9.4% pa organic production growth to FY30

In addition to its financial effects, we calculate that the Hemlo stream investment will take Wheaton’s production, measured in gold equivalent ounces (GEOs, or AuE), to over one million in FY30 and beyond. Over the same time frame, a total of at least eight other mines will also be in the process of ramping up to contribute to WPM’s production profile.

Valuation: Continuing its march upwards

Using a capital asset pricing model-type method, whereby we discount cash flows at a nominal 9% per year, our terminal valuation of WPM has risen by 2.3% to US$78.07/share (or C$107.96/share) in FY30, assuming zero long-term growth in real cash flows thereafter (which we think unlikely). If we instead assume 7.7% per year long-term growth in cash flows (ie the average CAGR in the price of gold from 1967 to 2024), our current valuation of WPM in FY25 more than doubles to US$193.33/share, or C$267.34/share. As such, at an implied growth rate of 6.6% per year, WPM’s share price currently appears to be discounting future compound annual average increases in cash flows per share from FY30 well below historical levels (+14.3% CAGR since FY05), especially given that production is expected to deliver 9.4% pa organic growth between now and FY30 alone. An alternative interpretation is that the market is assuming current precious metals prices will prevail into FY30 with compound annual average increases in WPM’s cash flow per share thereafter of just 5.5%. Otherwise, assuming no purchases of additional streams, we calculate a value per share of US$59.47 (or C$82.24, or £44.04) in FY27, based on a historical multiple of 31.2x contemporary earnings (albeit at a gold price of only US$2,239/oz and a silver price of only US$25.30/oz). At current prices, however, this value rises by 111.5% to US$125.78/share ( C$173.93/share, or £93.14).

Hemlo stream acquisition

On 10 September, Wheaton announced that it had committed to contribute to Carcetti Capital’s financing of its acquisition of the Hemlo mine in Ontario from Barrick in the form of a US$400m gold stream, which amounts to c 39% of Carcetti’s total funding requirement regarding the acquisition. The remaining US$615m will be raised by Carcetti in the form of equity ( US$415m) and bank debt ( US$200m).

Over its life to date, the Hemlo mine has produced c 25Moz gold, and has been operating continuously for more than 30 years. Located just north of Lake Superior on the Trans-Canada Highway, it is an underground operation, having transitioned from open pit under Barrick’s management in October 2020. It has long been considered a cornerstone of Canada’s mining sector.

Subject to the execution of definitive terms, the key terms of the stream are:

• An upfront cash consideration of US$400m (and no less than US$300m depending on the size of Carcetti’s equity raising), subject to certain customary conditions.
• WPM will then purchase 13.5% of the payable gold until a total of 181koz has been delivered (the ‘First Dropdown Threshold’), at which point it will purchase 9.0% of the payable gold until an additional 157,330koz has been delivered (the ‘Second Dropdown Threshold’), after which it will purchase 6.0% of payable gold for the remainder of the life of the mine.
• Hemlo production is forecast to average c 20koz Au per year for the first 10 years of production and over 17koz for the life of the mine of an initial 14 years.
• WPM will make ongoing payments for the gold ounces delivered equal to 20% of the spot price of gold.
• Wheaton will also participate in Carcetti’s equity financing up to the lesser of US$50m, or 20% of the total raised.
• Other considerations:
  • Carcetti is a Canadian-listed investment firm, headquartered in Vancouver. Upon closing, it is to be renamed Hemlo Mining Corp (HMC); it has an experienced leadership team with a long history of involvement at Hemlo.
  • Wheaton will obtain a right of first refusal on any future precious metal streams, royalties, prepays or similar transactions with respect to the Hemlo Mine.
  • HMC will provide Wheaton with corporate guarantees, as well as first-priority security interests on substantially all of HMC's assets on a shared basis with the lenders.
  • Wheaton requires HMC to comply in all material respects with the Global Industry Standard on Tailings Management, the Towards Sustainable Mining Standard and Wheaton’s Partner/Supplier Code of Conduct, which outlines Wheaton’s expectations in regard to environmental, social and governance (ESG) matters.
  • The transaction is expected to close in the fourth quarter of 2025. Note that, for the purposes of our financial analysis (below), we have assumed that Wheaton will pay its US$400m consideration for Hemlo in Q425 and that Hemlo will begin to contribute to WPM’s production, earnings and cash flow from Q126.

Barrick’s last technical report on Hemlo appears to have been compiled in 2017. However, it produced 143koz Au in FY24 (13.5% of which equals 19.3koz) and guidance for production in FY25 is 140–160koz (13.5% of which equals 19.9–21.6koz Au). As stated previously, the mine transitioned from open pit to underground in Q320. Production in the two quarters immediately thereafter were almost certainly affected by the processing of previously mined, open pit material. Since Q321 however, production has steadily averaged 34.3koz (+/- 8.3koz, or 24%) per quarter, which equates to average annual production of 137.2koz (+/-33.2koz), notwithstanding the fact that the first six of those quarters (Q321–Q422, inclusive) were during the COVID-19 pandemic.

Superficially, Wheaton’s Hemlo stream commitment may be compared with its Kone precious metals purchase agreement (PMPA) of almost exactly a year ago as follows:

As presented, neither analysis includes any potential expansion or extension of the respective mines as a result of blue-sky exploration success. Otherwise, the principle difference between them is the consideration payable per oz of gold streamed by Wheaton – albeit this must be seen within the context of a gold price that is 35% higher now than it was a year ago at the time of the Kone PMPA and the fact that Hemlo is already in production whereas Kone also carries pre-production risk.

In more detail, whereas we calculated a pre-tax IRR for Kone of 13.0% at the then gold price of US$2,692/oz in October 2024, for Hemlo we calculate a 9.2% pre-tax IRR at the current gold price of US$3,650/oz (both flat for the life of the mine in nominal terms). At a range of gold prices, we calculate the pre-tax IRR for the Hemlo stream, as shown in the table below:

All other things being equal, over the 14 years from FY26–39, we estimate that Hemlo will add an average of 0.9c to Wheaton’s EPS, within in a range of -0.3–2.6c. Over the same time frame, we estimate that it will add an average of 7.2c to Wheaton’s operational cash flow per share, within a range of 4.8–7.4c.

In addition, we calculate that it will take Wheaton’s production, measured in gold equivalent ounces (GEOs, or AuE), to over one million in FY30:

Updated Q325 and FY25 forecasts

In addition to our analysis of the Hemlo stream, we have also revised our forecasts for Q3, Q4 and FY25 for Wheaton, to account for changed metals prices (especially silver). Our updated forecasts are shown below. Note that our production and sales forecasts, for the moment, remain unchanged.

Our updated forecasts (above) compare with those of the market, below. Of note is the implication that EPS should trend towards the top end of the consensus range in the event that precious metals prices remain at current levels.