Solid Q221 results set up H221

Wheaton Precious Metals 18 August 2021 Update
Download PDF

Wheaton Precious Metals

Solid Q221 results set up H221

Q221 results

Metals & mining

18 August 2021

Price

C$55.70

Market cap

C$25,080m

C$1.2611/US$, US$1.3750/£

Net cash end-June* (US$m)

235.4

*Excludes US$3.3m in lease liabilities.

Shares in issue

450.3m

Free float

100%

Code

WPM

Primary exchange

TSX

Secondary exchange

LSE, NYSE

Share price performance

%

1m

3m

12m

Abs

(0.1)

(2.9)

(20.3)

Rel (local)

(1.9)

(7.2)

(34.8)

52-week high/low

C$72.18

C$45.11

Business description

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

Next events

Q321 results

4 November 2021

Q421/FY21 results

March 2022

Q122 results

May 2022

Q222 results

August 2022

Analysts

Charles Gibson

+44 (0)20 3077 5724

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

WPM’s Q221 results were characterised by record quarterly revenue, which contributed towards record revenue and cash-flow for the half-year period and a fourth successive increase in the quarterly dividend, to US$0.15/share for Q321 (cf US$0.10/share for Q320). In general, financial results were closely aligned with our prior expectations and well within the range of analysts’ expectations. Production was strong from both Wheaton’s gold and silver divisions although, whereas the gold division’s sales were closely aligned with production, the silver division reverted to its more normal pattern of a 16.7% under-sale of metal relative to production and a consequent (albeit modest) increase in ounces produced but not yet delivered. In the wake of Q221 results, we have adjusted our forecasts for WPM for FY21 to reflect the ‘flash crash’ in precious metals prices between 4-10 August, although we do not believe that there will be an end to the structural bull market unless and until real interest rates in the US exceed 4% on a sustained basis.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/19

861.3

242.7

54

36

81.8

0.8

12/20

1,096.2

503.2

112

42

39.4

1.0

12/21e

1,320.8

646.9

143

57

30.9

1.3

12/22e

1,673.1

966.5

214

80

20.6

1.8

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

New initiatives and opportunities

The quarter was also notable for the delivery of initial precious metals to Wheaton from the high grade Pampacancha pit at Constancia, the production of inaugural cobalt from the Voisey’s Bay underground extension, the production of first gold and silver from the Marmato project, the closing of WPM’s precious metals purchase agreement with Capstone regarding the Santo Domingo project and, subsequent to the quarter’s end, the resolution of the Sudbury strike and WPM’s entering into an agreement on a new precious metals stream on Rio2’s Fenix Gold project in Chile – demonstrating, among other things, that opportunities continue to abound despite COVID-19.

Valuation: Up 2.6% to US$64.92, C$81.86 or £47.21

In normal circumstances and assuming no material purchases of additional streams in the foreseeable future (which we think unlikely), we forecast a value per share for WPM of US$64.92 or C$81.86 or £47.21 in FY23 (cf US$63.28 previously). In the meantime, WPM’s shares are trading on near-term financial ratios that are cheaper than the averages of its peers on at least two thirds of nine common valuation measures regardless of whether Edison or consensus forecasts are used. Hence, if WPM’s shares were to trade at the same level as the average of its peers, then we calculate that its current year 1 share price should be US$56.48 (C$71.22 or £41.08), based on Edison’s forecasts for FY21. Alternatively, if precious metals return to favour and WPM to a premium rating, we believe that an US$88.02 (C$111.24 or £64.01) per share valuation is achievable (see pages 12–13).

Q221 results

As in Q121, WPM’s Q221 results were characterised by record quarterly revenue, which contributed towards record revenue and cash-flow for the half-year period as well and a fourth successive increase in the quarterly dividend, to US$0.15/share for Q321 (cf US$0.10/share for Q320). The quarter also witnessed the delivery of initial precious metals to Wheaton from the high grade Pampacancha pit at Constancia, the production of inaugural cobalt from the Voisey’s Bay underground extension, the production of first gold and silver from the Marmato project, the closing of WPM’s precious metals purchase agreement (PMPA) with Capstone regarding the latter’s Santo Domingo project (now incorporated into our financial forecasts) and, subsequent to the end of the quarter, WPM’s entering into an agreement on a new previous metals stream on Rio2’s Fenix Gold project in Chile (not yet incorporated into our forecasts).

In general, production was strong from both Wheaton’s gold and silver divisions although, whereas the gold division’s sales were closely aligned with production, the silver division reverted to its more normal pattern of a 16.7% under-sale of metal relative to production and a consequent (albeit modest) increase in ounces produced but not yet delivered to Wheaton. Otherwise, financial results were closely aligned with our prior expectations, with the only notable variance being in net interest, which continued to register a financial expense to the group, despite Wheaton now being in an overall net cash position. Adjusted EPS were also well within the range of analysts’ expectations of US$0.33-0.41/share (source: Refinitiv, 30 July). A summary of WPM’s financial and operating results in the context of both its results in the preceding quarters and Edison’s prior forecasts is as follows:

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

US$000s
(unless otherwise stated)

Q120

Q220

Q320

Q420

Q121

Q221e

Q221a

Change
**(%)

Variance
***(%)

Variance
***(units)

Silver production (koz)

6,704

3,650

6,028

6,509

6,754

5,853

6,720

-0.5

14.8

867

Gold production (oz)

94,707

88,631

91,770

93,137

77,733

82,226

90,290

16.2

9.8

8,064

Palladium production (koz)

5,312

5,759

5,444

5,672

5,769

5,561

5,301

-8.1

-4.7

-260

Cobalt production (klbs)

1,161

433

380

-67.3

-12.2

-53

Silver sales (koz)

4,928

4,729

4,999

4,576

6,657

5,902

5,600

-15.9

-5.1

-302

Gold sales (oz)

100,405

92,804

90,101

86,243

75,104

84,056

90,090

20.0

7.2

6,034

Palladium sales (koz)

4,938

4,976

5,546

4,591

5,131

5,539

3,869

-24.6

-30.1

-1,670

Cobalt sales (klbs)

132.3

531

395

198.6

-25.6

-136

Avg realised Ag price (US$/oz)

17.03

16.73

24.69

24.72

26.12

26.68

26.69

2.2

0.0

0.01

Avg realised Au price (US$/oz)

1,589

1,716

1,906

1,882

1,798

1,814

1,801

0.2

-0.7

-13

Avg realised Pd price (US$/oz)

2,298

1,917

2,182

2,348

2,392

2,788

2,797

16.9

0.3

9

Avg realised Co price (US$/lb)

22.19

20.76

19.82

-10.7

-4.5

-0.94

Avg Ag cash cost (US$/oz)

4.50

5.23

5.89

5.51

6.33

6.76

6.11

-3.5

-9.6

-0.65

Avg Au cash cost (US$/oz)

436

418

428

433

450

430

450

0.0

4.7

20

Avg Pd cash cost (US$/oz)

402

353

383

423

427

502

503

17.8

0.2

1

Avg Co cash cost (US$/lb)

4.98

3.74

4.41

-11.4

17.9

0.67

Sales

254,789

247,954

307,268

286,213

324,119

336,406

330,393

1.9

-1.8

-6,013

Cost of sales

Cost of sales, excluding depletion

66,908

65,211

70,119

64,524

78,783

80,829

78,445

-0.4

-2.9

-2,384

Depletion

64,841

58,661

60,601

59,786

70,173

71,533

70,308

0.2

-1.7

-1,225

Total cost of sales

131,748

123,872

130,720

124,310

148,956

152,363

148,753

-0.1

-2.4

-3,610

Earnings from operations

123,040

124,082

176,548

161,902

175,164

184,044

181,640

3.7

-1.3

-2,404

Expenses and other income

– General and administrative

13,181

21,799

21,326

9,391

11,971

18,329

18,465

54.2

0.7

136

– Foreign exchange (gain)/loss

0

0

0

0

– Net interest paid/(received)

7,118

4,636

2,766

2,196

1,573

(1,465)

1,357

-13.7

-192.6

2,822

– Other (income)/expense

-1,861

234

391

850

420

136

-67.6

N/A

136

Total expenses and other income

18,438

26,669

24,483

12,437

13,964

16,864

19,958

42.9

18.3

3,094

Earnings before income taxes

104,602

97,413

152,065

149,465

161,199

167,180

161,682

0.3

-3.3

-5,498

Income tax expense/(recovery)

8,442

59

58

24

67

250

56

-16.4

-77.6

-194

Marginal tax rate (%)

8.1

0.1

0.0

0.0

0.0

0.1

0.0

-16.7

-76.8

-0.1

Net earnings

96,160

97,354

152,007

149,441

161,132

166,930

161,626

0.3

-3.2

-5,304

Average no. shares in issue (000s)

447,805

448,636

449,125

449,320

449,509

449,659

450,088

0.1

0.1

429

Basic EPS (US$)

0.215

0.217

0.338

0.333

0.358

0.371

0.359

0.3

-3.2

-0.012

Diluted EPS (US$)

0.214

0.216

0.336

0.331

0.358

0.371

0.358

0.0

-3.5

-0.013

DPS (US$)

0.10

0.10

0.10

0.12

0.13

0.14

0.14

7.7

0.0

0.00

Source: WPM, Edison Investment Research. Note: *As reported by WPM, excluding exceptional items. **Q221 versus Q121. ***Q221 actual versus Q221 estimate.

From an operational perspective, production from Salobo and Stillwater was affected by lower grades albeit, in Salobo’s case, partially mitigated by higher throughput as mine maintenance workshops continued to ramp up during the quarter after a review in Q1 which limited mine movement. Output at Sudbury was affected by the strike that lasted from 1 June until 9 August, but which has now been resolved (see our note Honing forecasts, published on 4 August). Otherwise, all six of WPM’s partners’ mines that were directly affected by shutdowns and suspensions in 2020 (namely Penasquito, San Dimas, Antamina, Constancia, Yauliyacu and Los Filos) recorded strong year-on-year growth in both production and sales. Of WPM’s 19 active streams, all but seven met or exceeded our prior expectations in terms of either production or sales or both, being Salobo, Sudbury, Constancia, San Dimas, Minto, Marmato, Penasquito, Antmina, Los Filos, Yauliyacu, Neves-Corvo and Voisey’s Bay.

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

Ounces produced but not yet delivered, aka inventory

For the sixth quarter in succession sales of gold closely approximated production, while those of silver reverted to a slightly more normal pattern. Gold sales were 0.2% less than production (cf a long-term historical average of 7.1%), while silver sales were 16.7% less (cf a long-term, historical average of 11.6%).

Exhibit 2: Over/(under) sale of silver and gold as a percentage of production, Q112–Q221

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

As at 30 June, payable ounces attributable to WPM produced but not yet delivered to WPM amounted to 4.0Moz silver and 65,943oz gold (cf 3.7Moz silver and 69,328oz gold as at end-March, 4.5Moz silver and 71,590oz gold as at end-December and 3.4Moz silver and 75,750oz gold as at end-September). This ‘inventory’ currently equates to 1.89 and 2.25 months of Edison’s forecast FY21 silver and gold production, respectively (cf 1.79 and 2.32 months as at end-Q121, 2.35 and 2.33 months as at end-Q420 and 1.80 and 2.51 months as at end-Q320) and compares with WPM’s target level of two months of silver and two to three months of gold and palladium production, respectively:

Exhibit 3: WPM ounces produced but not yet delivered, Q316–Q221 (months of production)

Source: Edison Investment Research, WPM. 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, where it typically refers to metal in circuit and ore on stockpiles, etc.

General and administrative expenses

WPM provided guidance for non-stock general and administrative (G&A) expenses of US$42–45m (or US$10.5–11.25m per quarter) in FY21, compared to a guided range of US$40–43m in FY20 and an actual outcome of US$38.7m (ie 3.1% below the bottom of the range), including all employee-related expenses, charitable contributions, etc, but excluding performance share units (PSUs) and equity settled stock-based compensation. In the event, G&A expenses in Q121 and Q221 were below the pro-rata quarterly rate implied by WPM’s full-year guidance. However, management now expects some inflation in G&A expenses such that the full-year outcome is towards the higher end of the guided range.

Exhibit 4: WPM Q419–FY21 general and administrative expense (US$000s)

Item

FY21e

Q221

Q121

FY20

Q420

Q320

Q220

Q120

FY19

Q419

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

4,634

4,709

16,733

4,466

4,037

4,095

4,135

13,840

7,434

Other (inc. depreciation, donations and professional fees)

5,852

5,632

22,013

5,957

5,488

6,302

4,266

17,802

Sub-total

10,486

10,341

38,746

10,423

9,525

10,397

8,401

31,642

7,434

Guidance

42,000–45,000

10,500-11,250

10,500–11,250

40,000–43,000

33,000–36,000

PSU* accrual

6,672

305

21,520

(2,336)

10,482

10,097

3,277

17,174

2,830

Equity settled stock-based compensation

1,307

1,325

5,432

1,305

1,319

1,305

1,503

5,691

1,432

Total general & administrative

18,465

11,971

65,698

9,392

21,326

21,799

13,181

54,507

11,696

Total/sub-total (%)

+76.1

+15.8

+69.6

-9.9

+123.9

+109.7

+56.9

+72.3

+57.3

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

Compared with non-stock G&A expenses, total G&A expenses are relatively difficult to forecast, given their dependence on the price of WPM’s shares. However, a simple analysis of stock-based G&A expenses over the past seven quarters compared to the change in WPM’s share price (also in US dollars) exhibits a relatively close Pearson product moment (correlation) coefficient between the two of 0.80, which is just statistically significant at the 5% level for a directional hypothesis (ie there is less than a 5% probability that this relationship occurred by random chance). The graph relating to the analysis is shown below, including its linear trendline:

Exhibit 5: Graph of historical share price move (US$/share) vs quarterly stock-based G&A expense, Q419–Q221

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

The point on the graph relating to Q221 is at point (5.86, 7,979) – ie almost exactly on the trendline for the amount by which WPM’s share price increased over the course of the quarter.

To date, in Q321, Wheaton’s share price has increased by US$0.13, or 0.3%, leading us to believe that, all other things being equal, WPM’s stock-based G&A will be in the order of US$4.6m in Q321 (to date) and US$4.5m in Q421. That being the case, we would expect a full G&A expense for those two quarters of US$16.2m and US$16.1m, respectively, which we have now incorporated into our updated financial forecasts, below (albeit with suitable caveats).

Recent developments

Relative to our last note (see Honing forecasts, published on 4 August), we have updated our financial forecasts for the remainder of the year for the following five factors, which are briefly described below:

Metals prices. Edison does not believe that there has been a fundamental reversal of the bull market for precious metals. While we believe that the possibility of Fed tapering may remove upward pressure on the gold price, we do not believe that downward pressure will be brought to bear unless and until real interest rates (defined as the Fed Funds rate minus the US CPI) consistently maintain a level of 4% or more (as per 1979-1980, see Edison Gold Report June '20 A Golden Future), which has not occurred since before the year 2000 and which we do not predict in the foreseeable future. Nevertheless, in recognition of the recent price declines in gold and silver over the course of the past month, we have reduced our price forecasts for these two metals, in particular, for the remainder of the year to those shown below (NB There have been no changes to our longer term metals price forecasts):

Exhibit 6: Edison forecast metals’ prices for remainder of FY21

Metals

Current forecast

Previous forecast

Change

(%)

Gold

US$1,787/oz

US$1,810/oz

-1.3

Silver

US$23.72/oz

US$25.54/oz

-7.1

Palladium

US$2,519/oz

US$2,652/oz

-5.0

Cobalt

US$23.58/lb

US$23.77/lb

-0.8

Simple average

-3.6

Source: Edison Investment Research.

Strike resolution at Sudbury. After two and a half months on strike, shortly after our last note was published, workers at Sudbury voted to accept a new five-year collective bargaining agreement between the United Steelworkers (USW) union and Vale and to return to work in the week commencing 9 August. Whereas we had previously assumed zero production of gold from Sudbury attributable to Wheaton in Q321, we have now revised this to a half quarter of production, with sales equivalent to one month of production.

Pampacancha. Pampacancha (which hosts significantly higher gold grades than those mined hitherto at Constancia) achieved commercial production in April 2021. This was approximately nine quarters behind schedule however, during which period of time, Wheaton was variously entitled to require Hudbay to deliver up to an additional 8,020oz per annum (2,005oz per quarter) of gold to WPM (which was hitherto incorporated into Edison’s models). However, on 10 May, Wheaton and Hudbay agreed to amend the Constancia streaming agreement such that Hudbay would no longer be required to deliver these additional ounces of gold, in return for which, Hudbay agreed to increase the fixed gold recoveries that apply to Constancia’s ore production from 55% to 70% during Pampacancha’s reserve life and these new terms and conditions have now been incorporated into Edison’s financial models for WPM (NB Using a 10% discount rate, we estimate that the revised terms add US$77.0m in value to Wheaton’s future cash-flows from the Constancia stream).

Santo Domingo. Whereas we had previously not included the Santo Domingo stream in our financial forecasts, on 21 April 2021, Wheaton closed its precious metals purchase agreement with Capstone Mining relative to the project with an initial upfront cash consideration of US$30m being paid to Capstone on that date and, as a result, we have now incorporated Santo Domingo into our financial model (see our note Q121 results preview, published on 31 March 2021).

Finance costs. On 9 June, Wheaton extended the term of its US$2.0bn revolving term loan by an additional year (with the facility now maturing on 9 June 2026) and, in so doing, incurred fees of US$2.0m in relation to the extension. In addition, Wheaton incurs costs of c US$1.3m per quarter in relation to undrawn credit facilities. While these were relatively inconsequential relative to interest charges when Wheaton had net debt on its balance sheet (ie up to the end of Q320), now that WPM is in a net cash position, they appear material in relation to interest earned and, as a result, Edison now models these fees separately.

In addition to the above developments, on 20 July, Wheaton signed a non-binding term sheet with Rio2 Ltd to enter into a precious metals purchase agreement in connection with the Fenix Gold project located in Chile. Under the terms of the proposed PMPA, Wheaton will acquire 6% of Fenix’s gold production until 90,000oz have been delivered and 4% of its gold production until 140,000oz have been delivered, after which the stream will drop to 3.5% for the remainder of the life of the mine. In consideration for this stream, Wheaton will pay a total upfront cash consideration of US$50m to Rio2, of which US$25m will be payable upon closing and US$25m will be payable upon Rio2’s receipt of its Environmental Impact Assessment (EIA) for the project (subject to conditions). In addition, the WPM will make ongoing delivery payments equal to approximately 18% of the spot price of gold until the aggregate value of the gold delivered less the production payment is equal to the upfront consideration of US$50m, at which point the production payment will increase to 22% of the spot gold price. However, the entering into of the Fenix PMPA is subject to, among other matters, the negotiation and completion of definitive documentation and therefore, for the time being, Edison has left it excluded from its financial forecasts for Wheaton. As with a number of its other streams however, once in production, WPM believes that there is ample scope for Fenix to double, treble and potentially even quadruple production relative to its initial output rates and it expects these potential scenarios to be given Rio2 management’s full consideration over the course of the next two years.

FY21 updated forecasts by quarter

In the light of the above developments, Edison’s updated forecasts for WPM for FY21 are as shown in Exhibit 6, below. The forecasts assume that operations will continue throughout the remainder of the year without major interruptions. Apart from precious metals prices, the principal remaining risk to our forecasts relates to the extent to which sales differ from production and therefore the extent to which inventory (in the form of ounces produced but not yet delivered to WPM – see Exhibits 2 and 3) either increases or decreases during the year.

Exhibit 7: WPM FY21 forecast, by quarter*

US$000s
(unless otherwise stated)

FY20

Q121

Q221

Q321e

(prior)

Q321e

(current)

Q421e

(prior)

Q421e

(current)

FY21e

(current)

FY21e

(prior)

Silver production (koz)

22,892

6,754

6,720

5,939

5,939

5,955

5,955

25,368

24,502

Gold production (oz)

367,419

77,733

90,290

85,930

88,175

95,930

95,225

351,423

341,819

Palladium production (koz)

22,187

5,769

5,301

5,561

5,561

5,561

5,561

22,192

22,452

Cobalt production (klb)

1,161

380

525

525

525

525

2,591

2,644

Silver sales (koz)

19,232

6,657

5,600

5,937

5,923

5,955

5,955

24,135

24,451

Gold sales (oz)

369,553

75,104

90,090

85,897

87,159

95,897

95,192

347,545

340,954

Palladium sales (oz)

20,051

5,131

3,869

5,539

5,539

5,539

5,539

20,078

21,747

Cobalt sales (klb)

132.3

395

525

525

525

525

1,577

1,713

Avg realised Ag price (US$/oz)

20.78

26.12

26.69

25.60

24.59

25.54

23.72

25.29

25.99

Avg realised Au price (US$/oz)

1,767

1,798

1,801

1,808

1,792

1,810

1,787

1,794

1,808

Avg realised Pd price (US$/oz)

2,183

2,392

2,797

2,678

2,623

2,652

2,519

2,569

2,632

Avg realised Co price (US$/lb)

20.90

19.82

23.64

23.15

23.77

23.58

22.38

22.67

Avg Ag cash cost (US$/oz)

5.28

6.33

6.11

6.71

6.23

6.72

6.21

6.23

6.62

Avg Au cash cost (US$/oz)

426

450

450

431

430

428

428

439

434

Avg Pd cash cost (US$/oz)

389

427

503

482

472

477

453

461

473

Avg Co cash cost (US$/lb)

4.98

4.41

4.26

4.17

4.28

4.24

4.32

4.16

Sales

1,096,224

324,119

330,393

334,567

328,533

352,843

337,705

1,320,750

1,347,935

Cost of sales

Cost of sales, excluding depletion

266,763

78,783

78,445

81,767

79,247

85,953

82,502

318,978

327,333

Depletion

243,889

70,173

70,308

69,093

68,995

79,449

77,390

286,866

290,249

Total cost of sales

510,652

148,956

148,753

150,861

148,242

165,402

159,892

605,843

617,582

Earnings from operations

585,572

175,164

181,640

183,706

180,291

187,440

177,813

714,906

730,353

Expenses and other income

– General and administrative**

65,698

11,971

18,465

18,329

16,169

18,329

16,101

62,705

66,958

– Foreign exchange (gain)/loss

0

0

– Net interest paid/(received)

16,715

1,573

1,357

(2,959)

1,240

(4,443)

1,137

5,307

(7,294)

– Other (income)/expense

(387)

420

136

556

420

Total expenses and other income

82,026

13,964

19,958

15,370

17,408

13,886

17,238

68,568

60,084

Earnings before income taxes

503,546

161,199

161,682

168,337

162,882

173,555

160,576

646,338

670,270

Income tax expense/(recovery)

211

67

56

250

250

250

250

623

817

Marginal tax rate (%)

0.0

0.0

0.0

0.1

0.2

0.1

0.2

0.1

0.1

Net earnings

503,335

161,132

161,626

168,087

162,632

173,305

160,326

645,715

669,453

Average no. shares in issue (000s)

448,964

449,509

450,088

449,809

450,271

449,809

450,271

450,035

449,697

Basic EPS (US$)

1.12

0.358

0.359

0.374

0.361

0.385

0.356

1.43

1.49

Diluted EPS (US$)

1.12

0.358

0.358

0.374

0.360

0.385

0.355

1.43

1.49

DPS (US$)

0.42

0.13

0.14

0.16

0.15

0.16

0.15

0.57

0.59

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

Readers should note that, consistent with past practice, for the purposes of FY21 we are assuming production and sales are closely aligned and that there is little or no change in the level of ounces produced but not yet delivered. Within this context, our basic EPS forecast of US$1.43/share for FY21 is closely in line with the consensus forecast of US$1.50/share (source: Refinitiv, 16 August 2021) and towards the middle of the range of analysts’ expectations of US$1.36–1.66 per share for the period:

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

Q121

Q221

Q321e

Q421e

Sum Q1–Q421e

FY21e

Edison forecasts

0.358

0.359

0.361

0.356

1.434

1.43

Mean consensus

0.358

0.359

0.39

0.40

1.507

1.50

High consensus

0.358

0.359

0.45

0.46

1.627

1.66

Low consensus

0.358

0.359

0.34

0.34

1.397

1.36

Source: Refinitiv, Edison Investment Research. Note: As at 6 May 2021.

In the meantime, our basic EPS forecast of US$2.14/share for FY22 (see Exhibit 10) compares with a consensus of US$1.60/share within a range of US$1.17–2.10/share (source: Refinitiv, 18 August 2021). In this case, our estimate is, once again, predicated on an average gold price during the year of US$1,892/oz and an average silver price of US$30.78/oz, which assumes, among other things, the silver price will revert to the long-term correlation that it has exhibited with gold since the latter was demonetised in 1971. If both metals instead remain at current levels, however (US$23.72/oz Ag and US$1,787/oz Au at the time of writing), our forecast for WPM’s EPS in FY22 then moderates to US$1.68 per share and our forecast for its DPS to US$0.69/share.

FY21 and five-year and 10-year guidance

At the time of its Q420/FY20 results, WPM provided production guidance of 720–780koz AuE for FY21 and well as five-year average production guidance of 810,000oz AuE per annum and maiden 10-year average guidance of 830,000oz AuE per annum. This compares with Edison’s updated forecasts in the wake of Q221 results, now incorporating Santo Domingo (see our note Q121 results preview, published on 31 March 2021), as follows:

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

FY21e

*FY22–25 average

FY26–30 average

Previous Edison forecast

Silver production (Moz)

24.5

Gold production (koz)

341.8

Cobalt production (klb)

2,644

Palladium production (koz)

22.5

Gold equivalent (koz)

737

786

778

Current Edison forecast

Silver production (Moz)

25.4

Gold production (koz)

351.4

Cobalt production (klb)

2,591

Palladium production (koz)

22.2

Gold equivalent (koz)

758

824

804

WPM guidance

Silver production (Moz)

22.5–24.0

Gold production (koz)

370–400

Cobalt & palladium production (koz AuE)

40–45

Palladium production (koz)

N/A

Gold equivalent (koz)

720–780

810

830

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

WPM’s updated five-year guidance and its 10-year guidance are now based on standardised pricing assumptions of US$1,800/oz gold (Au), US$25.00/oz silver (Ag), US$2,300/oz palladium (Pd) and US$17.75/lb cobalt (Co). Of note in this context is an implied gold/silver ratio of 72.0x, which compares with its current ratio of 75.3x and a long-term average of 61.5x (since gold was demonetised on 15 August 1971).

Readers will note that Edison’s FY21 silver production forecast is now above the top end of WPM’s guidance range. After producing 13.5Moz Ag in H121 however, WPM’s mines will only be required to produce at a rate of 5.3Moz Ag per quarter for the remaining two quarters of the year in order to achieve the top end of WPM’s guidance range of 22.5–24.0Moz Ag for FY21. This compares with a long-term average quarterly production rate of 6.6Moz per quarter since Q112. Conversely, Edison’s gold production forecast remains slightly below the bottom end of WPM’s guidance range. After producing 168.0koz Au in H121, WPM’s mines would have to produce at a rate of 101.0koz Au per quarter for the remaining two quarters of the year in order to achieve the bottom end of WPM’s guidance range of 370–400koz Au for FY21. While this is certainly possible (WPM’s gold mines produced at an average rate of 102.4koz per quarter in the period Q318–Q419), we think that it may prove demanding, given the recent strike action at Sudbury and in the event of any lingering coronavirus induced disruptions at Salobo in Brazil in particular. In this respect, Edison’s financial forecasts for FY21 may prove conservative. Self-evidently however, at the standardised prices indicated, Edison’s gold equivalent production forecast of 758koz gold equivalent (AuE) remains well within WPM’s guidance of 720–780koz AuE.

Otherwise, readers will note that Edison’s (updated) production forecasts are within 3.3% of WPM’s guidance for the period FY22–30.

Short-term organic growth opportunities

In the short term, First Majestic has announced plans to increase production at San Dimas by restarting mining operations at the past-producing Tayoltita mine and expects to ramp up production to add another 300tpd (12%) to throughput. In addition, it intends to install a new 3,000tpd high-intensity grinding mill circuit and an autogenous grinding mill in H221 to further improve recoveries and reduce operating costs. Production of palladium and gold at Stillwater (operated by Sibanye-Stillwater) will similarly increase under the influence of the Fill-the-Mill project at East Boulder (although the Blitz project has now been delayed by two years, until 2024, following the suspension of growth capital activities owing to COVID-19).

Longer-term outlook

Salobo

On 24 October 2018, Vale announced the approval of the Salobo III brownfields mine expansion, intended to increase processing capacity at Salobo from 24Mtpa to 36Mtpa, with start-up at that point scheduled for H222 and an estimated ramp-up time of 15 months. According to its agreement with Vale, depending on the grade of the material processed, WPM will be required to make a payment to Vale in respect of this expansion, which WPM estimates will be US$570–670m in FY23, in return for which it will be entitled to its full 75% attributable share of expanded gold production. This compares to its purchase of a 25% stream in August 2016 for a consideration of US$800m (see our note Going for gold, published on 30 August 2016), the US$900m it paid for a similar stream in March 2015 (when the gold price averaged US$1,179/oz) and the US$1.33bn that it paid for its original 25% stream in February 2013.

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

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

Pascua-Lama

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

Rosemont

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

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

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

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

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

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

In response, Hudbay said that it believed the ruling to be 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 10 years involving 17 co-operating agencies at various levels of government, 16 hearings, over 1,000 studies, and 245 days of public comment resulting in more than 36,000 comments’ and with a long list of studies that have examined the potential effects of the proposed mine on the environment. Hudbay also pointed out that various agencies had accepted that the company could operate the mine in compliance with environmental laws. As a result, Hudbay has appealed the ruling to the Ninth Circuit Court of Appeals, which it expects to be successful, not least as a result of there being legal precedents for its waste disposal plan. As per its MD&A for the year ended December 2020, final briefs relating to its appeal were filed in November 2020 and the oral hearing was completed in early February 2021, such that Hudbay expects a ruling from the Ninth Circuit in H221. Nevertheless, as an alternative, it is also able to adapt its mine and waste plan to accommodate its waste dumps on privately owned, patented land alone, if necessary.

Once in production, we estimate Rosemont will contribute c 16,750oz gold and 2.7Moz silver to WPM’s production profile in return for an upfront payment of US$230m in two instalments of US$50m and US$180m (neither of which has yet been paid). Note that, whereas before, we had not included Rosemont in our longer-term forecasts, we are now including it from FY25. In the meantime however, Hudbay has continued exploration at Rosemont and, on 29 March 2021, announced the intersection of high-grade copper sulphide and oxide mineralisation at shallow depth on its wholly-owned patented mining claims, located within 7km of the proposed Rosemont mine. As a result of the discovery, Hudbay has initiated a second phase of exploration drilling with a 70,000ft (21,336m) follow-up drill programme and has doubled the number of drill rigs operating at site from three to six. Note that the discovery is contained within WPM’s ‘area of interest’ as defined under the PMPA between it and Hudbay.

Other potential future growth opportunities

WPM reports that its corporate development team remains ‘exceptionally busy’. While the majority of deals are now reported to be with development companies in the US$100–300m range (with fewer ‘balance sheet repair’ opportunities), it is also reported that there have been a number of approaches made by producing companies for transactions to fund expansion and even to fund M&A activity. In the first instance, WPM would fund any such transactions via the US$2bn available under its revolving credit facility, plus US$235.4m in cash (as at end-Q221) and, potentially, its US$300m at-the-market equity programme.

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

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

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

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

Valuation

Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 30.0x current year basic underlying EPS, excluding impairments (cf 30.2x Edison or 29.6x Refinitiv consensus FY21e, currently – see Exhibit 11).

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

Source: Edison Investment Research

Applying this 30.0x multiple to our EPS forecast of US$2.16 in FY23 (previously US$2.11) would ordinarily imply a potential value per share for WPM of US$64.92 or C$81.86 in that year. However, the graph above suggests that the current year multiple has been on a broadly upward trend between FY12 and FY19, on which basis we would argue that a multiple in excess of 40x (as evidenced by FY18 and FY19) could be supported in the event of a return to favour of precious metals and precious metals stocks (not least given the fact that these years were not subject to the extraordinary trials and tribulations experienced in FY20). In this case, applying a 40.7x earnings multiple (the average of FY18, FY19 and FY20) to our updated EPS forecast of US$2.16 in FY23 implies a potential value per share for WPM of US$88.03 or C$111.24 in that year (note that this analysis implicitly assumes that metals prices in FY24 would be experiencing the same sort of increases relative to FY23 that they did in FY20 relative to FY19 and that the average multiple would probably then contract again in FY24 as EPS ‘caught up’ with the share price). Even at such share price levels, however, a multiple of over 40.7x would put WPM’s shares on no more than par relative to Franco-Nevada (see Exhibit 11).

In the meantime, from a relative perspective, it is notable that WPM has a lower valuation than the average of its royalty/streaming ‘peers’ on eight out of nine valuation measures if Edison forecasts are used or six out of nine valuation measures if consensus forecasts are used. On an individual basis, it is cheaper than its peers on 81% (29 out of 36) of the valuation measures used in Exhibit 11 if Edison estimates are adopted or 67% (24 out of 36) of the same valuation measures if consensus forecasts are adopted. Among other things, this could possibly indicate the market has more conservative precious metal pricing expectations than we do (especially in FY22 and FY23).

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

P/E (x)

Yield (%)

P/CF (x)

Year 1

Year 2

Year 3

Year 1

Year 2

Year 3

Year 1

Year 2

Year 3

Royalty companies

Franco-Nevada

44.4

41.9

41.0

0.7

0.8

0.8

29.9

28.3

27.6

Royal Gold

27.5

30.0

30.3

1.0

1.0

1.0

15.7

17.2

17.5

Sandstorm Gold

38.6

32.9

45.0

0.0

0.0

0.0

17.2

14.4

18.5

Osisko

36.4

30.1

26.0

1.3

1.3

1.4

18.2

16.1

13.3

Average

36.7

33.7

35.6

0.8

0.8

0.8

20.3

19.0

19.2

WPM (Edison forecasts)

30.8

20.6

20.4

1.3

1.8

1.9

20.8

15.6

15.4

WPM (consensus)

29.6

27.6

28.8

1.3

1.4

1.5

20.8

19.6

19.9

Implied WPM share price (US$)*

52.65

72.29

76.93

73.83

102.15

108.73

42.95

53.88

55.22

Source: Refinitiv, Edison Investment Research. Note: Peers priced on 16 August 2021. *Derived using Edison forecasts and average consensus multiples.

Financials: US$235.4m in net cash

As at 30 June, WPM had US$235.4m in cash (cf US$191.2m in Q121 and US$192.7m in Q420) and no debt outstanding (cf US$195.0m in Q420) under its US$2bn revolving credit facility, such that (including a modest US$3.3m in leases) it had US$232.1m in net cash overall (cf US$187.7m in Q121 and US$6.0m in Q420) after US$216.4m of cash generated by operating activities during the quarter (cf US$232.2m in Q121 and US$208.0m in Q420). This figure of US$232.1m as at end-Q121 compares with our prior estimate of a net cash figure of US$257.8m (albeit this latter figure excluded the US$30.0m paid by WPM to Capstone in respect of the Santo Domingo PMPA during the quarter).

Exhibit 12: Financial summary

US$'000s

2017

2018

2019

2020

2021e

2022e

2023e

Dec

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

843,215

794,012

861,332

1,096,224

1,320,750

1,673,083

1,700,245

Cost of Sales

(243,801)

(245,794)

(258,559)

(266,763)

(318,978)

(333,854)

(346,587)

Gross Profit

599,414

548,218

602,773

829,461

1,001,772

1,339,229

1,353,659

EBITDA

 

 

564,741

496,568

548,266

763,763

939,067

1,276,523

1,290,953

Operating Profit (before amort. and except.)

 

 

302,361

244,281

291,440

519,874

652,201

965,506

972,374

Intangible Amortisation

0

0

0

0

0

0

0

Exceptionals

(228,680)

245,715

(156,608)

4,469

5,368

0

0

Other

8,129

(5,826)

217

387

(556)

0

0

Operating Profit

81,810

484,170

135,049

524,730

657,013

965,506

972,374

Net Interest

(24,993)

(41,187)

(48,730)

(16,715)

(5,307)

1,031

2,380

Profit Before Tax (norm)

 

 

277,368

203,094

242,710

503,159

646,894

966,537

974,754

Profit Before Tax (FRS 3)

 

 

56,817

442,983

86,319

508,015

651,706

966,537

974,754

Tax

886

(15,868)

(181)

(211)

(623)

(1,000)

(1,000)

Profit After Tax (norm)

286,383

181,400

242,746

503,335

645,715

965,537

973,754

Profit After Tax (FRS 3)

57,703

427,115

86,138

507,804

651,083

965,537

973,754

Average Number of Shares Outstanding (m)

442.0

443.4

446.0

448.7

450.0

450.3

450.3

EPS - normalised (c)

 

 

63

48

54

112

143

214

216

EPS - normalised and fully diluted (c)

 

 

63

48

54

112

143

209

211

EPS - (IFRS) (c)

 

 

13

96

19

113

145

214

216

Dividend per share (c)

33

36

36

42

57

80

86

Gross Margin (%)

71.1

69.0

70.0

75.7

75.8

80.0

79.6

EBITDA Margin (%)

67.0

62.5

63.7

69.7

71.1

76.3

75.9

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

35.9

30.8

33.8

47.4

49.4

57.7

57.2

BALANCE SHEET

Fixed Assets

 

 

5,579,898

6,390,342

6,123,255

5,755,441

5,585,605

5,442,588

5,909,009

Intangible Assets

5,454,106

6,196,187

5,768,883

5,521,632

5,348,899

5,205,882

5,672,303

Tangible Assets

30,060

29,402

44,615

33,931

34,451

34,451

34,451

Investments

95,732

164,753

309,757

199,878

202,255

202,255

202,255

Current Assets

 

 

103,415

79,704

154,752

201,831

582,342

1,333,605

1,455,433

Stocks

1,700

1,541

43,628

3,265

2,371

3,004

3,053

Debtors

3,194

2,396

7,138

5,883

3,618

4,584

4,658

Cash

98,521

75,767

103,986

192,683

576,353

1,326,018

1,447,722

Other

0

0

0

0

0

0

0

Current Liabilities

 

 

(12,143)

(28,841)

(64,700)

(31,169)

(49,607)

(51,074)

(52,330)

Creditors

(12,143)

(28,841)

(63,976)

(30,396)

(48,834)

(50,301)

(51,557)

Short term borrowings

0

0

(724)

(773)

(773)

(773)

(773)

Long Term Liabilities

 

 

(771,506)

(1,269,289)

(887,387)

(211,532)

(16,532)

(16,532)

(16,532)

Long term borrowings

(770,000)

(1,264,000)

(878,028)

(197,864)

(2,864)

(2,864)

(2,864)

Other long term liabilities

(1,506)

(5,289)

(9,359)

(13,668)

(13,668)

(13,668)

(13,668)

Net Assets

 

 

4,899,664

5,171,916

5,325,920

5,714,571

6,101,809

6,708,587

7,295,580

CASH FLOW

Operating Cash Flow

 

 

564,187

518,680

548,301

784,843

960,107

1,276,393

1,292,086

Net Interest

(24,993)

(41,187)

(41,242)

(16,715)

(5,307)

1,031

2,380

Tax

(326)

0

(5,380)

(2,686)

(623)

(1,000)

(1,000)

Capex

(19,633)

(861,406)

10,571

149,648

(117,030)

(168,000)

(785,000)

Acquisitions/disposals

0

0

0

0

0

0

0

Financing

1,236

1,279

37,198

22,396

0

0

0

Dividends

(121,934)

(132,915)

(129,986)

(167,212)

(258,477)

(358,759)

(386,762)

Net Cash Flow

398,537

(515,549)

419,462

770,274

578,670

749,665

121,704

Opening net debt/(cash)

 

 

1,068,705

671,479

1,188,233

774,766

5,954

(572,716)

(1,322,381)

HP finance leases initiated

0

0

0

0

0

0

0

Other

(1,311)

(1,205)

(5,995)

(1,462)

0

0

0

Closing net debt/(cash)

 

 

671,479

1,188,233

774,766

5,954

(572,716)

(1,322,381)

(1,444,085)

Source: Company sources, Edison Investment Research.


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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

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

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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

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

Share this with friends and colleagues