Pipeline maturing nicely

Notwithstanding short-term fluctuations in production and prices, during Q3 Vale announced it had approved the Coarse Particle Flotation project at Salobo, among other things increasing gold production by c 15koz per year (of which WPM’s share is 75%) from FY28. On 21 October, Hudbay announced that pursuant to a positive DFS (see page 6), it had formally approved the final investment decision to proceed with the development of the Copper World project in Arizona.

Valuation: Steady with much upside remaining

Using a CAPM-type method, whereby we discount cash flows at a nominal 9% per year, we calculate an essentially unchanged terminal value for WPM of US$88.37 (or C$123.68) per share in FY30 (cf US$90.40 previously), assuming zero long-term growth in real cash flows thereafter (which is highly unlikely). If we instead assume 8.2% per year long-term growth in cash flows (ie the average CAGR in the price of gold from 1967 to 2025), our terminal value rises to US$604.37 ( C$845.81) per share and our current valuation to US$401.93 ( C$562.50) per share. At an implied growth rate of 6.4% per year therefore, 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 (+17.1% CAGR since FY05), especially given that production is expected to deliver 8.9% per year organic growth between FY26 and FY30 alone. An alternative interpretation is that the market is assuming that current precious metals prices will prevail into FY30 with compound average annual increases in WPM’s cash flows per share thereafter of just 4.7% (ie only a little above the average rate of US inflation of 4.0% since 1967).

Updated Q326 and FY26 forecasts

WPM’s Q326 financial results are being released on Thursday 5 November, after the bell in Toronto. Our last note on Wheaton was published on 7 August, when the gold price was 7.7% higher than today and the silver price was 25.7% higher. In this note we update our forecasts for Q326 and FY26 in the light of movements in metals prices as well as production numbers for Salobo, Sudbury, Voisey’s Bay, Antamina, Penasquito, Neves-Corvo, Zinkgruvan, San Dimas, Blackwater and Hemlo for the quarter:

At the time of writing, primary production numbers are known for Sudbury, Salobo and Voisey’s Bay (all announced by Vale on 29 October), Neves-Corvo and Zinkgruvan (announced by Boliden also on 29 October), Antamina (announced by Glencore on 29 October), San Dimas (announced by First Majestic on 8 October), Blackwater (announced by Artemis on 13 October), Penasquito (announced by Newmont on 22 October) and Hemlo (announced by Hemlo Mining on 21 October).

The most consequential of these was the 57,600t copper produced at Salobo (cf 52,400t in Q226 and our prior expectation of c 50,000t), with the operator, Vale, describing Salobo as ‘delivering record third-quarter production and both copper and nickel on track to reach the upper half of the production guidances.’ The relationship between copper output at Salobo and gold production attributable to Wheaton is extremely close (see Exhibit 2), and this enables us to predict associated gold production attributable to Wheaton from Salobo to be 79,926oz (±3,840oz) in Q3.

While production at Salobo appears to have been strong in Q3 however, there are two reasons for caution in assuming that this strength will immediately flow through into its financial performance:

• Gold attributable to Wheaton from Salobo was noticeably below the trend implied by copper output in Q2 (see Exhibit 2) and this could imply that gold attributable to Wheaton in Q3 might come in at the bottom of the expected range.
• After quarters in which sales attributable to Wheaton have exceeded production at Salobo, there is typically a reversal in the subsequent quarter (or quarters) as the sales outcome typically lags the production outcome by up to three months. This effect may be seen graphically in Exhibit 4. Whereas we forecast that Salobo’s (gold) production attributable to Wheaton will be the third-highest on record in Q3, we anticipate that sales will be much closer to the level recorded in Q1 of 58,675oz.

Consequently, we assume that much of the benefit of Salobo’s performance in Q3 is instead likely to be reaped by Wheaton in Q4.

Of Wheaton’s smaller streams, production at Blackwater, San Dimas, Hemlo and Voisey’s Bay was slightly below our expectations, while production of nickel at Sudbury was almost double Q1’s level and production of zinc and copper at Zinkgruvan and Neves-Corvo (also known as Somincor) appeared to be trending above pro rata guidance rates for the full year.

Of Wheaton’s other major streams, Newmont reported production of silver from Penasquito of 11Moz in Q3 (of which WPM’s stream’s share is 25%) and which is suggestive of record production from this mine attributable to Wheaton. Newmont attributed this performance to higher throughput, grades and recoveries, but indicated that it will moderate in Q4 with planned reductions in grade and throughput. As with Salobo however, we suspect that the full benefit of this performance will not be reaped by Wheaton until Q4 as rising (lagged) sales coincide with falling production. Exhibit 5, below, shows the equivalent pattern of quarterly over- and under-sales of silver for Penasquito since Q112, including our modestly conservative forecast for Q326.

Similarly, Glencore reported 36.9kt of copper produced in concentrate at Antamina in Q3, which is a historically high figure (see Exhibit 6, below). While the relationship between silver produced in concentrate at Glencore and silver production attributable to Wheaton has been historically close, the relationship between copper produced in concentrate and silver produced in concentrate is poor to the point of being random and definitely not statistically significant at the 5% level. Consequently, in recognition of the 6.0% increase in copper produced in concentrate attributable to Glencore at Antamina in Q3, we have assumed that silver production attributable to Wheaton from Antamina will similarly be 6.0% higher (and also relating to Wheaton’s BHP stream), but no more.

The changes to our forecasts in the light of these adjustments is shown in Exhibit 1. Exhibit 7 compares our updated EPS forecasts with those of the market:

Readers should note the sometimes material discrepancies between FY26e EPS calculated as the sum of its four quarters and FY26e EPS stated as a single figure. Among other things, this suggests some analysts are forecasting Wheaton’s performance based on an annual financial model alone, rather than a quarterly one. In this case, it also suggests quite a wide range of precious metal and/or operational expectations for the remainder of the year, particularly at the upper end of the consensus range.

Ounces produced but not yet delivered

From a relatively balanced position in Q226 therefore, we expect gold sales to be 26.4% (or 30,027oz) below production in Q3, which is at the bottom of the normal range of 6.9% (±17.0% standard deviation) since Q112 and of which the vast majority will be attributable to Salobo. Similarly, we expect silver sales to be 20.4% below production, which compares with a long-term quarterly under-sales rate of 12.9% (±10.8% standard deviation), as shown in the chart below:

Consequently, we estimate that gold ounces produced but not yet delivered (PBND) to Wheaton may have increased to c 124,815oz, or 3.6 months of estimated FY26 production, which compares with WPM’s target levels of two to three months of PBND for gold and palladium production. We estimate that silver ounces PBND will have increased by c 1,570Moz at c 4,706koz, or 2.0 months of estimated FY26 production, which compares with WPM’s target level of two months for silver production.

General and administrative expenses

Relative to guidance of US$50–55m ( US$12.50–13.75m per quarter) for FY25, we estimate non-stock G&A expenses at Wheaton for FY26 in the order of US$60m. Beyond that, stock-based G&A expenses broadly correlate with movements in WPM’s share price (in US dollars) between quarters, and, given the movement in WPM’s shares, we therefore estimate that these will be c US$11.0m in Q326 (as shown by the oval in Exhibit 10, below):

Taken together, we therefore forecast a total G&A expense for Q326 of US$26.0m, with stock-based expenses accounting for 42.3% of the total – slightly above the average level of 33.1% since Q124:

Guidance for FY26 and beyond

Since our last note, there have been two material upside developments relating to Wheaton’s longer-term production profile:

• Vale has approved the Coarse Particle Flotation (CPF) project at Salobo. The project will expand Salobo III’s plant
  capacity by 50% from 12Mtpa to 18Mtpa, and is forecast to increase copper production by c 30ktpa and gold production by c 15kozpa. It is a low-capital intensity brownfield expansion with an internal rate of return (IRR) above 50%. The project is reported to have reached 17% physical completion in Q326 and start-up is planned in H128.
• On 21 October, following a robust definitive feasibility study (DFS), Hudbay announced that it and its joint venture partner, Mitsubishi, had formally approved the final investment decision to proceed with the construction and development of Copper World (formerly known as Rosemont) as the next major copper mine in the US, with first production targeted for H229. Highlights of the project are:
  • The Copper World DFS outlines annual copper production of 102,000t over its first 10 years, which represents an 11% increase when compared to the 92,000t in Hudbay’s 2023 pre-feasibility study (PFS).
  • Average annual cash costs of US$1.65/lb ( US$3,638/t) over the first 10 years positions Copper World as one of the lowest-cost open-pit copper mines in the US.
  • The base case for the Copper World project envisages a 15-year mine life, requiring only state and local permits, with total mill feed tonnage comparable to the 2023 PFS. The post-tax NPV₈ of the project is estimated to be US$1.2bn with an IRR of 17% at a long-term copper price of US$5.00/lb ( US$11,023/t), increasing to US$2.3bn and 22%, respectively, at a copper price of US$6.00/lb ( US$13,228/t).
  • The base case improves upon the 2023 PFS mine plan with an in-pit crushing and conveying system in year four and a 50% expansion of the concentrator from 60,000tpd to 90,000tpd in year five, enabling a 43% increase in average annual copper production to 120,000tpa in years six to 10 compared to 84,000tpa over the first five years.
  • Beyond the base case, the extension case for the project envisages a 37-year mine life exploiting only measured and indicated mineral resources and expanding mining activities onto federal lands in year 10, subject to obtaining federal permits, thus maintaining annual copper production at c 117,000tpa from years 11 to 20. The extension case incorporates and further optimises the second phase from Hudbay’s 2022 preliminary economic assessment, albeit with less incremental growth capital. The post-tax NPV₈ of the extension case is US$2.5bn with an IRR of 19% at a long-term copper price of $5.00/lb ( US$11,023/t), increasing to US$4.0bn and 24%, respectively, at a copper price of US$6.00/lb ( US$13,228/t).

Edison has now incorporated both the Salobo CPF and the Copper World extension case into its financial and production model for Wheaton. Whereas before, we assumed an end to operations at Copper World/Rosemont in FY45, this has now been extended to FY66. In addition, annual production of silver and gold attributable to Wheaton (which is 100% attributable under the terms of the precious metals purchase agreement) have risen, by 37.9% and 121.0%, respectively, to averages of 2,196kozpa Ag and 11,784ozpa Au over the full 37-year life of the operation.

On 16 February, WPM provided detailed production guidance for FY26, FY30 and FY31–35, which is reproduced below relative to Edison’s updated forecasts for the equivalent periods:

In the short term, increases in output will be driven by the newly acquired Antamina and Hemlo streams plus contributions from newly operating assets such as Blackwater, Mineral Park, Fenix, Goose and Platreef, partially offset by some moderation in output at Constancia following the depletion of the Pampacancha pit in late December 2025.

In the longer term, production is forecast by Wheaton (and, effectively, Edison as well) to increase by approximately 40% from FY26 levels to 1,200,000 gold equivalent ounces (GEOs) by 2030, owing to growth from multiple operating assets, including Antamina, Blackwater, Aljustrel, Marmato, Hemlo, Constancia (on account of its mill capacity increase approval) and Goose, development assets that are in construction and/or various stages of ramp-up, including Koné, Fenix, Kurmuk, Platreef, Mineral Park and El Domo, and pre-development assets (all of which have received their major permits), including Spring Valley, Copper World/Rosemont and Santo Domingo.

From 2031 to 2035, attributable production is then forecast to be maintained at c 1,200,000 GEOs annually with additional incremental production from pre-development assets including Cangrejos, Kudz ze Kayah and Marathon, in addition to the Mt Todd and Black Pine royalties. Not included in Wheaton's long-term forecast, and instead classified as 'optionality', is potential future production from 11 other assets including El Alto, Navidad and Toroparu and future stream purchases.

WPM’s guidance for FY26 and beyond is based on standardised pricing assumptions of US$4,800/oz gold, US$80.00/oz silver, US$1,500/oz palladium, US$2,000/oz platinum and US$25.00/lb cobalt. Of note is the implied gold/silver ratio of 60.0x, which is closely in line with the 60.1x that this ratio has averaged since gold was demonetised in August 1971, but slightly removed from the 79.4x ratio at which the two metals are trading today:

At the updated standardised prices indicated, Edison’s production forecast of 899koz GEO for FY26 is close to the middle of Wheaton’s guidance range of 860–940k GEOs. Our sales forecast is slightly more conservative however, at 816k GEOs (representing a sales shortfall of 9.2% relative to production, albeit this is closely in line with the average annual under-sales rate of 10.1% (±4.8%) since Q121).

Within this context, readers will note that our longer-term production forecasts for FY30 and FY31–35 are within 5.2% of WPM’s longer-term guidance.

Valuation

Absolute valuation

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 FY26, in the case of WPM, we discount forecast cash flows back over five years to the start of FY26 and then apply an ex-growth terminal multiple to forecast cash flows in that year (FY30) based on the appropriate discount rate.

In this case, our estimate of WPM’s terminal cash flow in FY30 remains broadly unchanged at US$4.28/share (cf US$4.37/share previously). Assuming 4.0% growth in nominal cash flows beyond FY30 (ie 0.0% 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$88.37, or C$123.68, per share (cf US$90.63, or C$127.60, per share, previously). On this basis, our current valuation of the company would be US$66.57, or C$93.17, per share (cf US$66.79, or C$94.03, per share, previously).

However, this valuation is inherently conservative in that it assumes (nominal) gold and silver prices of just US$2,274/oz and US$35/oz, respectively, 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 8.2% per year from 1967 to 2025, a simple average annual growth rate of 10.4% per year (cf a compound average inflation rate over the same period of 4.0%) and a compound average real annual growth rate of 4.1% 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 23.1% for the 20 years between FY05 and FY25, while its operational cash flows per share have increased at a compound average annual growth rate of 17.1%.

If we instead assume that cash flows per share increase at a compound average annual growth rate of 8.2% (ie the average compound average annual growth rate in the gold price from 1967 to 2025, cf 4.0% above), then our terminal valuation of WPM increases manyfold to US$604.37/share, or C$845.81/share, and our current valuation to US$401.93/share, or C$562.50/share.

Stated alternatively, WPM’s current share price of C$172.25 appears to be discounting future compound annual average increases in cash flow per share of just 6.4% per year from FY30, which is only modestly higher than the long-term average rate of US inflation of 4.0% per year from 1967 to 2025 (inclusive).

A summary of these valuations with respect to their cash flow per share 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$172.25 could be interpreted as discounting compound annual average increases in cash flows per share of just 4.7% per year thereafter (ie little more than the long-term rate of US CPI-U inflation).

Historical valuation

Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 31.1x current year basic underlying EPS, excluding impairments (cf 28.7x Edison and 26.7x LSEG Data & Analytics consensus for FY26 currently, see Exhibit 18).

Applying this 31.1x multiple to our upgraded EPS forecast of US$3.74 in FY27 (with current metals prices now expected to prevail until December 2007, rather than December 2026) implies a potential value per share for WPM of US$116.36 or C$159.69 in that year. However, as can be observed from the graph above, during periods of precious metal price appreciation, WPM can command current year P/E multiples that average 38.0x (eg between 2018 and 2024), in which case we would value Wheaton’s shares at a potential US$142.14, or C$195.07, and can rise as high as 45.0x (eg 2019).

Relative valuation

Relative to the multiples of its peers, WPM is maintaining its premium rating, as shown in Exhibit 18, below:

Readers should note the differing multiples’ profiles, whereby consensus multiples are generally falling, indicating higher forecast EPS, DPS and cash flows per share, and therefore either higher production in FY27 and FY28 and/or higher prices. This compares with Edison’s multiples’ profiles, which are generally rising, indicating declining EPS and cash flows per share, in particular, reflecting higher production in FY27 and FY28 but more conservative flat metals prices until December 2027 and lower ones in FY28 (albeit we are keeping these assumptions under review).

Financials: US$1,876.6m in net debt at end Q2 equals 16.2% leverage

As at 30 June, including a modest US$7.5m in lease liabilities, WPM had US$1,876.6m in net debt on its balance sheet, after generating US$649.5m in operating cash flows, but investing US$4,511.4m in mineral stream and royalty interests (the vast majority on its Antamina stream from BHP) and distributing US$171.3m in dividends to shareholders. Nevertheless, this amount of debt equates to a gearing (net debt/equity) ratio of just 19.4% and a leverage (net debt/[net debt+equity]) ratio of just 16.2%.

In Q326, we estimate that WPM will have generated c US$528m in operating cash flows, before disbursing at least c US$123m in investing activities and paying dividends of US$87m to leave it with c US$1,559m in net debt.

In FY26 as a whole, we estimate that WPM will generate US$2,694m from operating activities (cf US$1,905m in FY25), before consuming a net US$4,596m (cf US$1,239m in FY25) in investing activities and paying out an increased US$354m in forecast dividends (cf US$296m in FY25) under its progressive dividend policy. However, readers should be aware that the timing of precious metals purchase agreement (PMPA) payments is uncertain to the extent that investments may be advanced or delayed (eg relating to Marmato, El Como, Spring Valley, Koné and/or Jervois), and it is possible that WPM could register either a larger or a smaller net cash position on its balance sheet than those forecast.