Q3 results scheduled for 9 November

Silver Wheaton 2 November 2016 Update

Silver Wheaton

Q3 results scheduled for 9 November

Q3 preview

Metals & mining

 

2 November 2016

Price

C$31.33

Market cap

C$13,824m

C$1.3396/US$

Net debt (US$m) at end-June 2016

581.5

Shares in issue

440.2m

Free float

100%

Code

SLW

Primary exchange

TSX

Secondary exchange

NYSE

Share price performance

%

1m

3m

12m

Abs

(5.2)

(10.5)

81.5

Rel (local)

(5.8)

(11.7)

67.3

52-week high/low

C$39.7

C$15.0

Business description

Silver Wheaton is the world’s pre-eminent pure precious metals streaming company, with more than 25 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

Q3 results

9 November 2016

Dividend declaration

9 November 2016

Analyst

Charles Gibson

+44 (0)20 3077 5724

Silver Wheaton is a research client of Edison Investment Research Limited

Silver Wheaton’s (SLW’s) Q316 results are scheduled for release after market close on Wednesday 9 November. Our forecasts for Q316 have been adjusted to account for actual precious metals prices that were marginally higher in Q3 than previously predicted (eg US$19.60/oz vs US$19.44/oz Ag and US$1,335/oz vs US$1,333/oz Au), but production that we estimate to have been marginally lower (eg 13,355koz silver equivalent vs 13,657koz).

Year end

Revenue (US$m)

PBT* (US$m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

12/14

620.2

268.8

74

26

31.6

1.1

12/15

648.7

223.6

53

20

44.1

0.9

12/16e

906.7

291.9

67

23

34.9

1.0

12/17e

1,122.4

464.1

106

33

22.1

1.4

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

Q3 consensus basic EPS range 17-24c per share

Financial results for Q316 will include a full quarter’s contribution as a result of SLW’s acquisition of an incremental 25% Salobo stream for the first time (taking its interest to 75%). Our revised EPS estimates of 23c for Q316 and 19c for Q416 compare to average consensus basic EPS estimates of 21c (within a range of 17-24c) and 23c (within a range of 18-27c), respectively (source: Bloomberg, 28 October 2016). Our updated FY16 EPS estimate of 67c compares to an average consensus basic EPS estimate of 69c within a range of 64-83c.

Metal produced but not delivered a key sensitivity

Edison’s financial forecasts are sensitive to the degree of over- or under-sale of precious metals during the period. Notwithstanding occasional over-sale purges, the average degree of silver under-sale since Q112 has been 10%. Should this level of under-sale recur in Q316, we estimate that it could reduce earnings by approximately 15.0% and basic EPS from 23cps to 20cps.

Cornerstone asset regains footing

Notwithstanding recent tribulations, Goldcorp expects the (gold) grade of ore at Penasquito to continue to improve during Q416 as the mine progresses deeper into the high-grade zone in the current phase. We also expect tonnes milled to increase on account of a reduction in planned maintenance.

Valuation: 11.0% IRR in US$ over four years predicted

Assuming no material purchases of additional streams (which is unlikely), we forecast a value per share for SLW of US$34.22, or C$45.85, in FY20 (at prices of US$23.98/oz Ag and US$1,362/oz Au), implying an 11.0% pa total internal rate of return for investors in US dollar terms over the next four years. In the meantime, SLW’s shares are trading on near-term financial ratios that are cheaper than those of its royalty/streaming ‘peers’ in at least 75% of instances considered, and the miners themselves in at least 46% of instances, despite being associated with materially less operational and cost risk.

Q3 preview

Silver Wheaton’s Q316 results are scheduled for release after the market close on Wednesday 9 November. Our forecasts for SLW’s Q316, Q416 and FY16 have been adjusted to account for actual precious metals prices that were marginally higher in Q3 than previously predicted (eg US$19.60/oz vs US$19.44/oz Ag and US$1,335/oz vs US$1,333/oz Au), but are lower, to date, so far in Q4.

Exhibit 1: Silver Wheaton FY16 forecasts, by quarter*

US$000s (unless otherwise stated)

Q116

Q216

Q316e (previous)

Q316e (current)

Q316e** (Ag under-sale)

Q416e (previous)

Q416e (current)

FY16e (previous)

FY16e (current)

FY17e (current)

Silver production (koz)

7,570

7,581

8,060

7,796

7,796

8,060

8,060

31,271

31,001

30,939

Gold production (oz)

64,942

70,249

81,626

81,626

81,626

81,626

81,626

298,443

298,443

335,062

AgE production (koz)

12,733

12,852

13,657

13,355

13,355

13,818

13,930

52,968

52,779

49,940

Silver sales (koz)

7,552

7,142

8,060

7,796

7,016

8,060

8,060

30,814

30,550

30,939

Gold sales (oz)

65,258

70,757

81,626

81,626

81,626

81,626

81,626

299,267

299,267

335,062

AgE sales (koz)

12,759

12,451

13,657

13,355

12,576

13,818

13,930

52,593

52,404

49,940

Avg realised Ag price (US$/oz)

14.68

17.18

19.44

19.60

19.60

18.70

17.59

17.56

17.29

22.48

Avg realised Au price (US$/oz)

1,175

1,267

1,333

1,335

1,335

1,319

1,265

1,279

1,265

1,275

Avg realised AgE price (US$/oz)

14.70

17.06

19.44

19.60

19.60

18.70

17.59

17.56

17.30

22.48

Avg Ag cash cost (US$/oz)

4.14

4.46

4.64

4.66

5.18

4.62

4.58

4.47

4.46

5.10

Avg Au cash cost (US$/oz)

389

401

395

395

395

395

395

398

398

395

Avg AgE cash cost (US$/oz)

4.44

4.84

5.10

5.14

5.45

5.03

4.96

4.88

4.87

5.81

Sales

187,511

212,351

265,495

261,763

246,484

258,387

245,033

923,744

906,658

1,122,410

Cost of sales

Cost of sales, excluding depletion

56,636

60,208

69,632

68,583

68,583

69,463

69,158

255,939

254,585

290,259

Depletion

71,344

75,074

77,548

76,741

76,741

77,548

77,548

301,514

300,707

302,737

Total cost of sales

127,980

135,282

147,180

145,325

145,325

147,011

146,706

557,453

555,293

592,996

Earnings from operations

59,531

77,069

118,315

116,439

101,159

111,376

98,327

366,291

351,365

529,414

Expenses and other income

- General and administrative*

10,844

9,959

8,754

8,754

8,754

8,754

8,754

38,311

38,311

38,311

- Foreign exchange (gain)/loss

0

0

0

0

0

0

0

0

0

- Net interest paid/(received)

6,932

4,590

4,811

4,811

4,811

4,811

4,811

21,144

21,144

27,018

- Other (income)/expense

1,160

1,599

814

814

814

814

814

4,387

4,387

Total expenses and other income

18,936

16,148

14,379

14,379

14,379

14,379

14,379

63,842

63,842

65,329

Earnings before income taxes

40,595

60,921

103,936

102,060

86,781

96,997

83,948

302,449

287,524

464,085

Income tax expense/(recovery)

(384)

615

0

0

0

0

0

231

231

0

Marginal tax rate (%)

(0.9)

1.0

0.0

0.0

0.0

0.0

0.0

0.1

0.1

0.0

Net earnings

40,979

60,306

103,936

102,060

86,781

96,997

83,948

302,218

287,293

464,085

Ave. no. shares in issue (000s)

402,952

436,726

438,453

438,453

438,453

438,453

438,453

429,146

438,453

438,453

Basic EPS (US$)

0.10

0.14

0.24

0.23

0.20

0.22

0.19

0.70

0.67

1.06

Diluted EPS (US$)

0.10

0.14

0.24

0.23

0.20

0.22

0.19

0.70

0.67

1.06

Source: Silver Wheaton, Edison Investment Research. Note: *Forecasts exclude stock-based compensation costs. **Assumes 10% under-sale of silver relative to production (see section entitled Produced but not yet delivered on page 3).

Financial results for Q316 will include a full quarter’s contribution as a result of SLW’s acquisition of an incremental 25% Salobo stream for the first time (taking its interest to 75%). Our revised EPS estimates of 23c for Q316 and 19c for Q416 compare to average consensus basic EPS estimates of 21c (within a range of 17-24c) and 23c (within a range of 18-27c), respectively (source: Bloomberg, 28 October 2016). Our updated FY16 EPS estimate of 67c compares to an average consensus basic EPS estimate of 69c within a (narrowing) range of 64-83c (source: Bloomberg, 28 October 2016).

In addition, we have adjusted our FY17 forecasts to reflect our updated annual precious metals price forecasts, as set out in our report Gold and other metals: Normalisation augurs well for exploration, published in October 2016. In the wake of this adjustment, our basic EPS estimate for FY17 of 106c compares to an average consensus estimate of 100c within a (widening) range of 68-141c. If silver and gold prices remain at the current levels of US$17.59/oz and US$1,266/oz, respectively, at the time of writing, we estimate that basic EPS in FY17 will instead be 73c per share (all other things being equal).

Forecast risks and opportunities
Penasquito

Production at Penasquito declined 35.9% in Q2, to 867koz, as a result of lower throughput (on account of ore hardness), lower ore grades, lower recoveries from the upper transitional ore and the processing of low-grade stockpiles, as well as a 10-day shutdown for planned mill maintenance. There was then a longer than anticipated period to ramp the plant back up again to full production. On 26 October, Goldcorp reported Q3 silver production from Penasquito of 5,242koz, implying production attributable to Silver Wheaton of 1,310.5koz. As a result, Edison forecasts that production from Penasquito attributable to Silver Wheaton will recover in Q3 and Q416, but only towards the lower end of the prior range (below).

Exhibit 2: Penasquito production attributable to SLW, historic and forecast (koz), by quarter

Source: Silver Wheaton, Edison Investment Research

Subsequently, protestors began a blockade of Penasquito on 26 September. After stating that the blockade would not affect production and cost guidance for FY16, Goldcorp initiated a controlled shutdown of the mine on 3 October. The exercise included a contingency plan to restart mining and processing immediately a resolution with the protestors was concluded and this was then put into effect on 8 October.

Towards the end of Q316, mining at Penasquito shifted from the lower-grade upper transitional ore into higher-grade ore in the lower portion of the pit. As a result, Goldcorp expects the (gold) grade of ore at Penasquito to continue to improve during Q416 as the mine progresses deeper into the high-grade zone in the current phase. We also expect tonnes milled to increase on account of a reduction in planned maintenance.

Produced but not yet delivered

In common with other businesses (both mining and otherwise), Silver Wheaton is engaged in a continual process to minimise stocks – as evidenced by the declining trend in the under-sale of silver relative to production in recent years (see Exhibit 3 below).

Exhibit 3: Over/(under) sale of silver as a % of production, Q112-Q216 (%)

Source: Edison Investment Research, Silver Wheaton

While desirable, however, a permanently declining trend in the context of a rising production profile is likely to prove well-nigh impossible to achieve. Notwithstanding occasional over-sale purges, the degree of average silver under-sale since Q112 has been 10%. Should this level of under-sale recur in Q316, we estimate that it could reduce earnings by approximately 15.0%, as shown in the column entitled Q316e (Ag under-sale) in Exhibit 1.

Note that the volatility in gold sales relative to production is much greater than that for silver:

Exhibit 4: Over/(under) sale of gold as a % of production, Q112-Q216 (%)

Source: Edison Investment Research, Silver Wheaton

General & administrative

Investors should note that Edison’s financial forecasts in Exhibit 1 specifically exclude stock-based compensation costs. SLW still forecasts non-stock general & administrative expenses to be in the range of US$31-34m for the full year – ie US$7.75-8.50m per quarter – including additional legal costs relating to SLW’s dispute with the Canadian Revenue Agency. However, while Silver Wheaton’s share price has comfortably outperformed the majority of its peers during Q3, its 14.3% appreciation (in US dollar terms) is nevertheless still markedly more conservative than during Q1 and Q2 when it returned 34.6% and 43.2%, respectively (giving rise to the larger G&A expenses recorded for those periods in Exhibit 1 once stock-based compensation costs were included).

Exhibit 5: Silver Wheaton share price relative to peers and silver, Q316

Source: Thomson Reuters Datastream, Edison Investment Research. Note: Underlying data in US dollars.

As a result, Edison regards the risk of an underlying G&A expense overrun as being small. Nevertheless, it self-evidently does exist.

Long-term developments

Goldcorp’s board granted approval for the Pyrite Leach Project (PLP) at Penasquito on 27 July. Based on a feasibility study completed in December 2015, the PLP is expected to provide annual incremental production of 100-140koz of gold pa and approximately 4-6Moz of silver – of which 25% will be attributable to Silver Wheaton – for an expected capital investment of approximately US$420m (NB None of which is attributable to Silver Wheaton).

At the time of writing, the project contractor is currently mobilising on site to begin the construction of permanent facilities, while simultaneously preparing bid packages for long lead time equipment, with a view to completing construction in H218, whereupon precious metals production is forecast to commence in CY19.

Valuation

Excluding FY04 (part year) and FY08 (when there was an exceptional write-down), SLW’s shares have historically traded on an average P/E multiple of 25.9x current year basic EPS (cf 34.9x Edison FY16e or 33.7x consensus FY16e, currently – see Exhibit 7).

Exhibit 6: Silver Wheaton historic current year P/E multiples

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

Applying this multiple to our long-term EPS forecast of US$1.32 in FY20, at Edison’s revised long-term precious metals prices (US$23.98/oz Ag and US$1,362/oz Au in FY20 vs US$26.57/oz Ag and US$1,483/oz in FY19, previously), implies a potential share value of US$34.22, or C$45.85 in that year.

From a relative perspective, meanwhile, it is notable that SLW is cheaper than its royalty/streaming ‘peers’ on 75% of valuation measures in Exhibit 7 (79.2% if consensus forecasts are used) and on multiples that are cheaper than the gold miners themselves on 46.3% of the same valuation measures (whether consensus or Edison estimates are used), despite being associated with materially less operational and cost risk, in particular.

Exhibit 7: Silver Wheaton 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

73.1

57.3

1.4

1.4

25.9

23.8

Royal Gold

35.4

31.2

1.4

1.4

14.4

13.2

Sandstorm Gold

86.1

55.3

0.0

0.0

16.8

15.3

Osisko

52.4

45.0

1.1

1.2

29.1

26.5

Average

61.7

47.2

1.0

1.0

21.6

19.7

Silver Wheaton (Edison forecasts)

34.9

22.1

1.0

1.4

16.7

13.3

SLW (consensus)

33.7

23.4

1.0

1.5

16.5

13.6

Operators

7.6

Barrick

25.6

17.3

0.5

0.5

7.4

6.5

Newmont

20.8

18.5

0.4

0.7

10.4

7.0

Goldcorp

48.2

23.5

0.8

0.6

10.0

7.7

Newcrest

21.1

18.5

1.0

1.4

4.7

9.5

Kinross

47.0

18.4

0.0

0.0

14.0

3.8

Agnico-Eagle

77.8

42.6

0.7

0.8

14.9

12.2

Eldorado

46.4

21.2

0.1

0.5

5.1

10.3

Yamana

29.2

16.3

0.7

0.7

16.7

4.3

Randgold Resources

28.1

21.2

0.8

1.0

18.4

12.7

Average

38.2

21.9

0.6

0.7

11.3

8.2

Source: Bloomberg, Edison Investment Research. Note: Edison FY17 forecasts assume precious metals prices of US$22.48/oz Ag and US$1,275/oz Au. Peers priced on 31 October 2016.

Potential future stream acquisitions

SLW estimates the size of the potential market open to it to be the 70% of total silver production of c 870Moz in FY16 that is produced as a by-product of either gold or base metals mines, ie approximately 609Moz silver per year. This compares to SLW’s estimated production of 31.0Moz Ag in FY16, ie SLW estimates that it has penetrated only c 5.1% of its potential market.

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 Silver Wheaton in due course and regarding which it already has strong, existing counterparty relationships:

The 75% silver stream at Penasquito that is currently not subject to any streaming arrangement.

The platinum group metal (PGM) by-product stream at Sudbury.

The 75% silver stream at Pascua-Lama that is currently not subject to any streaming arrangement (subject to permitting and development).

Financials

SLW had net debt of US$582m as at the end of June 2016 (cf US$1,284.2m at the end of March and US$1,362.7m at the end of December 2015). In the aftermath of its incremental 25% Salobo stream acquisition (see our note Going for gold, published on 30 August 2016) and assuming the operational performance set out in Exhibit 1, we estimate that SLW’s net debt will be US$1,159.6m by the end of FY16 (equating to gearing of 23.4% and leverage of 19.0%), and that it will be net debt free early in FY19, all other things being equal and contingent on its making no further major acquisitions (which is unlikely). Self-evidently, such a level of debt is well within the tolerances required of its banking covenants that:

net debt should be no more than 0.75x tangible net worth (which was US$4,839.2m as at end-June 2016 and is forecast to be US$4,945.4m as at end-December 2016); and

interest should be no less than 3x covered by EBITDA (we estimate that net interest will be 29.0x covered in FY16).

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

Canadian Revenue Agency (CRA)

There have been no further substantive developments regarding SLW’s dispute with the CRA since our last update note. Any further developments will be communicated to investors as and when they occur.

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

Exhibit 8: Financial summary

US$'000s

2012

2013

2014

2015

2016e

2017e

Dec

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

849,560

706,472

620,176

648,687

906,658

1,122,410

Cost of Sales

(117,489)

(139,352)

(151,097)

(190,214)

(254,585)

(290,259)

Gross Profit

732,071

567,120

469,079

458,473

652,073

832,151

EBITDA

 

 

701,232

531,812

431,219

426,236

613,762

793,840

Operating Profit (before amort. and except.)

600,003

387,659

271,039

227,655

313,054

491,103

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

0

0

(68,151)

(384,922)

0

0

Other

788

(11,202)

(1,830)

(4,076)

(4,387)

0

Operating Profit

600,791

376,457

201,058

(161,343)

308,667

491,103

Net Interest

0

(6,083)

(2,277)

(4,090)

(21,144)

(27,018)

Profit Before Tax (norm)

 

 

600,003

381,576

268,762

223,565

291,911

464,085

Profit Before Tax (FRS 3)

 

 

600,791

370,374

198,781

(165,433)

287,524

464,085

Tax

(14,755)

5,121

1,045

3,391

(231)

0

Profit After Tax (norm)

586,036

375,495

267,977

222,880

287,293

464,085

Profit After Tax (FRS 3)

586,036

375,495

199,826

(162,042)

287,293

464,085

Average Number of Shares Outstanding (m)

353.9

355.6

359.4

395.8

429.1

438.5

EPS - normalised (c)

 

 

166

106

75

53

67

106

EPS - normalised and fully diluted (c)

 

165

105

74

53

67

106

EPS - (IFRS) (c)

 

 

166

106

56

(-41)

67

106

Dividend per share (c)

35

45

26

20

23

33

Gross Margin (%)

86.2

80.3

75.6

70.7

71.9

74.1

EBITDA Margin (%)

82.5

75.3

69.5

65.7

67.7

70.7

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

70.6

54.9

43.7

35.1

34.5

43.8

BALANCE SHEET

Fixed Assets

 

 

2,403,958

4,288,557

4,309,270

5,526,335

6,130,109

5,899,372

Intangible Assets

2,281,234

4,242,086

4,270,971

5,494,244

6,098,018

5,867,281

Tangible Assets

1,347

5,670

5,427

12,315

12,315

12,315

Investments

121,377

40,801

32,872

19,776

19,776

19,776

Current Assets

 

 

785,379

101,287

338,493

105,876

4,517

256,880

Stocks

966

845

26,263

1,455

2,033

2,517

Debtors

6,197

4,619

4,132

1,124

2,484

3,075

Cash

778,216

95,823

308,098

103,297

0

251,288

Other

0

0

0

0

0

0

Current Liabilities

 

 

(49,458)

(21,134)

(16,171)

(12,568)

(327,588)

(30,532)

Creditors

(20,898)

(21,134)

(16,171)

(12,568)

(27,014)

(30,532)

Short term borrowings

(28,560)

0

0

0

(300,574)

0

Long Term Liabilities

 

 

(32,805)

(1,002,164)

(1,002,856)

(1,468,908)

(861,677)

(861,677)

Long term borrowings

(21,500)

(998,136)

(998,518)

(1,466,000)

(859,000)

(859,000)

Other long term liabilities

(11,305)

(4,028)

(4,338)

(2,908)

(2,677)

(2,677)

Net Assets

 

 

3,107,074

3,366,546

3,628,736

4,150,735

4,945,361

5,264,043

CASH FLOW

Operating Cash Flow

 

 

720,209

540,597

434,582

435,783

621,883

796,284

Net Interest

0

(6,083)

(2,277)

(4,090)

(21,144)

(27,018)

Tax

(725)

(154)

(204)

(208)

(462)

0

Capex

(641,976)

(2,050,681)

(146,249)

(1,791,275)

(904,481)

(72,000)

Acquisitions/disposals

0

0

0

0

0

0

Financing

12,919

58,004

6,819

761,824

607,000

0

Dividends

(123,852)

(160,013)

(79,775)

(68,593)

(99,667)

(145,404)

Net Cash Flow

(33,425)

(1,618,330)

212,896

(666,559)

203,129

551,862

Opening net debt/(cash)

 

 

(761,581)

(728,156)

902,313

690,420

1,362,703

1,159,574

HP finance leases initiated

0

0

0

0

0

0

Other

0

(12,139)

(1,003)

(5,724)

0

0

Closing net debt/(cash)

 

 

(728,156)

902,313

690,420

1,362,703

1,159,574

607,712

Source: Company sources, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Silver Wheaton and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Silver Wheaton and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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