FY25 the start of a multi-year growth profile

WPM has shown itself to be one of the major beneficiaries of the funding stasis for mining projects in Western financial markets by entering into a precious metals purchase agreement (PMPA) with Montage Gold for its Koné mine in Côte d’Ivoire and Allied Gold for its Kurmuk mine in Ethiopia, among others. As a result, we are forecasting that WPM’s attributable production will grow by more than half, from 635k gold equivalent ounces (GEOs) in FY24 to c 979k GEOs in FY30.

Valuation: Trending upwards

Using a capital asset pricing model-type method, where we discount cash flows at a nominal 9% per year, our terminal valuation of WPM amounts to US$75.18 (or C$104.29) in FY30, assuming zero subsequent long-term growth in real cash flows (which we think unlikely). If we instead assume 7.7% pa long-term growth in cash flows (ie the average compound annual growth rate in the price of gold from 1967 to 2024), our current valuation of WPM in FY25 more than doubles to US$186.65/share, or C$258.92/share. As such, at an implied growth rate of 5.9% 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% pa compound) and only slightly above the long-term average US dollar inflation rate of 4.0% from 1967 to 2024. However, an alternative interpretation is that the market is assuming prevailing precious metals prices through FY30 and compound annual average increases in WPM’s cash flow per share of just 4.7% pa thereafter. Otherwise, assuming no purchases of additional streams, we calculate a value per share for WPM of US$59.50 (or C$82.53, or £44.85) in FY27, based on a historical multiple of 31.2x contemporary earnings (albeit at a gold price of only US$2,239/oz). At current prices, this valuation rises by 61% to US$95.88/share (or C$133.00/share, or £72.28). In the meantime, WPM’s average P/E multiple of 38.0x in FY18–24 implies a current year share price of US$82.91/share, or C$115.01/share (£62.50/share), in FY25.

Q125 financial results

WPM’s Q125 results are scheduled to be released after the market close in Canada on Thursday 8 May. On 15 April, Vale (WPM’s counterparty at Salobo, Sudbury and Voisey’s Bay) announced production results for Q1. As a result of this (plus some other factors described below), we have revised our forecasts for both Q125 and FY25 to those shown in Exhibit 1.

In summary, the principal changes to our forecasts have been as follows:

• We have increased our estimate of gold produced at Salobo attributable to WPM from 60,109oz to 73,655oz to reflect the volume of copper produced at Salobo in Q1, according to Vale’s Q125 production report, released on 15 April. We have also increased our equivalent estimate for gold production from Sudbury, from 4,913oz to 6,045oz, to reflect the 9,900t Ni produced at this asset in Q1, and reduced our estimate of cobalt production from Voisey’s Bay from 288klbs to 277klbs to reflect the 6,500t Ni produced there in Q1. While we regard our production estimate changes at Sudbury and Voisey’s Bay to be valid, they are clearly not as consequential to WPM in aggregate terms as the change to our estimate for Salobo. Moreover, the estimation error relating to our Salobo gold production forecast (+/-3,395oz) is much smaller in percentage terms than our errors of estimation relating to our Sudbury (+/-1,543oz) and Voisey’s Bay (+/-83klbs) production forecasts.

• Following the inventory build in Q424, we have assumed that there will be no further build in Q125. Salobo could have been said to have been solely responsible for WPM’s gold and gold equivalent inventory build in Q424, and so a major consideration in this assumption is that sales and production are closely aligned in Q125. Exhibit 4, below, demonstrates that, after a quarter of material under-sale historically, there is almost invariably a swift redress in the following quarter. Although we assume that sales and production will be approximately aligned in Q125e, there is also the possibility that the former will outstrip the latter, resulting in an inventory drawdown. By its nature, this is difficult to forecast. However, readers should note that this could easily amount to 5,000-10,000oz Au and possibly as much as 20,000oz Au and should therefore be considered ‘upside risk’ relative to our revenue forecasts in Exhibit 1.

• We have re-phased production at Antamina to reflect lower grades in H125 and higher grades in H225.
• We have assumed zero production from Los Filos for the remainder of the year after Equinox’s announcement on 1 April that it had suspended operations at the mine indefinitely, following the expiry of its land access agreement with the Carrizalillo community on 31 March. Long-term agreements with all three local communities are essential to provide the economic and investment conditions necessary for continued operations at Los Filos, including the proposed construction of a new 10,000tpd carbon-in-leach processing plant to increase gold recoveries from higher-grade ore. To date, new, long-term agreements have been signed with two communities (the Mezcala and Xochipala communities), but not with the Carrizalillo community.
• We have delayed Marmato’s access to, and ramp up from, the Marmato Deep Zone from FY25 into FY26.
• Despite pouring first gold and silver doré on 29 January, we have assumed that there will be no commercial production from Artemis’s Blackwater project in Q1 (previously estimated by us at 1,200oz) and that first commercial production and deliveries will now occur in Q225.

Exhibit 5 compares our forecasts for adjusted EPS for Q1–Q425 and FY25 relative to market consensus within the context of our adjustments:

Although production is anticipated by their operators at three additional mines in WPM’s portfolio (Goose, Platreef and Mineral Park) at various times throughout the year, for the moment, we have assumed this to be negligible and that meaningful production at all three will only be realised in FY26. Once again, this represents ‘upside risk’ relative to our forecasts in Exhibit 1.

General and administrative expenses

At the time of its Q424 results, WPM provided guidance for non-stock G&A expenses of US$50–55m, or US$12.50–13.75m per quarter, for FY25. Stock-based G&A expenses are harder to estimate. However, they broadly correlate with movements in WPM’s share price (in US dollars) between quarters and, given the movement in WPM’s shares over the course of Q125, we would estimate these to be in the order of US$13.6m, as shown by the oval in Exhibit 6, below:

As a result, we forecast a total G&A expense for Q125e of US$26.7m, of which just under half will be accounted for by non-stock expenses.

FY25 and future forecasts compared to guidance

WPM provided detailed production guidance for FY25 and beyond at the time of its FY24 production and sales announcement on 18 February. This is summarised below relative to our forecasts for the equivalent periods.

WPM forecasts production to increase by c 37% over the next five years to 870,000 GEOs, owing to growth at multiple assets including Antamina, Aljustrel and Marmato, as well as development assets currently in construction, including Blackwater, Mineral Park, Goose, Platreef, Fenix, Kurmuk and Koné, and pre-development assets including El Domo and Copper World. From 2030 to 2034, WPM forecasts average attributable production of more than 950,000 GEOs annually, incorporating additional incremental production from pre-development assets including Santo Domingo, Cangrejos, Kudz ze Kayah, Marathon and Kutcho in addition to the Mt Todd, Black Pine and DeLamar royalties. Not included in WPM’s long-term forecast, and instead classified as ‘optionality’, is potential future production from nine other assets including Pascua-Lama and Navidad, in addition to expansions at Salobo beyond the Salobo III mine expansion project and future stream purchases.

Our longer-term forecasts have increased since the time of our last note, primarily as a result of our incorporating Ivanhoe Mines’ Phase 2 and Phase 3 expansions at its Platreef project and also B2Gold’s updated mineral reserve life of mine plan at Goose. As a result, readers will note that our longer-term production forecasts are within 3% of WPM’s guidance, which is well within the average quarterly under-sales rate of 11.4% (±7.4%) since Q121.

WPM’s guidance for FY25 and beyond is based on standardised pricing assumptions of US$2,600/oz gold, US$30.00/oz silver, US$950/oz palladium, US$950/oz platinum and US$13.50/lb cobalt. Of note is the updated implied gold/silver ratio of 86.7x. This compares with the current ratio of 99.7x and a longer-term average of 60.1x since gold was demonetised in August 1971.

At the updated standardised prices indicated, our production forecast of 629.7koz gold equivalent (AuE) for FY25 is self-evidently within WPM’s guidance range of 600–670k GEOs. However, our sales forecast is slightly more conservative, at 592.1k GEOs (cf 532.5k GEOs in FY24).

Valuation

Absolute

WPM is a multi-asset company that has shown a willingness and desire to buy streams in the past to maintain production and maximise shareholder returns. As a result, rather than our customary method of discounting maximum potential dividends over the life of operations back to FY25, in the case of WPM, we discount forecast cash flows back over six years (at our long-term gold prices) to the start of FY25 and then apply an ex-growth terminal multiple to forecast cash flows in that year (FY30) based on the appropriate discount rate.

Our estimate of WPM’s terminal cash flow in FY30 has increased to US$3.62/share (cf US$3.35/share previously), largely as a result of our updating the Platreef and Goose mining plans. Assuming 4% growth (the average long-term CPI inflation rate in the US since 1967) in nominal cash flows beyond FY30 (ie 0% growth in real cash flows) and applying a discount rate of 9% (being the expected long-term required nominal equity return), our terminal valuation of the company at end-FY30 is US$75.18, or C$104.29, per share.

However, this valuation is inherently conservative in that it assumes a (nominal) gold price of US$2,274/oz in FY30 and zero growth in (real) cash flows thereafter. This is inconsistent with the gold price, which has risen at a compound average annual growth rate of 7.7% per year from 1967 to 2024, a simple average annual growth rate of 9.8% per year (cf a compound average inflation rate over the same period of 4.0%) and a compound average real annual growth rate of 3.6% per year.

It is also inconsistent with WPM’s longer-term historical performance, wherein operational cash flows have increased at a compound average annual growth rate of 20.4% pa for the 19 years between FY05 and FY24, while its operational cash flows per share have increased at a compound average annual growth rate of 14.3% pa.

If we instead assume that cash flows per share increase at a compound average annual growth rate of 7.7% (ie the compound average annual growth rate in the gold price from 1967 to 2024, cf 4.0% above), then our terminal valuation of WPM increases manyfold to US$297.84/share, or C$413.17/share, and our current valuation to US$186.65/share, or C$258.92/share (excluding net cash – see below).

Stated alternatively, WPM’s current share price of C$115.00 appears to be discounting future compound annual average increases in cash flow per share of just 5.9% pa from FY30, which is only slightly higher than the long-term average rate of US inflation of 4.0% pa from 1967 to 2024 (inclusive).

A summary of these valuations with respect to their cash flow growth rate assumptions is as follows:

An alternative interpretation is that the market is assuming currently prevailing precious metals prices up to and including FY30, in which case WPM’s share price of C$115.00 could be said to be discounting compound annual average increases in cash flows per share thereafter of just 4.7% per year.

Historical

Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 31.2x current year basic underlying EPS, excluding impairments (cf 38.0x Edison and 39.6x LSEG Data & Analytics consensus FY25e currently, see Exhibit 13).

Applying this 31.2x multiple to our similarly increased EPS forecast of US$1.91 in FY27 implies a potential value per share for WPM of US$59.50 or C$82.53 in that year. However, it is also notable that our forecast metals prices in that year currently are only US$2,239/oz Au and US$25.32/oz Ag. At current prices, our EPS forecast of US$1.91/share in FY27 rises to US$3.07/share, in which case our equivalent valuation rises to US$95.88, or C$133.00, per share. Moreover, as can be observed from the graph above, during periods of precious metal price appreciation, WPM can command higher current year P/E ratios. In the period 2018–24, for example, its average rating was 38.0x, in which case its corresponding share price in FY25 would be expected to be US$82.96/share, or C$115.08/share.

Relative

In the meantime, WPM is maintaining its premium rating relative to its peers, albeit it appears good value within the context of future dividend expectations:

Readers will note our relatively high year 2 P/E ratio, which arises from our relatively low precious metals forecasts of US$2,105/oz Au and US$24.34/oz Ag. As noted previously, if metals prices remain at current levels, our FY26 EPS estimate rises to US$2.59/share, in which case the corresponding P/E ratio would be 32.0x, which is at a marked discount to consensus and almost exactly in line with its peer group.

Financials: US$813.0m (US$1.79/share) in net cash at end Q4

As at 31 December, WPM had US$818.2m in cash on its balance sheet and no debt outstanding under its US$2bn revolving credit facility. Including a modest US$5.2m in lease liabilities, it therefore had US$813.0m in net cash after generating a record US$319.5m in operating cash flow.

In Q125, we estimate that it will have generated c US$302m from operating activities, before consuming US$95m in investing activities, in respect of payments relating to the Blackwater and Mineral Park streams, to leave it with c US$1,020m in net cash at the end of the quarter.

In FY25, we estimate that it will generate US$1,444m from operating activities, before consuming a net US$912m in net investing activities and paying out an increased US$348m in forecast dividends under the influence of its new, progressive dividend policy, to leave it with net cash of c US$996m as at 31 December 2025. However, readers should note that the timing of PMPA payments is uncertain and, inasmuch as investments are advanced or delayed, it is possible that WPM could register either a larger or smaller net cash position on its balance sheet by the year-end than that forecast. All other things being equal, however, in the absence of any major new asset acquisitions, we do not expect WPM to require recourse to its debt facilities at any time in the foreseeable future.