Wheaton Precious Metals — Peerless

Wheaton Precious Metals (TSX: WPM)

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Research: Metals & Mining

Wheaton Precious Metals — Peerless

Wheaton’s Q223 results exceeded our expectations. Production of gold equivalent ounces (GEOs) was 4.6% higher than our prior forecasts, while sales of GEOs were 6.9% higher, driving a positive variance in revenue of 6.6%, or US$16.4m. This was partially offset by costs but nevertheless resulted in a US$7.8m (or 5.4%) positive variance in earnings from operations that, to all intents and purposes, dropped through to the bottom line.

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

Wheaton Precious Metals

Peerless

Q223 results

Metals and mining

15 August 2023

Price

C$59.23

Market cap

C$26,825m

C$1.3442/US$, US$1.2680/£

Cash (US$m) at end-June
(excluding US$6.5m in lease liabilities)

828.8

Shares in issue

452.9m

Free float

100.0%

Code

WPM

Primary exchange

TSX

Secondary exchanges

LSE, NYSE

Share price performance

%

1m

3m

12m

Abs

0.8

(12.7)

36.9

Rel (local)

0.6

(12.1)

36.2

52-week high/low

C$69.72

C$39.11

Business description

Wheaton Precious Metals (WPM) is the world’s pre-eminent ostensibly precious metals streaming company, with over 30 high-quality precious metals streams and early deposit agreements over mines in Mexico, Canada, Brazil, Chile, the US, Argentina, Peru, Sweden, Greece, Portugal and Colombia.

Next events

Ex-dividend date

24 August 2023

Constancia site visit

September/October 2023

Q323 results

9 November 2023

Q423/FY23 results

March 2024

Analyst

Lord Ashbourne

+44 (0)20 3077 5700

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

Wheaton’s Q223 results exceeded our expectations. Production of gold equivalent ounces (GEOs) was 4.6% higher than our prior forecasts, while sales of GEOs were 6.9% higher, driving a positive variance in revenue of 6.6%, or US$16.4m. This was partially offset by costs but nevertheless resulted in a US$7.8m (or 5.4%) positive variance in earnings from operations that, to all intents and purposes, dropped through to the bottom line.

Year end

Revenue
(US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/21

1,201.7

592.1

132

57

33.4

1.3

12/22

1,065.1

497.7

112

60

39.3

1.4

12/23e

1,030.4

502.5

118

60

37.4

1.4

12/24e

1,424.9

668.7

147

64

29.9

1.5

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

Salobo III ramp-up still in its early stages

Wheaton’s outperformance in Q223 could largely be attributed to an excellent production result at Salobo, where the ramp-up of Salobo III is proceeding ahead of schedule (it contributed 30.9% of total Salobo copper production in Q223, cf an expected 33.3% pro-rata to throughput at full capacity). Had it not been for a natural lag between copper and gold production during the ramp-up process, we estimate that Salobo III would otherwise have added an additional 4,790oz to WPM’s production in Q2.

Penasquito assumed offline until the end of August

Notwithstanding the current stoppage at Penasquito (which we expect to be concluded by the end of the month), we are still expecting H223 production to exceed H123 production in the ratio 53:47, driven by increases in output at Salobo and Constancia, in particular. In deference to the recent weakness in metals prices, we have shaved our earnings forecasts for Q3 and Q423. However, the effect on our full year forecast is an immaterial -4.8%.

Valuation: Heading towards C$70/share

Using a capital asset pricing model (CAPM)-type method, whereby we discount cash flows at a nominal 9% per year, our ‘terminal’ valuation of WPM in FY26 is little changed at US$54.88 (C$73.76) per share, assuming zero subsequent longterm growth in real cash flows. Alternatively, assuming no purchases of additional streams (which we think unlikely), we calculate a value per share for WPM of US$56.71 or C$76.23 or £44.72 in FY26, based on a 30.4x historical multiple of contemporary earnings. In the meantime, WPM’s shares are trading on near-term financial ratios that are lower than those of its peers on at least 63% of common valuation measures if Edison forecasts are used or 50% if consensus forecasts are used. Stated alternatively, if WPM were to trade at the average multiples of its peers, we calculate that its share price should be US$50.40, or C$67.75 currently.

Q223 results

In general, in the second quarter, Wheaton’s production and sales of gold, palladium and cobalt were all higher than our prior expectations and, although sales of silver were also higher, production of silver was slightly lower. Overall, production of GEOs was 4.6% higher than our prior forecasts for the quarter, while sales of GEOs were 6.9% higher, driving a positive variance in revenue of 6.6%, or US$16.4m. This was partially offset by costs of sales that were 8.2%, or US$8.6m higher, which drove a 5.4%, or US$7.8m, positive variance in earnings from operations that, to all intents and purposes, dropped through to the bottom line. An exceptional charge of US$15m (Edison estimate) that we thought might arise as a consequence of the suspension of activities at the Minto mine during the quarter ultimately did not do so. A complete analysis of WPM’s underlying financial and operating results relative to both Q123 and Edison’s prior expectations is provided in the exhibit below:

Exhibit 1: WPM Q223 results*

US$000s
(unless otherwise stated)

Q422

Q123

Q223e

Q223e (inc excepts)

Q223

Q223 (inc excepts)

Change

(%)

Variance

(%)

Variance

(units)

Silver production (koz)

5,352

4,927

4,635

4,635

4,417

4,417

-10.4

-4.7

-218

Gold production (oz)

70,099

73,037

76,449

76,449

85,083

85,083

16.5

11.3

8,634

Palladium production (oz)

3,869

3,705

3,514

3,514

3,880

3,880

4.7

10.4

366

Cobalt production (klb)

128

124

124

124

152

152

22.6

22.6

28

Silver sales (koz)

4,935

3,749

4,185

4,185

4,437

4,437

18.4

6.0

252

Gold sales (oz)

68,996

62,605

71,306

71,306

75,294

75,294

20.3

5.6

3,988

Palladium sales (oz)

3,396

2,946

3,161

3,161

3,392

3,392

15.1

7.3

231

Cobalt sales (klb)

187

323

124

124

265

265

-18.0

113.7

141

Average realised Ag price (US$/oz)

21.52

22.85

24.19

24.19

24.13

24.13

5.6

-0.2

-0.06

Average realised Au price (US$/oz)

1,725

1,904

1,976

1,976

1,986

1,986

4.3

0.5

10

Average realised Pd price (US$/oz)

1,939

1,607

1,445

1,445

1,438

1,438

-10.5

-0.5

-7

Average realised Co price (US$/lb)

22.62

15.04

14.79

14.79

13.23

13.23

-12.0

-10.5

-1.56

Average Ag cash cost (US$/oz)

5.00

5.07

5.21

5.21

5.01

5.01

-1.2

-3.8

-0.20

Average Au cash cost (US$/oz)

475

496

456

456

461

461

-7.1

1.1

5

Average Pd cash cost (US$/oz)

357

294

260

260

261

261

-11.2

0.4

1

Average Co cash cost (US$/lb)

***16.52

***3.30

2.66

2.66

3.20

3.20

-3.0

20.3

0.54

Sales

236,051

214,465

248,534

248,534

264,972

264,972

23.6

6.6

16,438

Cost of sales

Cost of sales, excluding depletion

61,730

51,964

55,487

55,487

58,642

58,642

12.9

5.7

3,155

Depletion

53,140

45,000

49,026

49,026

54,474

54,474

21.1

11.1

5,448

Total cost of sales

114,870

96,964

104,512

104,512

113,116

113,116

16.7

8.2

8,604

Earnings from operations

121,181

117,501

144,022

144,022

151,856

151,856

29.2

5.4

7,834

Expenses and other income

– General and administrative**

19,773

18,874

15,280

15,280

16,640

16,640

-11.8

8.9

1,360

– Foreign exchange (gain)/loss

– Interest paid/(received)

1,377

1,378

1,454

1,454

1,352

1,352

-1.9

-7.0

-102

– Other (income)/expense

(3,935)

(7,387)

(7,968)

2,062

(8,811)

(13,719)

19.3

10.6

-843

Total expenses and other income

17,215

12,865

8,766

18,796

9,182

4,273

-28.6

4.7

416

Earnings before income taxes

103,966

104,636

135,256

125,226

142,675

147,583

36.4

5.5

7,419

Income tax expense/(recovery)

222

205

250

250

91

6,135

-55.6

-63.6

-159

Marginal tax rate (%)

0.2

0.2

0.2

0.2

0.1

4.2

-50.0

-50.0

-0.1

Net earnings

103,744

104,431

135,006

124,976

142,584

141,448

36.5

5.6

7,578

Average no. shares in issue (000s)

452,070

452,370

452,838

452,838

452,892

452,892

0.1

0.0

54

Basic EPS (US$)

0.229

0.231

0.298

0.276

0.315

0.312

36.4

5.7

0.017

Diluted EPS (US$)

0.229

0.230

0.297

0.275

0.314

0.312

36.5

5.7

0.017

DPS (US$)

0.15

0.15

0.15

0.15

0.15

0.15

0.0

0.0

0.00

Source: WPM accounts, Edison Investment Research. Note: Change is Q223 cf Q123 (excluding exceptional items). Variance is actual cf forecast excluding exceptional items. *Excluding impairments, impairment reversals and exceptional items (except where indicated). **Forecasts now include stock-based compensation costs. ***Cobalt inventory is held on WPM’s balance sheet at the lower of cost and net realisable value; cash cost per pound of cobalt sold during Q422 included an inventory impairment charge of US$1.6m, which resulted in an increase in cash costs of US$8.71/lb; cash cost per pound of cobalt sold during Q123 was net of the previously recorded inventory write-down of US$1.0m, which resulted in a decrease in cash costs of US$3.18/lb; cash cost per pound of cobalt sold during Q223 was net of a previously recorded inventory write-down of US$0.5m, which resulted in a decrease in cash costs of US$1.81/lb. Totals may not add up owing to rounding.

At the level of the individual mines, Penasquito, Cozamin, Salobo, San Dimas, Voisey’s Bay and Stillwater all unequivocally outperformed our prior (sometimes quite conservative) expectations, while Zinkgruvan and Aljustrel slightly underperformed.

Compared with the prior year period, Antamina, Constancia and Voisey’s Bay all experienced lower grades. At the same time, output and sales at Salobo were notable for having been driven by higher throughput and grades. According to Vale, production in the second quarter was driven by a better-than-expected ramp up of Salobo III partially offset by planned maintenance activities and additional work on the crushers at Salobo I and II. Vale reports that planned maintenance activities will continue in the second half of 2023, and that the ramp up of Salobo III is expected to be fully completed in 2024. Contrary to our prior expectations, most of the gold production associated with Salobo III (we estimate 75% cf our prior expectation of 25%) was recovered to Wheaton’s account during the quarter. Had all of the gold anticipated to be produced, given Salobo’s level of copper production, been produced, we estimate that it would have added a further 4,790oz to WPM’s production in Q223, as shown in the graph below:

Exhibit 2: Salobo copper production versus gold production attributable to WPM, Q316–Q223

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

Entering Q323:

Operations at Penasquito (17.5% of sales in Q223) remain suspended. Newmont announced a suspension of operations at Penasquito on 8 June. In its Q223 results call, Newmont stated that it believed its original agreement with the unions at Penasquito was firm and equitable. As such, it is resolved to be firm in its adherence to the terms of that agreement already in place and not to allow its renegotiation. In the meantime, it confirmed that the unions are not making payments to their members and that Newmont will also not be making back payments. As a result, it hopes that the unions will eventually encourage their members to return to work. In the absence of any immediate, official progress in resolving the dispute between Newmont and the unions at Penasquito, we have assumed that production and sales will continue to be affected by the suspension for two of the three months of Q3 until the end of August.

Operations at Minto (estimated 0.6% of sales in Q223) similarly remain suspended. Minto announced the cessation of operations on 13 May after failing to raise funds, after which its full complement of directors resigned on 16 May. As a result, we have removed all production and sales from Minto, attributable to Wheaton, from our financial models indefinitely.

Production at the Stillwater mine (3.5% of sales in Q223) has recommenced after an incident (during scheduled non-routine maintenance) caused structural damage to the shaft headgear, winder house and winder rope, which resulted in production from the Stillwater West mine below the 50 level being suspended for approximately five weeks from 13 March. However, it recommenced on 16 April, and, as noted previously, the mine outperformed our prior forecasts for the quarter for both production and sales in Q223.

Full mining activities have resumed in the Pampacancha pit at Constancia (13.4% of sales in Q223), with the mining of higher-grade ore now underway. After a period of higher stripping in Q223 (that ended in June) we are therefore forecasting that gold production attributable to Wheaton from Constancia, in particular, will increase by more than 75% in Q3 and Q423 (or c 5,594oz per quarter) relative to Q223.

Voisey’s Bay (1.3% of sales in Q223) is continuing to mine lower-grade material during its ongoing transition between the depletion of the Ovoid open-pit mine and ramp-up to full production of the Voisey’s Bay underground project. Production in the second quarter was also affected by an annual maintenance schedule at the Long Harbour refinery (from May to July) that was longer than in 2022. Vale reports that physical completion of the Voisey’s Bay underground mine extension was 85% at the end of Q223 (cf 83% at end-Q123), with Reid Brook’s bulk material handling system expected to be delivered in Q323 and lateral development advancing on the Eastern Deeps. Vale achieved its first ore production from the Reid Brook deposit, the first of two underground mines to be developed at Voisey’s Bay, in Q221. Eastern Deeps, the second deposit, has now also started to extract development ore from the mine and is scheduled to start its main production ramp-up in the second half of the year.

Ounces produced but not yet delivered

At 11.5%, the degree of under-sale of gold in Q223, relative to production, was slightly greater than the prior historical average of 6.7% (from Q112 until Q123). By contrast, the 0.5% over-sale of silver relative to production was materially better than its prior historical average of a 12.1% under-sale and contributed to a notable run down in silver ounces produced but not sold (see below).

Exhibit 3: Over/(under) sale of silver and gold as a percentage of production, Q112–Q223

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

As a result, while gold ounces produced but not delivered increased by 5,812oz (or 8.4%) over the quarter, to 75,291oz, silver ounces produced but not delivered decreased by more than a third to just 1.3Moz.

Consequently, we calculate that gold and silver ounces produced but not yet delivered as at end-June now amount to 2.67 and 0.79 months of full-year production (cf 2.43 and 2.03 months as at end-Q123 previously), respectively, and compare with WPM’s target levels of two to three months for gold and palladium and two months for silver (see below).

Exhibit 4: WPM ounces produced but not yet delivered, Q316–Q223 (months of production)

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

General and administrative expenses

At the time of its Q422 results, WPM provided guidance for non-stock general and administrative (G&A) expenses of US$47–50m or US$11.75–12.50m per quarter for FY23 (cf US$47–49m in FY22, US$42–44m in FY21 and US$40–43m in FY20), including all employee-related expenses, charitable contributions, etc, but excluding performance share units (PSU) and equity settled stock-based compensation. In the event, at US$12.2m, non-stock G&A expenses in Q123 were towards the middle of the range implied by WPM’s official guidance:

Exhibit 5: WPM general and administrative expenses, Q221–Q223 (US$000s)

Item

Q221

Q321

Q421

FY21

Q122

Q222

Q322

Q422

FY22

Q123

Q223

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

4,634

4,283

4,618

18,244

5,345

5,061

4,629

4,187

19,222

5,021

4,749

Other (inc. depreciation, donations and professional fees)

5,852

5,173

6,818

23,475

4,871

5,784

5,137

7,112

22,905

6,456

7,407

Non-stock based G&A

10,486

9,456

11,436

41,719

10,216

10,845

9,766

11,299

42,127

11,477

12,156

Guidance

10,500–11,250

10,500–11,250

11,717–13,717

42,000–44,000

11,750–12,250

11,750–12,250

11,750–12,250

11,750–12,250

47,000-49,000

11,750-12,500

11,750-12,500

PSU* accrual

6,672

2,824

4,203

14,004

8,560

110

(1,491)

7,035

14,214

5,855

2,625

Equity settled stock-based compensation

1,307

1,315

1,315

5,262

1,342

1,498

1,568

1,439

5,846

1,542

1,859

Stock-based G&A

7,979

4,139

5,518

19,266

9,902

1,608

77

8,474

20,060

7,397

4,484

Total general & administrative

18,465

13,595

16,954

60,985

20,118

12,453

9,843

19,773

62,187

18,874

16,640

Total/Non-stock based G&A (%)

+76.1

+43.6

+48.3

+46.2

+96.9

+14.8

+0.8

+75.0

+47.6

+64.5

+36.9

Source: WPM, Edison Investment Research. Note: *Performance share units. Totals may not add up owing to rounding.

Given the performance of WPM’s shares during the quarter, stock-based G&A expenses in Q223 were well within the error of estimation implied by the regression analysis between the two (as shown in Exhibit 6, below):

Exhibit 6: Graph of historical share price move (US$/share) versus quarterly stock-based G&A expenses, Q419–Q223

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

The analysis of stock-based G&A expenses over the past 15 quarters relative to the change in WPM’s share price (also in US dollars) continues to exhibit a close Pearson product-moment (correlation) coefficient between the two of 0.78, which remains 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) and this therefore continues to remain the basis of our quarterly and full-year forecasts for G&A expenses in Exhibit 8.

FY23 and five-year and 10-year guidance

At the time of its 21 February production and sales announcement, Wheaton also provided detailed production guidance for FY23 (for the first time), as well as for the five years from FY23–27 (inclusive) and the 10 years from FY23–32 (inclusive). These remain unchanged and compare with Edison’s forecasts over the equivalent periods, as follows:

Exhibit 7: WPM precious metals production – Edison forecasts cf guidance

FY23e

FY23–27 average*

FY23–32 average

Previous Edison forecast

Silver production (Moz)

19.8

Gold production (koz)

335.8

Cobalt production (klb)

655

Palladium production (koz)

15.0

Gold equivalent (koz)

613.5

803

818

Current Edison forecast

Silver production (Moz)

19.3

Gold production (koz)

338.4

Cobalt production (klb)

683

Palladium production (koz)

15.3

Gold equivalent (koz)

610.6

802

818

WPM guidance

Silver production (Moz)

20.0–22.0

Gold production (koz)

320–350

Cobalt & palladium production (koz AuE)

22–25

Gold equivalent (koz)

600–660

810

850

Source: WPM, Edison Investment Research forecasts. Note: *Edison forecasts include Salobo III from FY23, Rosemont/Copper World from FY27 and Antamina extension from FY28.

WPM’s updated five-year and 10-year guidance is based on standardised pricing assumptions of US$1,850/oz gold, US$24.00/oz silver, US$1,800/oz palladium and US$18.75/lb cobalt. Of note in this context is an implied gold/silver ratio of 77.1x, which compares with its current ratio of 84.2x, but a long-term average of 61.5x (since gold was demonetised in August 1971). At the standardised prices indicated, our gold equivalent production forecast of 610.6koz gold equivalent (AuE) for FY23 self-evidently lies well within WPM’s guidance range of 600–660koz AuE.

Otherwise, readers will note that Edison’s medium-term production forecasts are within 1% of WPM’s guidance for the period FY23–27 and within 4% of its longer-term guidance for FY23–32, which we regard as an acceptable range of variance, given the time horizons involved. Note that both Edison’s and Wheaton’s estimates necessarily exclude potential future stream acquisitions (of which there are likely to be a number over the timeframe indicated).

Growth opportunities

Short-term opportunities

Constancia

Although Constancia experienced both lower throughput and grades relative to the prior year period in Q223, as per Hudbay’s recent earnings releases, full mining activities have resumed in the Pampacancha pit since February. Output was adversely affected by a period of higher stripping in Q223. However, we are now anticipating that gold production attributable to Wheaton from Constancia will increase by in excess of 75% in Q3 and Q4 compared with Q2 to c 13,000–15,000oz per quarter.

San Dimas

Since First Majestic’s acquisition of Primero in January 2018, it has been developing a long-term mine and mill optimisation plan for San Dimas, including:

an additional leach tank with safety screen,

modernisation of the general plant control and monitoring capabilities,

debottlenecking and optimisation of the crushing circuit for consistent operation,

upgrading the tailings filtration plant,

modernisation of the Merrill-Crowe and smelting operations,

an estimated 40% reduction in ore drive development dimensions allowing for reduced dilution and reductions in costs associated with standard ground support, and

pillar recoveries from the Tayoltita, Santa Rita and Noche Buena mines to add a further c 300tpd (12%) to throughput.

Other

Production of palladium and gold at Stillwater (operated by Sibanye-Stillwater) will increase under the influence of the Fill-the-Mill project at East Boulder as well as the Blitz project scheduled for FY24. Similarly, the Voisey’s Bay underground project is in the process of ramping up to full production.

Medium-term opportunities

In the medium term, Wheaton has six projects that are progressing on their route to production:

In November 2022, Aris Mining released the results of the Marmato Lower Mine expansion pre-feasibility study, involving the development of a new underground mine and a 4,000tpd ore processing facility to add to the existing 1,250tpd Marmato Upper Mine and, on 12 July 2023, announced that it had received approval from Colombia’s Corporación Autónoma Regional de Caldas for its Environmental Management Plan, which permits the go-ahead of the Marmato Lower Mine. The Lower Mine project is estimated to cost c US$280m in initial capex and tender bids for key long lead procurement items such as mills, crushers, feeders, thickeners, the oxygen plant, gold room and filters are already reported to be in the market. Orders are in the process of being placed and the new 4,000tpd mill is scheduled for mechanical completion in Q325.

On 16 May 2023, Wheaton announced the purchase of a stream from Lumina’s Cangrejos project in Ecuador. Under the terms of the stream, WPM will pay Lumina a total upfront cash consideration of US$300m in tranches, in return for 6.6% of the payable gold from the project until 700,000oz gold have been delivered, whereupon the stream will be reduced to 4.4% of the payable gold production for the life of the mine. Attributable production from the mine is forecast to average over 24,000oz gold pa for the first 10 years of production and over 24,500oz gold pa for the full 26-year life of the mine. WPM will make ongoing payments for the gold ounces delivered equal to 18% of the spot price of gold until the uncredited deposit is reduced to nil and 22% of the spot price of gold thereafter. For the purposes of our modelling, we have assumed that first production from the Cangrejos mine will occur in FY29. In the meantime, Lumina has recommenced drilling at the project, initiating both geotechnical and infill resource definition programmes, which it expects to complete in Q124, with the aim, inter alia, of converting probable mineral reserves to proven status, financed via its early deposit precious metals purchase agreement (PMPA) with WPM. Drilling will also produce fresh material for the next round of metallurgical test work to support its ongoing full feasibility study.

B2Gold has confirmed that site construction at Goose is ongoing and that the project’s first ice road has successfully transported all of the materials required to complete building envelopes in 2023. As such, the project remains on schedule for mill completion in Q125. In the meantime, B2Gold is initiating an exploration program to further define untapped potential and unlock further opportunities for growth. Plans for underground mining development have been accelerated to increase average gold production to over 300koz pa in the first five years of mining. Underground mining is also now scheduled to mine and backfill the full Umwelt crown pillar earlier in the mine life, which is expected to contribute a further c 150koz of gold production to the life of mine plan.

On 9 March, Artemis received its last major permit ahead of major construction work for its Blackwater mine in the form of a BC Mines Act Permit. It also closed the associated US$385m project loan facility. Subsequently, in May, it reported that site works were underway with over 280 hectares logged and cleared including priority infrastructure areas such as the mine haul road network and water management structures. Where required, the existing road network has also been upgraded to allow access for heavy construction equipment to key infrastructure locations. A laydown area has been completed to accommodate the construction fleet, maintenance facilities and construction offices and a construction camp has been completed, including the installation and commissioning of a wastewater treatment plant, expanding the site capacity to 420 people. The initial fleet is expected to be delivered in Q423 and to be ‘shovel ready’ in H224. On 4 July, Artemis announced receipt of the Fisheries Act Authorization for development of Blackwater, which will facilitate the commencement of construction of water diversion structures and dams in the Davidson Creek valley, which runs through the basin of the Blackwater tailings storage facility. On 14 June, Wheaton amended its Blackwater Gold PMPA with Artemis. Under the terms of the amended agreement, Wheaton is now entitled to purchase an amount of gold equal to 8% of the payable gold production until 464,000oz have been delivered (cf 279,908oz previously), with this threshold to increase should there be a delay in the anticipated timing of deliveries. Once the threshold has been achieved, WPM’s attributable gold production will drop to 4% of payable gold production – now estimated by Edison to be in FY40 cf FY35 previously – for the life of the mine. In exchange for the amendment, Wheaton has committed to pay an additional upfront cash consideration of US$40m, payable in four instalments, with the first payment of US$10m having been made on 15 June. In conjunction with this amendment, Artemis announced that it is to commit to additional investment as part of its Phase 1 development to facilitate the potential fast-tracking of its Phase 2 expansion. After a brief hiatus in July on account of the wildfires in British Columbia, Artemis announced that it had returned to full construction on 3 August.

In November, Generation Mining received the final environmental approvals for its Marathon palladium-copper project in northern Ontario. In March, it released the results of an updated feasibility study showing an after tax NPV6 of C$1.16bn and a project internal rate of return of 26%, ahead of executing a mandate letter to arrange a senior secured project finance facility of up to US$400m to fund the construction and development of the project (a key milestone). This year, it is aiming to secure key provincial permits, related to species at risk, tree harvesting and water quality, etc, so that early construction works can commence. The start of construction is anticipated imminently and production in Q3–Q425, to which end it has already purchased an unused surplus SAG mill and a ball mill.

Adventus Mining signed the investment contract for the Curipamba project with the Ecuadoran government in December. To date in 2023, it has advanced detailed engineering and procurement activities and completed the first of two phases of the required environmental and social impact assessment (ESIA), managed and overseen by the government. However, on 1 August, the Constitutional Court of Ecuador admitted for processing an unconstitutionality claim filed by the indigenous group CONAIE and other plaintiffs against Presidential Decree 754, which was signed by the president of Ecuador on 31 May, that regulates environmental consultation for all public and private industries and sectors in Ecuador – not limited to the metals and mining sector. As a result, the Constitutional Court ordered the provisional suspension of the Decree until it can resolve the claim, which will require the government of Ecuador to present argument, within 15 working days, to evidence the constitutionality of the Decree for the consideration of the Constitutional Court. The immediate effect of the suspension is that no medium- or high-impact projects, from any sector or industry in the country, including the Curipamba project, will be able to obtain an environmental licence until the Constitutional Court resolves the issue. The government of Ecuador has stated that it will employ all measures at its disposal to respond to the Constitutional Court. In the meantime, the Adventus Mining management team reports that it has identified, and continues to evaluate, several significant improvements to the project that are expected ‘to improve project economics inclusive of cost inflation factors’.

Long-term opportunities

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 at the time, depending on the grade of the material processed, WPM was to have made a payment to Vale for this expansion, subject to a 90-day completion test, which WPM estimated was to have been in the range US$550–670m in FY23–25, in return for which it was to be entitled to its full 75% attributable share of expanded gold production.

After the end of Q422 however, Wheaton and Vale agreed to amend the Salobo PMPA to adjust the expansion payment terms to provide increased flexibility for the ramp-up of the expansion, while also maintaining an incentive for Vale to maximise grade on an annual basis. The expansion payment will now be phased, with Wheaton making an initial payment once actual throughput is expanded above 32Mtpa and a second payment if actual throughput is expanded above 35Mtpa by 1 January 2031. The total cumulative payments will range from US$283m to US$552m, dependent on Vale’s timing for each of the production increases. Where before Edison had been forecasting that Wheaton would make the whole payment (of US$530m) in FY24, owing to the successful nature of the ramp-up of the Salobo III project to date in FY23 (it contributed 30.9% of total Salobo copper production in Q223 cf an expected 33.3% pro-rata to throughput at full capacity), we are now forecasting that it will make the whole payment (of US$552m) in FY23. In addition, Wheaton will be required to make annual payments of between US$5.1m and US$8.5m for a 10-year period following payment of the expansion payments if the Salobo mine maintains a high-grade mine plan.

These payments compare to WPM’s purchase of a 25% stream from Salobo 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 it paid for its original 25% stream in February 2013.

According to Vale, the project successfully commenced at the end of 2022 and is expected to achieve full capacity in FY24. Once full capacity at Salobo III has been completed, however, WPM believes that reserves and resources at the mine could support a further 33% capacity increase, from 90ktpd to 120ktpd (denoted Salobo IV). Notwithstanding its long-term underground potential, WPM believes such an expansion could be supported by open-pit mining alone. Under the terms of its agreement with Vale, there would be no additional payment due from WPM in respect of the Salobo IV expansion.

Rosemont/Copper World

Rosemont/Copper World is in the vicinity of a number of large porphyry-type producing copper mines and will be one of the largest copper mines in the United States, with initial output of c 86,000t copper per year from mined sources (c 8% of total US copper production), rising to c 101,000tpa after 16 years. Total byproduct production of silver attributable to WPM is estimated to be c 1.7Moz Ag pa for Phase I, followed by c 2.4Moz Ag pa for Phase II.

The evolution of the project from Rosemont to Copper World

In March 2019, Rosemont/Copper World’s operator, Hudbay, 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 (ACOE), which was effectively the final material administrative step before the Rosemont 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).

A legal challenge, lunched in July 2019, has since delayed the project. However, Hudbay has continued to explore in and around the area of the mine and, on 22 September 2021, announced the intersection of additional high-grade copper sulphide and oxide mineralisation predominantly located on its wholly owned patented mining claims (denoted Copper World). To date, seven deposits have been identified at Copper World with a combined strike length of over 7km and, on 15 December 2021, Hudbay announced a maiden mineral resource at Copper World of 272Mt in the indicated category and 142Mt in the inferred category, both at an average grade of 0.36% copper. The mineralisation consists of both skarn and porphyry copper sulphides with a significant oxidised component along a regional fault along the west side of the Rosemont, Bolsa and Broad Top Butte deposits known as the Backbone Fault. As a consequence, it was determined that approximately 33Mt of inferred mineral resources at the Bolsa deposit, which were previously considered to be waste in the resource pit shell used for Rosemont’s NI 43–101 feasibility study, could now potentially be converted into reserves, which would result in less waste being mined at Rosemont, thereby reducing costs and energy consumption per tonne of ore mined. In addition, the Rosemont deposit also contains oxide mineralisation that was previously classified as waste, which could be processed with the oxide mineralisation at Copper World, and it is expected that further synergies will be identified as Hudbay explores the gap between Bolsa and Rosemont. Note that the Copper World discovery is included in WPM’s area of interest under its PMPA with Hudbay.

A new development plan

As a result of these discoveries, Hudbay has adjusted its plan to develop the district. Among other things, it has now acquired a private land package totalling approximately 4,500 acres to support an operation on private lands. The initial technical studies for Copper World were incorporated into a preliminary economic assessment (PEA) investigating the development of the Copper World deposits in conjunction with an alternative plan for the Rosemont deposit, which was announced to the market on 8 June 2022, and proposed a two-phase mine development plan. The first phase of the mine plan requires only state and local permits and demonstrates an approximate 16-year mine life. The second phase then extends the mine life to 44 years and incorporates an expansion onto federal lands to mine the entire Rosemont and Copper World deposits. The second phase of the mine plan will be subject to the federal permitting process and the company expects that it will be able to pursue the federal permits within the constraints imposed by the courts’ most recent legal decisions if any subsequent appeals are not successful.

On 24 May 2022, Hudbay received a favourable decision from the US District Court for the District of Arizona on all issues relating to the development of Copper World, including that Copper World and Rosemont are not connected under the National Environmental Policy Act (NEPA) and, therefore, that the ACOE does not have an obligation to include Copper World as part of its NEPA review of Rosemont. The District Court also granted Hudbay’s motion to dismiss the Copper World preliminary injunction request filed by the plaintiffs in the two lawsuits challenging the Section 404 Clean Water Act permit for Rosemont on the basis that the lawsuits were moot after the company surrendered its 404 permit back to the ACOE in April 2022. Within this context, the ACOE has never determined that there are jurisdictional waters of the United States on the Copper World site and Hudbay has independently concluded through its own scientific analysis that there are no such waters in the area. In this respect, Hudbay believes the District Court’s decision, together with the 12 May 2022 decision, clarifies the permitting path for Copper World, including the requirements to receive federal permits for the second phase only (ie years 16 to 44 of the project) under existing mining regulations and no requirement for a 404 (water) Permit. In May, Hudbay also received a favourable ruling from the US Court of Appeals for the Ninth Circuit that reversed the US Fish and Wildlife Service’s designation of the area near Copper World and the former Rosemont project as jaguar critical habitat. While this ruling does not affect the state permitting process for Phase I of Copper World, it is expected to simplify the federal permitting process for Phase II of the project. In the meantime, Hudbay continues to expect to receive the two remaining state permits required (an Aquifer Protection Permit and an Air Quality Permit) in H223.

PEA completed and PFS underway ahead of potential project sanctioning in 2024

Resources were reported to have expanded materially to 792Mt in the measured category, 381Mt in the indicated category and 262Mt in the inferred category at the time of Hudbay’s PEA at an average grade of 0.40% copper. In April 2022, the company commenced early works at Copper World with initial grading and clearing activities at site and, in January, it received an approved right-of-way from the Arizona State Land Department that will allow for infrastructure such as roads, pipelines and powerlines to connect the properties in the company’s private land package. Shortly afterwards, it also announced the receipt of confirmation from the Army Corps of Engineers that its previous surrender of the Section 404 Clean Water Act permit for the former Rosemont project had been formally accepted and revoked, as requested.

Clearing and grading work to prepare for the Copper World site, including the construction of roads and other facilities, is underway. In the meantime, pre-feasibility activities for the private land Phase I of the Copper World project are reported to be well-advanced and a pre-feasibility study is expected to be released in Q323. Among other things, this will focus on converting the remaining inferred mineral resources to measured and indicated status and the evaluation of many of the project’s optimisation and upside opportunities. It will then complete a definitive feasibility study as well as receiving all required state and local permits over the next 12 months, while simultaneously evaluating a variety of financing options, including a potential minority joint venture partner, prior to project sanction potentially as early as 2024. As such, Edison is continuing to forecast production from Rosemont/Copper World attributable to WPM from FY27. However, readers should note that any acceleration in the process of being granted federal permits could allow Hudbay earlier access to higher-grade areas of the orebody, especially at Rosemont. In the meantime, it is continuing exploration and technical work at site to support its feasibility studies.

Antamina

In April 2022, Antamina announced a US$1.6bn investment that will lengthen the mine’s useful life from 2028 to 2036. Currently, the mine is carrying out a third and final ‘public participation’ with residents of the northern Andean region of Ancash, where the mine is located, and is awaiting a response from the local authority, Senace, regarding the company’s request to modify its environmental impact assessment to allow the mine to extend its operating life by eight years. Production and the mine’s operational footprint would remain the same and it hopes to achieve mine extension approval this year. The mine, which is co-owned by Glencore, BHP, Teck and Mitsubishi Corp, is Peru’s largest, and the world’s second-largest, copper mine.

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, WPM had the right to an estimated US$252.3m (WPM’s carrying value of Pascua-Lama) 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 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).

A Chilean court ordered Pascua-Lama to close in 2020. However, Barrick is advancing a high-level study into the project, which is thought to be nearing completion. The study is understood to be focusing on the fact that a substantial portion of the resource could be processed by leaching or agitated leaching, which would require only modest modifications to the circuit already built. This raises the possibility that the orebody could be developed in a different manner and Barrick’s goal is to demonstrate a viable project to both the Chilean and Argentinian governments. If successful, it would then pursue permitting options (and, in particular, water permits) and build out a new model for the project’s development, in which case an investment decision on Pascua-Lama could be made as early as 2024.

Other potential future growth opportunities

Wheaton reports that its development team remains ‘exceptionally busy’ evaluating new opportunities. In general, WPM expects to be conducting due diligence processes on approximately 10–12 projects at any one time, which it expects to narrow to three to four target projects over approximately 12 months. Most of the opportunities currently being evaluated by WPM are reported to be the precious metal by-product streams of base metal mines, although there are also reported to be some high-margin, purely precious metals mines included in the evaluation process. In the first instance, WPM would fund any such transactions via the US$2bn available under its revolving credit facility, plus the US$828.8m in cash that it has on its balance sheet (at end-Q223) 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, being:

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

the 30% of the gold output at Constancia (operated by Hudbay) that is not currently subject to any streaming arrangement.

FY23 guidance and forecasts

In formulating our quarterly forecasts for WPM for Q323 and for the remainder of the year, we have reduced our gold price for the remainder of the year by 2.1%, from US$1,955/oz to US$1,914/oz and our silver price by 8.3%, from US$24.79/oz to US$22.74/oz, while increasing our palladium price by 2.8% – all to reflect currently prevailing prices. We have also honed our production and sales forecasts for Zinkgruvan, Neves-Corvo and Sudbury (albeit immaterially). As a consequence, our Q323, Q423 and FY23 full financial forecasts are now as follows:

Exhibit 8: WPM FY23 forecast, by quarter*

US$000s
(unless otherwise stated)

Q123

Q223

Q323e
(prior)

Q323e

Q423e
(prior)

Q423e

FY23e

FY23e
(prior)

Silver production (koz)

4,927

4,417

4,358

4,222

5,851

5,732

19,299

19,771

Gold production (oz)

73,037

85,083

88,406

85,790

97,884

94,482

338,392

335,776

Palladium production (koz)

3,705

3,880

3,871

3,871

3,871

3,871

15,327

14,961

Cobalt production (klb)

124

152

204

204

204

204

683

655

Silver sales (koz)

3,749

4,437

3,756

3,391

5,589

5,344

16,921

17,278

Gold sales (oz)

62,605

75,294

82,439

79,999

97,863

94,462

312,359

314,213

Palladium sales (oz)

2,946

3,392

3,483

3,483

3,856

3,856

13,676

13,445

Cobalt sales (klb)

323

265

204

204

204

204

995

854

Avg realised Ag price (US$/oz)

22.85

24.13

24.57

23.25

24.79

22.74

23.23

24.18

Avg realised Au price (US$/oz)

1,904

1,986

1,951

1,927

1,955

1,914

1,933

1,949

Avg realised Pd price (US$/oz)

1,607

1,438

1,264

1,285

1,265

1,301

1,397

1,382

Avg realised Co price (US$/lb)

15.04

13.23

15.16

15.16

15.16

15.16

14.60

15.06

Avg Ag cash cost (US$/oz)

5.07

5.01

5.53

5.35

5.30

5.14

5.13

5.28

Avg Au cash cost (US$/oz)

496

461

441

442

439

440

456

455

Avg Pd cash cost (US$/oz)

294

261

228

231

228

234

253

250

Avg Co cash cost (US$/lb)

3.30

3.20

2.73

2.73

2.73

2.73

3.04

2.93

Sales

214,465

264,972

260,622

240,578

337,829

310,420

1,030,435

1,061,450

Cost of sales

Cost of sales, excluding depletion

51,964

58,642

58,481

54,835

74,032

70,469

235,910

239,964

Depletion

45,000

54,474

52,909

50,779

67,699

65,258

215,511

214,634

Total cost of sales

96,964

113,116

111,390

105,614

141,731

135,727

451,421

454,598

Earnings from operations

117,501

151,856

149,232

134,964

196,098

174,694

579,015

606,852

Expenses and other income

– General and administrative**

18,874

16,640

18,042

17,875

17,396

17,525

70,914

69,592

– Foreign exchange (gain)/loss

0

0

– Net interest paid/(received)

1,378

1,352

1,454

1,454

1,454

1,454

5,639

5,741

– Other (income)/expense

(7,387)

(8,811)

(7,192)

-8,431

(7,150)

-7,352

-31,981

(29,697)

Total expenses and other income

12,865

9,182

12,304

10,898

11,700

11,627

44,571

45,635

Earnings before income taxes

104,636

142,675

136,928

124,066

184,398

163,066

534,443

561,217

Income tax expense/(recovery)

205

91

250

250

250

250

796

955

Marginal tax rate (%)

0.2

0.1

0.2

0.2

0.1

0.2

0.1

0.2

Net earnings

104,431

142,584

136,678

123,816

184,148

162,816

533,647

560,262

Average no. shares in issue (000s)

452,370

452,892

452,838

452,892

452,838

452,892

452,762

452,721

Basic EPS (US$)

0.231

0.315

0.302

0.273

0.407

0.360

1.18

1.24

Diluted EPS (US$)

0.230

0.314

0.301

0.273

0.405

0.359

1.18

1.23

DPS (US$)

0.15

0.15

0.15

0.15

0.15

0.15

0.60

0.60

Source: WPM accounts, Edison Investment Research. Note: *Excluding impairments, impairment reversals and exceptional items (except where indicated). **Forecasts now include stock-based compensation costs. Totals may not add up owing to rounding.

Our updated adjusted basic EPS forecast of US$1.18 per share for FY23 compares with the market, as follows:

Exhibit 9: WPM FY23 consensus EPS forecasts (US$/share), by quarter

Q123

Q223e

Q323e

Q423e

Sum Q1–Q423e

FY23e

Edison forecasts

0.231

0.315

0.273

0.360

1.179

1.180

Mean consensus

0.231

0.315

0.319

0.337

1.202

1.159

High consensus

0.231

0.315

0.390

0.405

1.341

1.320

Low consensus

0.231

0.315

0.270

0.270

1.086

1.050

Source: Refinitiv, Edison Investment Research. Note: As at 10 August 2023.

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 (most recently over Lumina’s Cangrejos mine in south-west Ecuador). As a result, rather than our customary method of discounting maximum potential dividends over the life of operations back to FY23, in the case of WPM (as with Newmont and Endeavour), we discount forecast cash flows back over four years from the start of FY23 and then apply an ex-growth terminal multiple to forecast cash flows in that year (ie FY26) based on an appropriate discount rate.

Compared with our previous estimates, our forecast for pre-financing cash flow has reduced in FY23 as a result of our assumption that Wheaton will now pay its full commitment for Salobo III of US$552m in FY23 (cf US$530m in FY24 previously). However, our pre-financing cash flow estimate for FY24 has increased commensurately and our estimate of WPM’s ‘terminal’ pre-financing cash flow in FY26 is, to all intents and purposes, unchanged, at US$2.65 per share, as shown below:

Exhibit 10: WPM cash flow per share and related valuation (US$/share), FY23–26

Source: Edison Investment Research. Note: Valuation line assumes cash flow per share growth rate of 4% pa post-FY26 in nominal terms, which equals the average US rate of CPI inflation since 1972 (ie 0% pa growth in real terms).

Assuming 4% growth in nominal cash flows beyond FY26 (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-FY26 is US$54.88 per share (cf US$54.92/share previously), or C$73.76 per share. However, it should be noted that this valuation is inherently conservative in that it assumes zero growth in (real) cash flows beyond FY26. This is inconsistent with the gold price, which has risen at a compound average annual growth rate of 7.4% per year from 1967 to 2022 and at a simple average annual growth rate of 9.6% per year (cf a compound average inflation rate over the same period of 4%).

Exhibit 11: Gold price annual performance, 1968–2022

Source: Edison Investment Research (underlying data: US Bureau of Labor Statistics, Bloomberg, kitco.com, South African Chamber of Mines)

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 21% pa for the 17 years between FY05 and FY22, while its operational cash flows per share have increased at compound average annual growth rate of 14.1% pa.

Historical

Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 30.4x current year basic underlying EPS, excluding impairments (cf 37.4x Edison or 38.2x Refinitiv consensus FY23e currently – see Exhibit 12).

Exhibit 12: WPM’s average historical current year P/E multiples, 2005–22

Source: average share price data Bloomberg, Edison Investment Research calculations

Applying this 30.4x multiple to our (ostensibly unchanged) EPS forecast of US$1.87 in FY26 implies a potential value per share for WPM of US$56.71 (cf US$56.77 previously) or C$76.23 in that year.

Relative

From a relative perspective, it is notable that WPM is cheaper than its peers on at least 63% (23 out of 36) of the valuation measures observed in Exhibit 13 if Edison estimates are used or 50% (18 out of 36) of the same valuation measures if consensus forecasts are used.

Exhibit 13: WPM comparative valuation versus 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

38.7

35.3

37.1

0.9

1.0

1.0

27.3

25.4

26.4

Royal Gold

30.5

25.7

24.3

1.2

1.2

1.1

17.3

15.2

14.7

Sandstorm Gold

54.3

49.2

39.3

1.1

1.1

1.1

12.7

13.3

11.6

Osisko

32.9

31.8

28.2

1.2

1.2

1.2

18.2

17.5

16.8

Average

39.1

35.5

32.2

1.1

1.1

1.1

18.9

17.9

17.4

WPM (Edison forecasts)

37.4

29.9

24.6

1.4

1.5

1.7

26.1

19.3

16.8

WPM (consensus)

38.2

32.6

32.8

1.3

1.1

1.3

27.2

22.3

22.4

Implied WPM share price (US$)*

46.04

52.33

57.87

54.30

56.91

67.91

31.88

40.77

45.61

Source: Refinitiv, Edison Investment Research. Note: Peers priced on 10 August 2023. *Derived using Edison forecasts and average consensus multiples.

Stated alternatively, were WPM to trade at the average multiples of its peers, we calculate that its share price should be US$50.40, or C$67.75 currently, on the basis of Edison’s financial forecasts.

In this context, we note that, whereas Edison’s financial forecasts for Wheaton in years one to three imply improving profitability (based on improving volumes of production and sales superimposed on broadly flat metals prices), consensus forecasts appear to imply a much flatter profitability profile, suggesting that either the market is assuming smaller increases in volumes or a simultaneous decrease in metals prices.

Financials: US$822.3m (US$1.82/share) in net cash

As at 30 June, WPM had US$828.8m in cash on its balance sheet and no debt outstanding under its US$2bn revolving credit facility. As such (including a modest US$6.5m in lease liabilities), it had US$822.3m in net cash overall after generating US$202.4m in operating cash flow and paying out US$131.1m in (two) dividends during the quarter.

Exhibit 14: WPM cash, net cash and operating cash flow, by quarter, Q420–Q223

(US$m)

Q420

Q121

Q221

Q321

Q421

Q122

Q222

Q322

Q422

Q123

Q223

Cash/(debt)

192.7

191.2

235.4

372.5

226.0

376.2

448.6

494.6

696.1

799.7

828.8

Net cash/(debt)

6.0

187.7

232.1

369.4

223.2

373.5

446.2

492.5

694.1

797.9

822.3

Operating cash flow

208.0

232.2

216.3

201.3

195.3

210.5

206.4

154.5

172.0

135.1

202.4

Source: Wheaton Precious Metals

In addition, WPM has long-term investments, in the form of equity share- and warrant-holdings, in listed companies in the sum of US$255.5m as at 30 June, or the equivalent of US$0.56/share.

In FY23 we estimate that WPM will generate US$763.8m from (net) operating activities, before consuming US$847.7m (cf US$425.9m previously – lower on account of the deferral of the Salobo III payment) in investing activities and paying out up to US$271.7m in forecast dividends to leave the company with net cash of US$338.6m (cf US$834.1m previously) on its balance sheet as at end-FY23. However, investors should note that the timing of payments relating to the Salobo III, Santo Domingo, Blackwater, Goose, Curipamba, Marathon and Rosemont/Copper World streams is uncertain and inasmuch as investments are delayed, we calculate that it is possible that Wheaton could register a larger cash balance on its balance sheet by the year end. Either way, all other things being equal, in the absence of any major new asset acquisitions, we do not expect that Wheaton will require recourse to its debt facilities in the foreseeable future.

Exhibit 15: Financial summary

US$000s

 

2020

2021

2022

2023e

2024e

2025e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,096,224

1,201,665

1,065,053

1,030,435

1,424,905

1,617,079

Cost of Sales

(266,763)

(287,947)

(267,621)

(235,910)

(320,461)

(356,897)

Gross Profit

829,461

913,718

797,432

794,525

1,104,444

1,260,182

EBITDA

 

 

763,763

852,733

735,245

723,611

1,033,530

1,189,268

Operating profit (before amort. and excepts.)

 

 

519,874

597,940

503,293

508,101

668,053

813,077

Exceptionals

4,469

162,806

164,214

(8,096)

0

0

Other

387

190

7,680

31,981

0

0

Operating Profit

524,730

760,936

675,187

531,986

668,053

813,077

Net Interest

(16,715)

(5,817)

(5,586)

(5,639)

610

1,128

Profit Before Tax (norm)

 

 

503,159

592,123

497,707

502,462

668,663

814,204

Profit Before Tax (FRS 3)

 

 

508,015

755,119

669,601

526,347

668,663

814,204

Tax

(211)

(234)

(475)

(796)

(1,000)

(1,000)

Profit After Tax (norm)

503,335

592,079

504,912

533,647

667,663

813,204

Profit After Tax (FRS 3)

507,804

754,885

669,126

525,551

667,663

813,204

Average Number of Shares Outstanding (m)

448.7

450.1

451.6

452.8

452.9

452.9

EPS - normalised (c)

 

 

112

132

112

118

147

180

EPS - normalised and fully diluted (c)

 

 

112

131

112

118

147

179

EPS - (IFRS) (c)

 

 

113

168

148

116

147

180

Dividend per share (c)

42

57

60

60

64

76

Gross Margin (%)

75.7

76.0

74.9

77.1

77.5

77.9

EBITDA Margin (%)

69.7

71.0

69.0

70.2

72.5

73.5

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

47.4

49.8

47.3

49.3

46.9

50.3

BALANCE SHEET

Fixed Assets

 

 

5,755,441

6,046,427

6,039,813

6,671,960

6,762,847

6,833,094

Intangible Assets

5,521,632

5,940,538

5,753,111

6,377,147

6,468,034

6,538,281

Tangible Assets

33,931

44,412

30,607

32,377

32,377

32,377

Investments

199,878

61,477

256,095

262,436

262,436

262,436

Current Assets

 

 

201,831

249,724

720,093

348,677

639,546

1,039,024

Stocks

3,265

12,102

13,817

2,425

3,353

3,805

Debtors

5,883

11,577

10,187

5,646

7,808

8,861

Cash

192,683

226,045

696,089

340,606

628,385

1,026,358

Other

0

0

0

0

0

0

Current Liabilities

 

 

(31,169)

(29,691)

(30,717)

(29,458)

(33,512)

(35,258)

Creditors

(30,396)

(28,878)

(29,899)

(28,640)

(32,694)

(34,440)

Short term borrowings

(773)

(813)

(818)

(818)

(818)

(818)

Long Term Liabilities

 

 

(211,532)

(16,343)

(11,514)

(11,514)

(11,514)

(11,514)

Long term borrowings

(197,864)

(2,060)

(1,152)

(1,152)

(1,152)

(1,152)

Other long term liabilities

(13,668)

(14,283)

(10,362)

(10,362)

(10,362)

(10,362)

Net Assets

 

 

5,714,571

6,250,117

6,717,675

6,979,665

7,357,367

7,825,345

CASH FLOW

Operating Cash Flow

 

 

784,843

851,686

749,429

772,100

1,034,494

1,189,510

Net Interest

(16,715)

(5,817)

(5,586)

(5,639)

610

1,128

Tax

(2,686)

(503)

34

(796)

(1,000)

(1,000)

Capex

149,648

(404,437)

(44,750)

(849,492)

(456,364)

(446,439)

Acquisitions/disposals

0

0

0

0

0

0

Financing

22,396

7,992

10,171

0

0

0

Dividends

(167,212)

(218,052)

(237,097)

(271,657)

(289,961)

(345,226)

Net Cash Flow

770,274

230,869

472,201

(355,483)

287,780

397,972

Opening net debt/(cash)

 

 

774,766

5,954

(223,172)

(694,119)

(338,636)

(626,415)

Other

(1,462)

(1,743)

(1,254)

0

0

(0)

Closing net debt/(cash)

 

 

5,954

(223,172)

(694,119)

(338,636)

(626,415)

(1,024,388)

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 £60,000 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 2023 Edison Investment Research Limited (Edison).

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

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 £60,000 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 2023 Edison Investment Research Limited (Edison).

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

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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