therefore used as a supplement to some grades of high-speed steels and tool steels that are required to maintain their cutting capacity at elevated temperatures. It is also a component of creep-resistant steels.

However, in contrast to its historic applications, the primary use of cobalt now is rechargeable batteries, as cobalt significantly improves battery performance by providing stability and prolonging battery life. Currently, battery chemicals consume just under half of the world’s cobalt, but that percentage is expected to grow to 57% in 2020 and 73% in 2025, driven by growth in demand for electric vehicles in particular.

While the demand side of the equation for cobalt appears buoyant, however, the supply side is characterised by a number of risks. Prime among these is the fact that the Democratic Republic of the Congo (ranks 87 out of 91 in the Fraser Institute’s Policy Perception Index survey of government policy attractiveness to the mining industry) accounts for c 50% of global in-situ reserves (source: the US Geological Survey) and 55% of the global production. Moreover, as with silver, more than 90% of cobalt production is in the form of a by-product, typically of copper and/or nickel, with the result that output of cobalt is governed more by the economics of producing these two metals than the particular needs of cobalt consumers, thereby creating the potential for material misalignments of supply and demand over sustained time frames.

Valuation

Excluding FY04 (part-year), WPM’s shares have historically traded on a contemporary average P/E multiple of 27.6x current year basic underlying EPS, ie excluding impairments (cf 35.2x Edison or 36.7x Bloomberg consensus FY18e, currently – see Exhibit 7).

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

Source: Edison Investment Research

Applying this multiple to our EPS forecast of US$1.24 in FY20 (cf US$1.27 previously – the difference being entirely accounted for by changes in the interest charge for that year, owing to the change in the debt repayment profile on account of the US$390m Voisey’s Bay stream acquisition, and foreign exchange rates only) implies a potential share value for WPM of US$34.11, or C$45.14 in that year (cf US$35.07, or C$44.78 previously). Note that this valuation excludes the value of 20.9m shares in First Majestic currently held by WPM, with an immediate value of C$206.2m, or US$0.35 per WPM share.

In the meantime, from a relative perspective, it is notable that WPM is cheaper than its royalty/streaming ‘peers’ in 91% (22 out of 24) of the valuation measures used in Exhibit 7 and on multiples that are cheaper than the miners themselves in at least 37% (34 out of 90) of the same valuation measures (effectively irrespective of whether Edison or consensus forecasts are used), despite being associated with materially less operational and cost risk (as WPM’s costs over time are contractually predetermined).

Exhibit 7: 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

60.6

57.4

1.3

1.4

25.5

23.0

Royal Gold

49.5

40.5

1.1

1.1

21.2

18.4

Sandstorm Gold

62.1

48.2

0.0

0.0

18.1

15.3

Osisko

73.3

49.0

1.5

1.6

23.5

18.9

Average

61.4

48.8

1.0

1.0

22.1

18.9

WPM (Edison forecasts)

35.2

25.5

1.6

1.9

18.3

15.6

WPM (consensus)

36.7

29.9

1.7

1.7

18.8

16.5

Gold producers

Barrick

17.0

17.5

0.9

0.9

5.7

5.8

Newmont

26.2

22.9

1.5

1.4

9.5

8.6

Goldcorp

33.4

19.1

0.6

0.6

8.6

6.7

Newcrest

38.7

17.3

1.1

1.7

11.3

8.1

Kinross

18.3

20.4

0.0

3.4

4.4

4.5

Agnico-Eagle

79.8

46.0

1.0

1.0

14.7

12.4

Eldorado

63.8

164.1

0.2

0.3

8.2

6.1

Yamana

26.0

18.4

0.7

0.7

4.6

4.4

Randgold Resources

22.4

20.0

4.1

5.0

12.2

11.5

Average

36.2

38.4

1.1

1.7

8.8

7.5

Silver producers

Hecla

53.9

23.3

0.2

0.2

10.9

7.1

Pan American

22.7

20.5

0.6

1.0

10.6

9.0

Coeur Mining

100.0

30.4

0.0

0.0

12.5

6.2

First Majestic

154.6

32.4

0.0

0.0

15.0

8.3

Hocschild

27.5

16.8

1.5

1.6

4.9

4.4

Fresnillo

24.4

20.4

2.1

2.4

12.9

11.6

Average

63.8

24.0

0.7

0.9

11.1

7.8

Source: Bloomberg, Edison Investment Research. Note: Peers priced on 18 June 2018.

Financials – solid equity base

WPM’s initial, upfront cash payment of US$390m in consideration of the stream purchase will be paid using amounts drawn from its US$2bn revolving credit facility.

As at 31 March 2018, WPM had US$115.6m in cash (before a dividend of US$39.9m payable on or about 7 June) and US$663.0m of debt outstanding under its US$2bn revolving credit facility (which attracts an interest rate of Libor plus 120–220bp and matures in February 2022), such that it had net debt of US$547.4m overall, after US$125.3m (US$0.28/share) of cash inflows from operating activities during the quarter. Relative to the company’s Q1 balance sheet equity of US$4,925.5m, this level of net debt equated to a financial gearing (net debt/equity) ratio of 12.7% and a leverage (net debt/[net debt+equity]) ratio of 10.0%. It also compared with a net debt position of US$671.5m as at 31 December 2017, and is consistent with WPM generating c US$100–150m per quarter from operating activities before financing and investing activities.

In the aftermath of the Voisey’s Bay cobalt stream acquisition, we now estimate that WPM’s net debt position will be US$756.3m by the end of FY18 (cf US$366.3m previously), which will equate to gearing of 15.1% (cf 7.3% previously) and leverage of 13.1% (cf 6.8% previously), and that WPM will be net debt free in mid-2020 (cf late FY19 previously), all other things being equal and contingent on its making no further major acquisitions (which is unlikely, in our view). Self-evidently, such a level of debt is well within the tolerances required by its banking covenants that:

net debt should be no more than 0.75x tangible net worth (which was US$4,925.5m as at end-Q118 and which we now forecast to be US$5,018.6m as at end-FY18); and

interest should be no less than 3x covered by EBITDA (we estimate that net interest was covered 22.6x in FY17 and that it will be covered 24.0x in FY18).

Note that the C$191.7m letter of guarantee that WPM has posted regarding 50% of the disputed taxes relating to its dispute with the CRA (see below) has been determined under a separate agreement and is therefore specifically excluded from calculations regarding WPM’s banking covenants.

Footnote: FY18 forecasts

Our EPS forecast for FY18 remains unchanged, at US$0.63/share, in the aftermath of the Voisey’s Bay stream acquisition and compares with an average consensus estimate (source: Bloomberg, 18 June) of 60.3c within a range of 53–65c (cf a consensus of 61c, within a range of 53–66c, in May). This forecast was predicated on an average gold price of US$1,324/oz in Q218 and US$1,320/oz thereafter and an average silver price of US$16.63/oz in Q218 and US$16.67/oz thereafter. However, in the aftermath of the Federal Reserve’s interest increase in June, gold and silver prices have fallen to c US$1,278/oz and US$16.47/oz, respectively. Should gold and silver prices remain at these levels for the remainder of the year, we estimate that it would reduce our current, official EPS forecast of US$0.63/share by 3 US cents, to US$0.60/share. Our dividend forecast of US$0.36/share would remain unchanged, however.

In the meantime, our FY19 EPS forecast remains based on assumed precious metals prices of US$22.21/oz Ag and US$1,263/oz Au (see our report, Mining overview, Unlocking the price to NPV discount, published in November 2017) – as much to demonstrate WPM’s operational gearing to a normalisation of the gold:silver ratio from its current, (almost) unprecedented, level of 77.6x.

Exhibit 8: Financial summary

US$'000s

2012

2013

2014

2015

2016

2017

2018e

2019e

Dec

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

849,560

706,472

620,176

648,687

891,557

843,215

826,503

961,946

Cost of Sales

(117,489)

(139,352)

(151,097)

(190,214)

(254,434)

(243,801)

(241,646)

(267,566)

Gross Profit

732,071

567,120

469,079

458,473

637,123

599,414

584,857

694,380

EBITDA

 

 

701,232

531,812

431,219

426,236

602,684

564,741

548,850

658,373

Operating Profit (before amort. and except.)

600,003

387,659

271,039

227,655

293,982

302,361

303,938

415,585

Intangible Amortisation

0

0

0

0

0

0

0

0

Exceptionals

0

0

(68,151)

(384,922)

(71,000)

(228,680)

0

0

Other

788

(11,202)

(1,830)

(4,076)

(4,982)

8,129

(2,587)

0

Operating Profit

600,791

376,457

201,058

(161,343)

218,000

81,810

301,351

415,585

Net Interest

0

(6,083)

(2,277)

(4,090)

(24,193)

(24,993)

(22,844)

(30,572)

Profit Before Tax (norm)

 

 

600,003

381,576

268,762

223,565

269,789

277,368

281,094

385,013

Profit Before Tax (FRS 3)

 

 

600,791

370,374

198,781

(165,433)

193,807

56,817

278,507

385,013

Tax

(14,755)

5,121

1,045

3,391

1,330

886

485

0

Profit After Tax (norm)

586,036

375,495

267,977

222,880

266,137

286,383

278,992

385,013

Profit After Tax (FRS 3)

586,036

375,495

199,826

(162,042)

195,137

57,703

278,992

385,013

Average Number of Shares Outstanding (m)

353.9

355.6

359.4

395.8

430.5

442.0

442.7

442.5

EPS - normalised (c)

 

 

166

106

75

53

62

63

63

87

EPS - normalised and fully diluted (c)

 

165

105

74

53

62

63

63

87

EPS - (IFRS) (c)

 

 

166

106

56

(-41)

45

13

63

87

Dividend per share (c)

35

45

26

20

21

33

36

41

Gross Margin (%)

86.2

80.3

75.6

70.7

71.5

71.1

70.8

72.2

EBITDA Margin (%)

82.5

75.3

69.5

65.7

67.6

67.0

66.4

68.4

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

70.6

54.9

43.7

35.1

33.0

35.9

36.8

43.2

BALANCE SHEET

Fixed Assets

 

 

2,403,958

4,288,557

4,309,270

5,526,335

6,025,227

5,579,898

5,796,986

5,626,198

Intangible Assets

2,281,234

4,242,086

4,270,971

5,494,244

5,948,443

5,454,106

5,671,194

5,500,406

Tangible Assets

1,347

5,670

5,427

12,315

12,163

30,060

30,060

30,060

Investments

121,377

40,801

32,872

19,776

64,621

95,732

95,732

95,732

Current Assets

 

 

785,379

101,287

338,493

105,876

128,092

103,415

17,472

393,843

Stocks

966

845

26,263

1,455

1,481

1,700

1,484

1,727

Debtors

6,197

4,619

4,132

1,124

2,316

3,194

2,264

2,635

Cash

778,216

95,823

308,098

103,297

124,295

98,521

13,723

389,480

Other

0

0

0

0

0

0

0

0

Current Liabilities

 

 

(49,458)

(21,134)

(16,171)

(12,568)

(19,057)

(12,143)

(23,859)

(26,415)

Creditors

(20,898)

(21,134)

(16,171)

(12,568)

(19,057)

(12,143)

(23,859)

(26,415)

Short term borrowings

(28,560)

0

0

0

0

0

0

0

Long Term Liabilities

 

 

(32,805)

(1,002,164)

(1,002,856)

(1,468,908)

(1,194,274)

(771,506)

(771,991)

(771,991)

Long term borrowings

(21,500)

(998,136)

(998,518)

(1,466,000)

(1,193,000)

(770,000)

(770,000)

(770,000)

Other long term liabilities

(11,305)

(4,028)

(4,338)

(2,908)

(1,274)

(1,506)

(1,991)

(1,991)

Net Assets

 

 

3,107,074

3,366,546

3,628,736

4,150,735

4,939,988

4,899,664

5,018,608

5,221,635

CASH FLOW

Operating Cash Flow

 

 

720,209

540,597

434,582

435,783

608,503

564,187

559,124

660,315

Net Interest

0

(6,083)

(2,277)

(4,090)

(24,193)

(24,993)

(22,844)

(30,572)

Tax

(725)

(154)

(204)

(208)

28

(326)

970

0

Capex

(641,976)

(2,050,681)

(146,249)

(1,791,275)

(805,472)

(19,633)

(462,000)

(72,000)

Acquisitions/disposals

0

0

0

0

0

0

0

0

Financing

12,919

58,004

6,819

761,824

595,140

1,236

0

0

Dividends

(123,852)

(160,013)

(79,775)

(68,593)

(78,708)

(121,934)

(160,048)

(181,986)

Net Cash Flow

(33,425)

(1,618,330)

212,896

(666,559)

295,298

398,537

(84,798)

375,757

Opening net debt/(cash)

 

 

(761,581)

(728,156)

902,313

690,420

1,362,703

1,068,705

671,479

756,277

HP finance leases initiated

0

0

0

0

0

0

0

0

Other

0

(12,139)

(1,003)

(5,724)

(1,300)

(1,311)

(0)

0

Closing net debt/(cash)

 

 

(728,156)

902,313

690,420

1,362,703

1,068,705

671,479

756,277

380,520

Source: Company sources, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Wheaton Precious Metals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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295 Madison Avenue, 18th Floor

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US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Wheaton Precious Metals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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