Wheaton Precious Metals — Putting WPM onto GMT

Wheaton Precious Metals (TSX: WPM)

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Research: Metals & Mining

Wheaton Precious Metals — Putting WPM onto GMT

On 20 February, Wheaton Precious Metals (WPM) announced that it had produced 14,615oz (15.2%) and sold 18,618oz (19.3%) more gold than our prior expectations for Q423, and produced 326koz (7.8%) and sold 530koz (20.0%) more silver. As a result, ahead of Q423/FY23 results scheduled for 14 March, we have increased our EPS forecast for Q423 by 25.3%, to close to the top of the range of market expectations for both the quarter and the full year.

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

Wheaton Precious Metals

Putting WPM onto GMT

Q423 sales and
production update

Metals and mining

11 March 2024

Price

C$60.34

Market cap

C$27,334m

C$1.3504/US$, US$1.2692/£

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

(2.3)

(6.1)

13.0

Rel (local)

(6.0)

(12.2)

5.8

52-week high/low

69.7

52.9

Business description

Wheaton Precious Metals 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 results

14 March 2024

Q124 results

9 May 2024

Q224 results

8 August 2024

Q324 results

7 November 2024

Analyst

Lord Ashbourne

+44 (0)20 3077 5700

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

On 20 February, Wheaton Precious Metals (WPM) announced that it had produced 14,615oz (15.2%) and sold 18,618oz (19.3%) more gold than our prior expectations for Q423, and produced 326koz (7.8%) and sold 530koz (20.0%) more silver. As a result, ahead of Q423/FY23 results scheduled for 14 March, we have increased our EPS forecast for Q423 by 25.3%, to close to the top of the range of market expectations for both the quarter and the full year.

Year end

Revenue
(US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/21

1,201.7

592.3

132

57

33.9

1.3

12/22

1,065.1

505.4

112

60

39.9

1.3

12/23e

1,008.9

530.7

117

60

38.2

1.3

12/24e

1,135.9

611.6

113

60

39.5

1.3

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

GMT impact to WPM

Given the likelihood of its legislative applicability, for the purposes of our forecasts and valuation, we have, for the first time, assumed a 15% global minimum tax (GMT) rate of 15% on WPM’s non-Canadian earnings from FY24.

FY24 guidance

The midpoint of WPM’s production guidance for FY24 is 7.1% below the midpoint of its guidance for FY23 (585koz cf 630koz) and 5.7% below its FY23 outcome. We believe this is distinctly conservative and only realisable in the event of a rapid decline in production from Salobo in Q1 and Q224, which seems at odds with what we expect to have been near-record production of gold and copper in Q423 (since at least Q316 – see Exhibit 4). As a result, our production expectations are towards the top of the guidance range for FY24 at 613.9koz gold equivalent ounces (GEOs) (cf 620.2koz produced in FY23). However, notwithstanding the lower FY24 guidance – and the imposition of GMT from Q224 – we still expect EPS to be approximately flat in FY24 compared with FY23. Moreover, we still expect production to be within 20koz of 900koz GEOs by FY29.

Valuation: Reduced, but only pro rata with GMT

Assuming the imposition of GMT from Q224 and 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 declined by a predictable 14.2% to US$52.72 (C$71.19) per share, assuming zero subsequent long-term growth in real cash flows (which we think is unlikely). Alternatively, assuming no purchases of additional streams, we calculate a value per share for WPM of US$48.77 or C$65.86 or £38.43 in FY26, based on a 30.4x historical multiple of contemporary earnings. As such, we believe that the market already appears to have effectively discounted the imposition of GMT by the Canadian tax authorities. However, we do not believe that it has yet discounted the company’s expectations of increasing its production from c 550–620koz GEO in FY24 to more than 850koz GEO by FY29 (all other things being equal).

Q423 production and sales

On 20 February, WPM announced that it had produced and sold 374,585oz and 327,336oz gold and 17,220koz and 14,326koz silver, respectively (among others), in FY23, implying a notably strong fourth quarter performance in all of its business areas with the single exception of palladium sales, which anyway accounted for only 1.2% of the total (Edison estimate). A full summary of WPM’s production and sales results for all metals for the year, relative to both prior guidance and Edison’s prior expectations, is as follows:

Exhibit 1: Wheaton Precious Metals’ FY23 production and sales by metal cf prior forecast

Metal (units)

Wheaton (actual)

Implied Q4

Edison prior estimate

Variance*

Production guidance

Actual FY23 production

Actual FY23 sales

Production

Sales

Q4 prod’n

Q4
sales

FY23
prod’n

FY23 sales

Prod’n
(units)

Sales (units)

Gold (koz)

320–350,000

374,585

327,336

111,029

115,011

96,414

96,393

359,970

308,718

+14,615

+18,618

Silver (Moz)

20–22,000

17,220

14,326

4,513

3,175

4,187

2,645

16,894

13,796

+326

+530

Other (k GEO)

22–25,000

Palladium (koz)

15,800

13,919

4,209

3,339

3,871

3,856

15,462

14,436

+338

-517

Cobalt (klb)

673

1,074

214

288

204

204

663

990

+10

+84

GEO (k GEO)

600–660,000

620,177

537,608

600,893

511,765

+19,284

+25,843

Source: Wheaton Precious Metals, Edison Investment Research. Note: GEO, gold equivalent ounce, based on US$1,850/oz Au, US$24.00/oz Ag, US$1,800/oz Pd and US$18.75/lb Co. *Actual minus forecast.

In addition to adjusting our Q423 and FY23 forecasts to reflect actual compared to expected production and sales levels, we have also adjusted them to reflect actual metals prices prevailing during the fourth quarter compared with those expected at the time of our last note, published on 20 November 2023. These are similarly summarised below:

Exhibit 2: Metals prices, actual compared to forecast, Q423 and current*

Metal

Prior forecast

Actual

Change
(%)

*Current

Silver (US$/oz)

22.34

23.24

+4.0

22.59

Gold (US$/oz)

1,936

1,953

+0.9

2,032

Palladium (US$/oz)

1,034

1,093

+5.7

962

Cobalt (US$/lb)

15.16

14.77

-2.6

12.95

Simple average

+2.0

Source: Edison Investment Research, Bloomberg. Note: *At the time of writing.

Given its copper production (reported to the market by Vale on 29 January 2024) of 55.2kt in Q423, we suspect that almost all (if not all) of WPM’s gold production outperformance will have been attributable to Salobo, where we believe that gold production for WPM’s account will have been close to record levels (see Exhibits 3 and 4, below).

Exhibit 3: Gold production attributable to WPM from Salobo, Q316–Q424e

Exhibit 4: Salobo copper production versus gold production attributable to WPM, Q316–Q423e

Source: Wheaton Precious Metals, Edison Investment Research

Source: Wheaton Precious Metals, Vale, Edison Investment Research

Exhibit 3: Gold production attributable to WPM from Salobo, Q316–Q424e

Source: Wheaton Precious Metals, Edison Investment Research

Exhibit 4: Salobo copper production versus gold production attributable to WPM, Q316–Q423e

Source: Wheaton Precious Metals, Vale, Edison Investment Research

Also shown in Exhibit 3 is our forecast quarterly production of gold attributable to WPM from Salobo in FY24 in the light of the company’s guidance. In the meantime, we suspect that most of the outperformance in silver sales in Q4 will have been attributable to Peñasquito, where Newmont reported production and sales of 4Moz and 5Moz, respectively, during Q4 (of which 25% is attributable to WPM), compared with our prior forecasts of 1.3Moz in production and zero ounces in sales attributable to WPM during the quarter.

Ounces produced but not yet delivered

Notwithstanding the unanticipated sales at Peñasquito, we calculate that aggregate sales of silver were still 1.3Moz, or 29.7%, below production for the fourth quarter, which is close to the bottom end of the range for the period Q112–Q423e (see Exhibit 5). By contrast, we calculate that gold production and sales were closely in line (probably mostly attributable to Salobo, where we suspect there will have been a modest over-sale of material in Q4 after a material shortfall in Q3 when sales lagged the ramp-up of Salobo III):

Exhibit 5: Over/(under) sale of silver and gold as a percentage of production, Q112–Q423e

Source: Edison Investment Research, Wheaton Precious Metals. Note: As reported.

As a result, we calculate that gold ounces produced but not yet delivered to WPM will have decreased from 99,293oz at the end of Q3 to c 95,941oz at the end of Q4 (or 3.07 months of production), while silver ounces produced but not yet delivered will have increased from a historically low level of 1.1Moz at the end of Q3 to a more normal level of c 2.4Moz (1.68 months of production) at the end of Q4. Note that these compare with WPM’s target levels of two to three months for gold and palladium production and two months for silver production:

Exhibit 6: WPM ounces produced but not yet delivered, Q316–23e (months of production)

Source: Edison Investment Research, Wheaton Precious Metals. 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.

As at the end of Q323, the analysis of stock-based G&A expenses relative to the change in WPM’s share price (also in US dollars) over the previous 16 quarters continued to exhibit a close Pearson product moment (correlation) coefficient between the two of 0.78, which can be said to be 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). Given the strong performance of WPM’s shares during Q4, we therefore anticipate that stock-based G&A expenses during the quarter will have been in the order of US$8.7m (±US$2.5m), as shown by the point on the best-fit line in Exhibit 7, below:

Exhibit 7: Graph of historical share price change (US$/share) versus stock-based G&A expenses (US$000s), quarterly, Q419–Q423e

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

Consequently, we forecast that the total G&A charge for WPM in Q423 will have been US$21.2m, of which 59% will have been attributable to non-stock-based G&A expenses and 41% to stock-based expenses.

Exhibit 8: WPM general and administrative expenses, Q421–Q424e (US$000s)

Item

Q421

FY21

Q122

Q222

Q322

Q422

FY22

Q123

Q223

Q323

Q423e

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

4,618

18,244

5,345

5,061

4,629

4,187

19,222

5,021

4,749

4,591

Other (inc. depreciation, donations and professional fees)

6,818

23,475

4,871

5,784

5,137

7,112

22,905

6,456

7,407

5,751

Non-stock based G&A

11,436

41,719

10,216

10,845

9,766

11,299

42,127

11,477

12,156

10,342

12,500

Guidance

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

11,750–12,500

PSU accrual

4,203

14,004

8,560

110

(1,491)

7,035

14,214

5,855

2,625

2,604

Equity settled stock-based compensation

1,315

5,262

1,342

1,498

1,568

1,439

5,846

1,542

1,859

1,732

Stock-based G&A

5,518

19,266

9,902

1,608

77

8,474

20,060

7,397

4,484

4,336

8,665

Total general & administrative

16,954

60,985

20,118

12,453

9,843

19,773

62,187

18,874

16,640

14,678

21,165

Non-stock as pct of total G&A (%)

67.5

68.4

50.8

87.1

99.2

57.1

67.7

60.8

73.1

70.5

59.1

Source: Wheaton Precious Metals, Edison Investment Research. Note: Totals may not add up owing to rounding.

As a result of WPM’s disclosures, therefore, we have increased our earnings forecasts for Q423 by 25.2% and for the full year by 6.5%:

Exhibit 9: WPM updated Q423 and FY23 estimates*

US$000s
(unless otherwise stated)

Q422

Q123

Q223

Q323

Q423e
(prior)

Q423e
(current)

Change
(%)

FY23e
(current)

FY23e
(prior)

Change
(%)

Silver production (koz)

5,352

4,927

4,417

3,363

4,187

4,513

7.8

17,220

16,894

1.9

Gold production (oz)

70,099

73,037

85,083

105,436

96,414

111,029

15.2

374,585

359,970

4.1

Palladium production (oz)

3,869

3,705

3,880

4,006

3,871

4,209

8.7

15,800

15,462

2.2

Cobalt production (klb)

128

124

152

183

204

214

4.9

673

663

1.5

 

Silver sales (koz)

4,935

3,749

4,437

2,965

2,645

3,175

20.0

14,326

13,796

3.8

Gold sales (oz)

68,996

62,605

75,294

74,426

96,393

115,011

19.3

327,336

308,718

6.0

Palladium sales (oz)

3,396

2,946

3,392

4,242

3,856

3,339

-13.4

13,919

14,436

-3.6

Cobalt sales (klb)

187

323

265

198

204

288

41.2

1,074

990

8.5

 

Average realised Ag price (US$/oz)

21.52

22.85

24.13

23.73

22.34

23.24

4.0

23.52

23.36

0.7

Average realised Au price (US$/oz)

1,725

1,904

1,986

1,944

1,936

1,953

0.9

1,949

1,944

0.3

Average realised Pd price (US$/oz)

1,939

1,607

1,438

1,251

1,034

1,093

5.7

1,334

1,310

1.8

Average realised Co price (US$/lb)

22.62

15.04

13.23

13.87

15.16

14.77

-2.6

14.30

14.34

-0.3

 

Average Ag cash cost (US$/oz)

5.00

5.07

5.01

5.10

5.16

5.09

-1.4

5.06

5.07

-0.2

Average Au cash cost (US$/oz)

475

496

461

444

440

437

-0.7

455

457

-0.4

Average Pd cash cost (US$/oz)

357

294

261

223

186

197

5.9

241

237

1.7

Average Co cash cost (US$/lb)

16.52***

3.30***

3.20

2.66

2.73

2.66

-2.6

3.17

3.23

-1.9

Sales

236,051

214,465

264,972

223,137

252,746

306,299

21.2

1,008,873

955,320

5.6

Cost of sales

 

Cost of sales, excluding depletion

61,730

51,964

58,642

49,808

57,321

67,818

18.3

228,231

217,735

4.8

Depletion

53,140

45,000

54,474

46,435

54,723

63,877

16.7

209,786

200,632

4.6

Total cost of sales

114,870

96,964

113,116

96,243

112,044

131,694

17.5

438,017

418,367

4.7

Earnings from operations

121,181

117,501

151,856

126,894

140,702

174,605

24.1

570,855

536,953

6.3

Expenses and other income

 

– General and administrative**

19,773

18,874

16,640

14,678

19,780

21,165

7.0

71,357

69,972

2.0

– Foreign exchange (gain)/loss

 

0

0

– Interest paid/(received)

1,377

1,378

1,352

1,407

1,454

1,454

0.0

5,591

5,591

0.0

– Other (income)/expense

(3,935)

(7,387)

(8,811)

(10,688)

(9,901)

(9,901)

0.0

(36,787)

(36,787)

0.0

Total expenses and other income

17,215

12,865

9,182

5,397

11,333

12,718

12.2

40,161

38,776

3.6

Earnings before income taxes

103,966

104,636

142,675

121,497

129,369

161,887

25.1

530,694

498,177

6.5

Income tax expense/(recovery)

222

205

91

30

250

250

0.0

576

576

0.0

Marginal tax rate (%)

0.2

0.2

0.1

0.0

0.2

0.2

0.0

0.1

0.1

0.0

Net earnings

103,744

104,431

142,584

121,467

129,119

161,637

25.2

530,118

497,601

6.5

Average no. shares in issue (000s)

452,070

452,370

452,892

452,975

452,996

452,996

0.0

452,808

497,601

-9.0

Basic EPS (US$)

0.229

0.231

0.315

0.268

0.285

0.357

25.3

1.17

1.10

6.4

Diluted EPS (US$)

0.229

0.230

0.314

0.268

0.284

0.356

25.4

1.17

1.09

7.3

DPS (US$)

0.15

0.15

0.15

0.15

0.15

0.15

0.0

0.60

0.60

0.0

Source: Wheaton Precious Metals, Edison Investment Research. Note: *Excluding impairments, impairment reversals and exceptional items (unless otherwise indicated). **Forecasts include stock-based compensation costs. ***Cobalt inventory is held on WPM’s balance sheet at the lower of cost and net realisable value; cash costs per pound of cobalt sold are therefore affected by changes in the valuation of inventory quarterly. Totals may not add up owing to rounding. Prior Q423e estimates were those implied in our 20 November 2023 note.

Moreover, our forecasts for WPM’s adjusted EPS for both Q423 and FY23 are towards the top end of the market range:

Exhibit 10: WPM Q423 and FY23 EPS forecasts cf Edison and consensus (US$/share)

Q123

Q223

Q323

Q423e

Sum Q1–Q423e

FY23e

Edison forecasts

0.231

0.315

0.268

0.357

1.171

1.17

Mean consensus

0.231

0.315

0.268

0.330

1.094

1.14

High consensus

0.231

0.315

0.268

0.380

1.164

1.20

Low consensus

0.231

0.315

0.268

0.290

1.044

1.10

Source: Refinitiv, Edison Investment Research. Note: As at 11 March 2024.

FY24 and future guidance

At the same time as updating the market for its actual sales and production in FY23, WPM also took the opportunity to provide detailed production guidance for FY24 and beyond. Whereas in the past, this had entailed providing numbers for the current year and then five- and 10-year averages looking forward, in this case the company provided detailed guidance for FY24, a production target for FY28 and then an average for the five years from FY29 to FY33. A comparison between these two formats and our current forecasts over the equivalent periods is as follows:

Exhibit 11: WPM precious metals production – Edison forecasts cf guidance

FY23e

FY24e

Previous FY23–27
average*

Current FY28e
(target)*

Previous FY23–32
(average)*

Current FY29–33
(average)*

Current Edison forecast

Silver production (Moz)

17.2

20.0

Gold production (koz)

374.6

370.0

Cobalt production (klb)

673

856

Palladium production (koz)

15.8

16.8

Gold equivalent (koz)

620.2

613.9

725

800

778

832

WPM guidance

Silver production (Moz)

20.0–22.0

18.5–20.5

Gold production (koz)

320–350

325–370

Cobalt & palladium production (koz AuE)

22–25

12–15

Gold equivalent (koz)

600–660

550–620

810

>800

850

>850

Source: Wheaton Precious Metals, Edison Investment Research forecasts. Note: *Edison forecasts include Rosemont/Copper World from FY27 and Antamina extension from FY28.

In 2024, WPM forecasts GEO production to be consistent with levels achieved in 2023, as expected stronger attributable production from Peñasquito and Voisey’s Bay is forecast to be offset by lower production from Salobo, the suspension of operations at Minto and the temporary halting of production at Aljustrel. Attributable production is forecast to increase at Peñasquito as a result of uninterrupted operations and at Voisey’s Bay owing to the ongoing transition from the Ovoid pit to the underground mines. Attributable production is forecast to decrease slightly at Salobo owing to lower grades, which are expected to be partially offset by increasing throughput as the Salobo III expansion project continues towards completion. However, we note that – if we are correct in our assumptions about Salobo in Q423 (see Exhibit 4) – then quarterly production at Salobo will have to fall sharply into Q124 and Q224 (see Exhibit 3) for WPM to not exceed its gold production guidance at least. In addition, WPM anticipates that production from the Blackwater and Platreef projects will commence in Q424. As such, we consider the ‘risks’ to WPM’s FY24 guidance to be very much skewed to the upside.

WPM’s updated guidance for FY24 and beyond is based on standardised pricing assumptions of US$2,000/oz gold (cf US$1,850/oz in FY23), US$23.00/oz silver (cf US$24.00/oz), US$1,000/oz palladium (cf US$1,800/oz), US$1,000/oz platinum (cf US$1,100/oz) and US$13.00/lb cobalt (cf US$18.75/lb). Of note is the implied gold/silver ratio of 87.0x, which compares with an equivalent figure of 83.0x in FY23, the current ratio of 90.0x and a long-term average of 60.1x (since gold was demonetised in August 1971). At the updated standardised prices indicated, our production forecast of 613.9koz gold equivalent (GEO or AuE) for FY24 is towards the top end of WPM’s guidance range of 550–620koz AuE, although our gold equivalent sales forecast of 558.2koz is towards the bottom end of the same range (see Exhibit 12). This compares with our prior GEO forecast for production in FY24 of 770.9koz (at the prior standardised prices) or 714.8koz (at the updated standardised prices). Stated alternatively, were it not for the change in standardised prices, our FY24 forecast for GEOs produced would have been 40.5koz (or 6.6%) higher at 654.4koz.

Otherwise, readers will note that our longer-term production forecasts are within 2.2% of WPM’s guidance for the period FY29–33. However, at the moment, these exclude any contribution from either Kutcho, Fenix or Toroparu or WPM’s royalty interests. Note that both our and WPM’s estimates necessarily exclude potential future stream acquisitions (of which we expect there to be a number in the time horizon considered).

Global minimum tax (GMT)

In August 2023, the Canadian Department of Finance released draft legislation for a Global Minimum Tax Act, which will introduce a GMT in Canada. In summary, this will entail:

a 15% domestic minimum top-up tax on the income of Canada-located entities and the permanent establishments of multinationals; and

a 15% top-up tax on the income of foreign-located entities and permanent establishments of multinationals with Canadian ultimate or intermediate parent entities.

The tax will apply to members of multinational groups that have annual consolidated revenues in excess of €750m, with a business presence in Canada and at least one foreign jurisdiction. As proposed, the Canadian GMT is expected to apply to the fiscal years of those multinationals from 31 December 2023 and, we expect, will be applied to WPM’s non-Canadian – or more specifically, its Cayman Islands – earnings (which we estimate at 95% of the total) in FY24.

Currently, the Cayman Islands does not levy corporate tax. As a result, prior to FY24, WPM only paid tax on its domestic Canadian earnings – for these purposes, on its precious metals purchase agreements (PMPAs) at Sudbury and Voisey’s Bay. However, owing to the PMPA capital values, – including carried forward losses – we do not expect either of these Canadian assets to be in a taxable position for some time. In due course, these streams will also be joined by those from Blackwater, Marathon, Goose, Kutcho and Kudz Ze Kayah (and potentially other Canadian mines). In similar fashion, however, these will also not be in a cash taxable position until their capital values have reached zero. As a consequence, we estimate that WPM will not pay tax on its Canadian assets until FY30 and that it will not reflect tax expense at or near its full (effective) rate of 27% until FY34.

By contrast, in FY24, we expect that WPM will become liable for GMT at close to the full rate of 15% on its Cayman Islands earnings (minus the proportion of G&A costs that are recharged from its Vancouver HQ to its Cayman Islands subsidiary). Under IFRS, there is no requirement to account for deferred taxes related to GMT. At the current time, we think that it is highly unlikely that the required Canadian legislation will be in place before the end of March – in which case, WPM’s income statement in Q124 will not show any GMT liability. However, we think that it is quite possible that it will be in place by the end of June, in which case the Q224 GMT liability will effectively be a ‘double dose’ also including the retrospective liability for Q124 back to 1 January 2024. In the first year of operation, the tax will be payable 18 months after the year in which it is incurred (ie mid-2026 for FY24) and, thereafter, every 15 months after the year in which it is incurred – although we recognise that this might move to an instalments-based payments profile in due course. As a result, whereas we had previously forecast a negligible effective rate of tax for WPM into the future, we are now forecasting a rate that will range in scope from 12.9% to 16.3% for the period FY24–35 (all other things being equal).

FY24 guidance and forecasts

Our preliminary quarterly financial forecasts for WPM for FY24 are based on its production guidance for the year (albeit we believe that the ‘risks’ relating to its guidance are skewed to the upside), recently prevailing metals prices and the (retrospective) imposition of GMT from Q224. While this, in aggregate, has resulted in a 22.0% reduction in our earnings estimates for the year, it is worth noting that 69% of the decline is attributable solely to the new GMT regime and only 31% to other factors:

Exhibit 12: WPM FY24e forecast, by quarter*

US$000s
(unless otherwise stated)

Q124e

Q224e

Q324e

Q424e

FY24e
(current)

FY24e
(prior)

Change
(%)

Silver production (koz)

4,690

5,097

5,099

5,102

19,990

21,327

-6.3

Gold production (oz)

95,932

91,641

90,386

92,041

370,000

435,878

-15.1

Palladium production (oz)

4.209

4.209

4.209

4.209

16,835

30,333

-44.5

Cobalt production (klb)

214

214

214

214

856

2,814

-69.6

#DIV/0!

Silver sales (koz)

3,985

4,344

4,346

4,993

17,667

21,327

-17.2

Gold sales (oz)

88,899

84,921

83,759

92,020

349,599

435,773

-19.8

Palladium sales (oz)

3.786

3.786

3.786

4.192

15,551

30,212

-48.5

Cobalt sales (klb)

214

214

214

214

856

2,625

-67.4

Avg realised Ag price (US$/oz)

22.73

22.59

22.59

22.59

22.62

23

-1.7

Avg realised Au price (US$/oz)

2,029

2,032

2,032

2,032

2,031

1,896

7.1

Avg realised Pd price (US$/oz)

961

962

962

962

962

961

0.1

Avg realised Co price (US$/lb)

13.06

12.95

12.95

12.95

12.98

15.16

-14.4

Avg Ag cash cost (US$/oz)

4.9

4.86

4.86

4.87

4.87

4.73

3.0

Avg Au cash cost (US$/oz)

443

444

445

445

444

433

2.5

Avg Pd cash cost (US$/oz)

173

173

173

173

173

173

0.0

Avg Co cash cost (US$/lb)

2.35

2.33

2.33

2.33

2.34

2.73

-14.3

Sales

277,448

277,101

274,778

306,576

1,135,903

1,385,785

-18.0

Cost of sales

Cost of sales, excluding depletion

60,076

59,951

59,548

66,488

246,064

307,256

-19.9

Depletion

57,770

57,939

56,404

63,850

235,964

351,634

-32.9

Total cost of sales

117,847

117,890

115,953

130,338

482,028

658,890

-26.8

Earnings from operations

159,601

159,211

158,825

176,237

653,875

726,896

-10.0

Expenses and other income

– General and administrative**

16,126

18,051

18,051

18,051

70,280

69,972

0.4

– Foreign exchange (gain)/loss

0

0

0

0

0

N/A

– Net interest paid/(received)

1,398

1,398

1,398

1,398

5,591

-991

-664.2

– Other (income)/expense

(10,038)

(9,211)

(7,766)

(6,576)

(33,592)

N/A

Total expenses and other income

7,486

10,238

11,683

12,873

42,280

68,981

-38.7

Earnings before income taxes

152,115

148,973

147,142

163,364

611,595

657,914

-7.0

Income tax expense/(recovery)

84

48,828

24,099

26,416

99,428

1,000

9,842.8

Marginal tax rate (%)

0

33

16

16

16

0.0

N/A

Net earnings

152,031

100,145

123,043

136,948

512,167

656,914

-22.0

Average no. shares in issue (000s)

452,996

452,996

452,996

452,996

452,996

492,996

-8.1

Basic EPS (US$)

0.336

0.221

0.272

0.302

1.131

1.45

-22.0

Diluted EPS (US$)

0.334

0.220

0.271

0.301

1.127

1.44

-21.8

DPS (US$)

0.15

0.15

0.15

0.15

0.60

0.62

-3.2

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

While lower than our previous forecast, our updated adjusted basic EPS forecast of US$1.13 per share for FY24 is nevertheless near to consensus, as shown below:

Exhibit 13: WPM FY24 consensus EPS forecasts (US$/share), by quarter

Q124e

Q224e

Q324e

Q424e

Sum Q1–Q424e

FY24e

Edison forecasts

0.336

0.221

0.272

0.302

1.131

1.13

Mean consensus

0.250

0.250

0.270

0.280

1.05

1.15

High consensus

0.300

0.320

0.340

0.350

1.31

1.48

Low consensus

0.210

0.150

0.200

0.230

0.79

0.80

Source: Refinitiv, Edison Investment Research. Note: At 11 March 2024.

Valuation

Absolute

WPM is a multi-asset company that has shown a willingness and desire to buy streams in the past to maintain production and maximise shareholder returns. As a result, rather than our customary method of discounting maximum potential dividends over the life of operations back to FY24, in the case of WPM (as with Newmont and Endeavour), we discount forecast cash flows back over three years to the start of FY24 and then apply an ex-growth terminal multiple to forecast cash flows in that year (ie FY26) based on the appropriate discount rate.

Relative to our previous note published on 20 November 2023, the principal change to our financial model has been the imposition of GMT from Q224. As a consequence of this change, our estimate of WPM’s ‘terminal’ cash flow in FY26 has decreased by 14.2%, from US$2.96 per share to US$2.54 per share – with the majority of the decline being attributable to GMT.

Exhibit 14: WPM operational cash flow and related valuation (US$/share), FY24–26

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$52.72 per share (cf US$61.41/share previously), or C$71.19 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 2023, a simple average annual growth rate of 9.3% per year (cf a compound average inflation rate over the same period of 4.0%) and a compound average real annual growth rate of 3.0% per year.

Exhibit 15: Gold price annual performance, 1968–2023

Source: Edison Investment Research (underlying data: US Bureau of Labor Statistics, Bloomberg, 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 20.8% pa for the 17 years between FY05 and FY22, while its operational cash flows per share have increased at a compound average annual growth rate of 13.9% 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 38.2x Edison and 39.2x Refinitiv consensus FY23e currently – see Exhibit 17).

Exhibit 16: 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 updated EPS forecast of US$1.60 in FY26 (cf US$2.01/share previously – again with the majority of the decline attributable to the imposition of GMT) implies a potential value per share for WPM of US$48.77 (cf US$61.19 previously) or C$65.86 in that year.

Relative

From a relative perspective, WPM’s valuation compares as follows to its most prominent peers:

Exhibit 17: 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

35.9

30.4

1.3

1.3

25.8

22.0

Royal Gold

27.7

23.6

1.4

1.5

16.1

13.7

Sandstorm Gold

66.6

33.3

1.3

1.3

14.3

12.0

Osisko

39.0

31.6

1.0

1.0

22.1

19.3

Average

N/A

42.3

29.7

N/A

1.3

1.3

N/A

19.6

16.7

WPM (Edison forecasts)

38.2

39.5

29.9

1.3

1.3

1.6

26.8

23.9

17.0

WPM (consensus)

39.2

38.9

34.8

1.4

1.1

1.2

27.9

25.8

23.3

Source: Refinitiv, Edison Investment Research. Note: Peers priced on 11 March 2024.

Of note are the relatively slow pace of earnings and cash flow increases implied by the market’s consensus multiples between years two and three (ie FY24 and FY25) when we anticipate that the company will have begun an aggressive upward trajectory in both GEOs produced and EPS and cash flows per share. This could be explained either by the market’s anticipating a slower ramp-up in production or that the ramp-up will be partially offset by lower metals prices. Also of note is the market’s lower forecast yields for WPM in years two and three compared with year one, which seems to imply that it believes that WPM will cut its dividend – a contingency that we would regard as highly unlikely, except in extenuating circumstances (eg materially lower precious metals prices).

Financials: End-Q3 US$1.83/share in net cash

As at 30 September, WPM had US$833.9m in cash on its balance sheet and no debt outstanding under its US$2bn revolving credit facility. As such (including a modest US$6.2m in lease liabilities), it had US$827.7m in net cash overall after generating US$171.1m in operating cash flow, investing US$98.9m and paying out US$67.0m in dividends during the quarter. In Q4, we estimate that WPM will have generated a near-record c US$225.5m from operating activities (before working capital changes), but that its net cash position will have declined to US$592.3m – principally on account of the payment of a US$370m instalment to Vale in respect of Salobo III’s successfully concluded completion test during the quarter.

Exhibit 18: WPM cash, net cash and operating cash flow, by quarter, Q420–Q423e

(US$m)

Q420

Q121

Q221

Q321

Q421

Q122

Q222

Q322

Q422

Q123

Q223

Q323

Q423e

Cash/(debt)

192.7

191.2

235.4

372.5

226.0

376.2

448.6

494.6

696.1

799.7

828.8

833.9

598.5

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

827.7

592.3

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

171.1

225.5

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$200.9m as at 30 September, or the equivalent of US$0.56/share.

For FY23 as a whole, we estimate that WPM will have generated US$754.4m from operating activities (after working capital), before consuming US$584.5m in investing activities (excluding dividends received) and paying out up to US$271.7m in forecast dividends. However, readers should note that the timing of PMPA payments is uncertain and, inasmuch as investments are advanced or delayed, it is possible that WPM could register either a larger or smaller net cash position on its balance sheet by the year end. Either way, all other things being equal, in the absence of any major new asset acquisitions, we do not expect that WPM will require recourse to its debt facilities at any point in the foreseeable future.

Exhibit 19: Financial summary

$000s

 

2020

2021

2022

2023e

2024e

2025e

Dec

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,096,224

1,201,665

1,065,053

1,008,873

1,135,903

1,606,675

Cost of Sales

(266,763)

(287,947)

(267,621)

(228,231)

(246,064)

(345,596)

Gross Profit

829,461

913,718

797,432

780,641

889,839

1,261,079

EBITDA

 

 

763,763

852,733

735,245

709,284

819,559

1,190,799

Operating profit (before amort. and excepts.)

 

 

519,874

597,940

503,293

499,498

583,595

783,709

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

4,469

162,806

164,214

(13,192)

0

0

Other

387

190

7,680

36,787

33,592

0

Operating Profit

524,730

760,936

675,187

523,094

617,186

783,709

Net Interest

(16,715)

(5,817)

(5,586)

(5,591)

(5,591)

583

Profit Before Tax (norm)

 

 

503,546

592,313

505,387

530,694

611,595

784,292

Profit Before Tax (FRS 3)

 

 

508,015

755,119

669,601

517,502

611,595

784,292

Tax

(211)

(234)

(475)

(576)

(99,428)

(108,282)

Profit After Tax (norm)

503,335

592,079

504,912

530,118

512,167

676,010

Profit After Tax (FRS 3)

507,804

754,885

669,126

516,926

512,167

676,010

Average Number of Shares Outstanding (m)

448.7

450.1

451.6

452.8

453.0

453.0

EPS - normalised (c)

 

 

112

132

112

117

113

149

EPS - normalised and fully diluted (c)

 

 

112

131

112

117

113

149

EPS - (IFRS) (c)

 

 

113

168

148

114

113

149

Dividend per share (c)

42

57

60

60

60

73

Gross Margin (%)

75.7

76.0

74.9

77.4

78.3

78.5

EBITDA Margin (%)

69.7

71.0

69.0

70.3

72.2

74.1

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

47.4

49.8

47.3

49.5

51.4

48.8

BALANCE SHEET

Fixed Assets

 

 

5,755,441

6,046,427

6,039,813

6,414,555

7,022,399

7,114,117

Intangible Assets

5,521,632

5,940,538

5,753,111

6,119,742

6,727,586

6,819,304

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

602,157

334,965

700,450

Stocks

3,265

12,102

13,817

2,374

2,673

3,780

Debtors

5,883

11,577

10,187

5,528

6,224

8,804

Cash

192,683

226,045

696,089

594,255

326,069

687,866

Other

0

0

0

0

0

0

Current Liabilities

 

 

(31,169)

(29,691)

(30,717)

(29,090)

(29,945)

(34,717)

Creditors

(30,396)

(28,878)

(29,899)

(28,272)

(29,127)

(33,899)

Short term borrowings

(773)

(813)

(818)

(818)

(818)

(818)

Long Term Liabilities

 

 

(211,532)

(16,343)

(11,514)

(11,514)

(110,942)

(219,223)

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)

(109,790)

(218,071)

Net Assets

 

 

5,714,571

6,250,117

6,717,675

6,976,108

7,216,478

7,560,627

CASH FLOW

Operating Cash Flow

 

 

784,843

851,686

749,429

762,380

853,011

1,191,884

Net Interest

(16,715)

(5,817)

(5,586)

(5,591)

(5,591)

583

Tax

(2,686)

(503)

34

(576)

0

0

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)

(271,798)

(331,862)

Net Cash Flow

770,274

230,869

472,201

(101,834)

(268,186)

361,797

Opening net debt/(cash)

 

 

774,766

5,954

(223,172)

(694,119)

(592,285)

(324,099)

HP finance leases initiated

0

0

0

0

0

0

Other

(1,462)

(1,743)

(1,254)

0

0

0

Closing net debt/(cash)

 

 

5,954

(223,172)

(694,119)

(592,285)

(324,099)

(685,896)

Source: Company accounts, Edison Investment Research


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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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