Wheaton Precious Metals — Putting net cash to work

Wheaton Precious Metals (TSX: WPM)

Last close As at 20/04/2024

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Research: Metals & Mining

Wheaton Precious Metals — Putting net cash to work

On 15 November, Wheaton Precious Metals acquired three streams from Ivanhoe’s Platreef project in South Africa, BMC Minerals’ Kudz Ze Kayah project in the Yukon and Dalradian’s Curraghinalt project in Northern Ireland. In summary, the streams allow for varying purchases of precious metals by Wheaton at varying prices and we calculate that the trio will add an initial c 26.3koz of gold equivalent ounces (GEOs) to WPM’s production profile from FY25, rising to c 35.4koz GEOs when all three are in production from FY27 (Edison assumption).

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Wheaton-Precious-Metals_resized

Metals & Mining

Wheaton Precious Metals

Putting net cash to work

Trio of streams acquired

Metals and mining

20 November 2023

Price

C$63.13

Market cap

C$28,598m

C$1.3727/US$, US$1.2423/£

Cash (US$m) at end-September
(excluding US$6.2m in lease liabilities)

833.9

Shares in issue

453.0m

Free float

100.0

Code

WPM

Primary exchange

TSX

Secondary exchanges

LSE, NYSE

Share price performance

%

1m

3m

12m

Abs

6.5

12.3

28.9

Rel (local)

4.0

10.3

27.0

52-week high/low

C$69.72

C$49.55

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

Q423/FY23 production & sales

February 2024

Q423/FY23 results

March 2024

Q124 results

May 2024

Q223 results

August 2024

Analyst

Lord Ashbourne

+44 (0)20 3077 5700

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

On 15 November, Wheaton Precious Metals acquired three streams from Ivanhoe’s Platreef project in South Africa, BMC Minerals’ Kudz Ze Kayah project in the Yukon and Dalradian’s Curraghinalt project in Northern Ireland. In summary, the streams allow for varying purchases of precious metals by Wheaton at varying prices and we calculate that the trio will add an initial c 26.3koz of gold equivalent ounces (GEOs) to WPM’s production profile from FY25, rising to c 35.4koz GEOs when all three are in production from FY27 (Edison assumption).

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

32.6

1.3

12/22

1,065.1

497.7

112

60

38.4

1.4

12/23e

955.3

461.4

110

60

39.0

1.4

12/24e

1,385.8

657.9

145

62

28.3

1.4

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

US$530m consideration fully covered by net cash

The detailed terms of the streams are here. The total consideration for all three streams is US$530m, with the majority (c 78% in our estimation) likely to relate to the Platreef stream, on which investment we calculate Wheaton will generate an internal rate of return (IRR) of 9.7%. We estimate that the IRR from its other two investments will be 9.5% for Kudz Ze Kayah and 7.3% for Curraghinalt. For the purposes of our financial modelling, we have assumed that consideration for the streams will be paid early in FY24. However, we note that Wheaton has enough cash on its balance sheet as at end-Q323 to satisfy the full consideration in Q423 should it fall due before the year’s end. As a result of paying the full consideration in FY24, our forecast for net cash at the end of that year reduces from US$916.6m to US$435.6m.

Production to exceed 900koz GEOs in FY27

As a consequence of these three investments, we calculate that WPM’s production profile will rise to 920,000oz GEOs in FY27. It also cements our EPS forecast for FY26 in excess of US$2.00/share and increases our estimate of cash flows per share in that year by 9c/share, from US$2.88/share to US$2.96/share.

Valuation: Moving ever upwards

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 has risen by 2.8% to US$61.41 (cf US$59.74 previously) per share, assuming zero subsequent longterm growth in real cash flows (which we think is unlikely) and to US$50.28 (C$69.02) per share at the start of FY24. Alternatively, assuming no purchases of additional streams, we calculate a value per share for WPM of US$61.19 or C$84.00 or £49.26 in FY26, based on a 30.4x historical multiple of contemporary earnings.

Exhibit 1: Financial summary

$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

955,320

1,385,785

1,610,193

Cost of Sales

(266,763)

(287,947)

(267,621)

(217,735)

(307,256)

(345,904)

Gross Profit

829,461

913,718

797,432

737,585

1,078,529

1,264,289

EBITDA

 

 

763,763

852,733

735,245

667,613

1,008,557

1,194,317

Operating profit (before amort. and excepts.)

 

 

519,874

597,940

503,293

466,981

656,924

787,351

Exceptionals

4,469

162,806

164,214

(13,192)

0

0

Other

387

190

7,680

36,787

0

0

Operating Profit

524,730

760,936

675,187

490,576

656,924

787,351

Net Interest

(16,715)

(5,817)

(5,586)

(5,591)

991

784

Profit Before Tax (norm)

 

 

503,159

592,123

497,707

461,390

657,914

788,135

Profit Before Tax (FRS 3)

 

 

508,015

755,119

669,601

484,985

657,914

788,135

Tax

(211)

(234)

(475)

(576)

(1,000)

(1,000)

Profit After Tax (norm)

503,335

592,079

504,912

497,601

656,914

787,135

Profit After Tax (FRS 3)

507,804

754,885

669,126

484,409

656,914

787,135

Average Number of Shares Outstanding (m)

448.7

450.1

451.6

452.8

453.0

453.0

EPS - normalised (c)

 

 

112

132

112

110

145

174

EPS - normalised and fully diluted (c)

 

 

112

131

112

109

144

173

EPS - (IFRS) (c)

 

 

113

168

148

107

145

174

Dividend per share (c)

42

57

60

60

62

76

Gross Margin (%)

75.7

76.0

74.9

77.2

77.8

78.5

EBITDA Margin (%)

69.7

71.0

69.0

69.9

72.8

74.2

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

47.4

49.8

47.3

48.9

47.4

48.9

BALANCE SHEET

Fixed Assets

 

 

5,755,441

6,046,427

6,039,813

6,423,709

6,915,884

7,007,726

Intangible Assets

5,521,632

5,940,538

5,753,111

6,128,896

6,621,071

6,712,913

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

559,982

448,437

801,178

Stocks

3,265

12,102

13,817

2,248

3,261

3,789

Debtors

5,883

11,577

10,187

5,235

7,593

8,823

Cash

192,683

226,045

696,089

552,500

437,583

788,567

Current Liabilities

 

 

(31,169)

(29,691)

(30,717)

(28,586)

(32,878)

(34,731)

Creditors

(30,396)

(28,878)

(29,899)

(27,768)

(32,060)

(33,913)

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

6,943,591

7,319,928

7,762,659

CASH FLOW

Operating Cash Flow

 

 

784,843

851,686

749,429

720,625

1,009,478

1,194,413

Net Interest

(16,715)

(5,817)

(5,586)

(5,591)

991

784

Tax

(2,686)

(503)

34

(576)

(1,000)

(1,000)

Capex

149,648

(404,437)

(44,750)

(586,362)

(843,809)

(498,809)

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)

(271,685)

(280,577)

(344,404)

Net Cash Flow

770,274

230,869

472,201

(143,589)

(114,917)

350,984

Opening net debt/(cash)

 

 

774,766

5,954

(223,172)

(694,119)

(550,530)

(435,613)

Other

(1,462)

(1,743)

(1,254)

0

0

0

Closing net debt/(cash)

 

 

5,954

(223,172)

(694,119)

(550,530)

(435,613)

(786,597)

Source: Company sources, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Wheaton Precious Metals and prepared and issued by Edison, in consideration of a fee payable by Wheaton Precious Metals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 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

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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.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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 £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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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