FY25 the start of a long-term growth profile

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

Valuation: Trending upwards

Using the capital asset pricing model, whereby we discount cash flows at a nominal 9% per year, our terminal valuation of WPM is US$76.32/share (or C$103.83) in FY30, assuming zero subsequent long-term growth in real cash flows (which we think unlikely). If we instead assume 7.7% per year long-term growth in cash flows (ie the average compound annual average gold price growth rate from 1967 to 2024), our current valuation of WPM in FY25 more than doubles to US$189.68/share, or C$258.06/share. As such, at an implied growth rate of 6.3% per year, WPM’s share price currently appears to be discounting future compound annual average increases in cash flows per share from FY30 well below historical levels (+14.3% pa compound) and only slightly above the long-term average US dollar inflation rate of 4.0% from 1967 to 2024. An alternative interpretation is that the market is assuming prevailing precious metals prices until FY30 and compound annual average increases in WPM’s cash flow per share thereafter of just 5.0% per year. Otherwise, assuming no purchases of additional streams, we calculate a value for WPM of US$59.45/share (or C$80.88, or £43.95) in FY27, based on a historical multiple of 31.2x contemporary earnings (albeit at a gold price of only US$2,239/oz). At current prices, this rises by 80% to US$106.83/share (or C$145.35, or £78.97).

Q225 financial results preview

WPM’s Q225 results are scheduled to be released after the market close in Canada on Thursday 7 August. On 22 July, Vale (WPM’s counterparty at Salobo, Sudbury and Voisey’s Bay) announced production results for Q2. As a result of this disclosure (plus some other factors described below), we have revised our forecasts for both Q225 and FY25 to those shown in Exhibit 1, below:

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

• We have increased our estimate of gold produced at Salobo attributable to WPM from 58,500oz to 70,787oz (±3,366oz) in Q2 to reflect the 50.5kt of copper produced at Salobo during the quarter, according to Vale’s production and sales report, released on 22 July. This compared with 52.3kt Cu produced in Q125, when WPM reported 71,384oz of gold production attributable to it from Salobo, which suggests a consistent performance between the two quarters. The Salobo Complex also achieved nominal capacity during the quarter (among other things, triggering WPM’s final instalment to Vale for the Salobo III expansion). The relevant regression analysis between copper production at Salobo and gold attributable to WPM is provided in Exhibit 2, upon which our forecast shown in Exhibit 3 is based. We have also increased our equivalent estimate of cobalt production from Voisey’s Bay from 342klbs to 357klbs (±105klbs) to reflect the 8,600t Ni produced there in Q2.

• In addition to Salobo’s production results, Vale’s sales numbers also tentatively suggest that sales and production numbers at Salobo may have been closely aligned. Total Brazilian copper sales at Vale (including Sossego) for the quarter were 66.4kt out of total production of 71.0kt (ie 93.5% of production was sold on average). This compared to 89.0% of production having been sold in Q125, when Wheaton recorded a significant (17.4%, or 12,425oz) over-sale of gold at Salobo relative to production. Salobo is frequently almost solely responsible for Wheaton’s inventory changes in any particular quarter and was responsible for the majority of both WPM’s gold and gold equivalent inventory build in Q424 and also its drawdown in Q125. Exhibit 4, below, demonstrates that, ordinarily, after a quarter of material over-sale historically, there is almost invariably a swift redress in the following quarter. In this case however, following the inventory drawdown in Q125, we are now assuming that sales and production will be closely aligned in Q225 (although we also recognise the possibility that the former will outstrip the latter, which we would characterise as ‘upside risk’ relative to our financial forecasts in Exhibit 1).

As a result, we expect gold ounces produced but not yet delivered (PBND) to Wheaton to remain broadly flat in Q2 at around three months of production, while silver ounces PBND increase to around 1.91 months from 1.67 months at the end of Q1. Note that these compare with WPM’s target levels of two to three months of ounces PBND for gold and palladium and two months for silver.

Other adjustments to our forecasts include:

• Antamina experienced a fatality in April, which resulted in a three-day shut-down of the operation; while it has returned to service, we believe that throughput, in particular, will have been affected by the implementation of a series of safety drills to ensure future safety at the site.
• In accordance with the San Dimas PMPA, effective 30 April, we have assumed a revision of the fixed gold to silver exchange ratio from 70:1 to 90:1.

Exhibit 6 compares our forecasts for adjusted EPS for Q2–Q425 and FY25 relative to market consensus within the context of our adjustments:

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

General and administrative expenses

At the time of its Q424 results, WPM provided guidance for non-stock G&A expenses of US$50–55m, or US$12.50–13.75m per quarter, for FY25. Stock-based G&A expenses broadly correlate with movements in WPM’s share price (in US dollars) between quarters and, given the movement in WPM’s shares over the course of Q225, we would estimate these to be in the order of US$9.3m, as shown by the oval in Exhibit 7, below:

As a result, we forecast a total G&A expense for Q225 of US$22.5m, of which just over half will be accounted for by non-stock expenses.

FY25 and future forecasts compared to guidance

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

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

Readers will note that our longer-term production forecasts are within 3% of WPM’s guidance, which is well within the average quarterly under-sales rate for gold equivalent ounces of 10.2% (±8.7%) relative to production since Q121.

WPM’s guidance for FY25 and beyond is based on standardised pricing assumptions of US$2,600/oz gold, US$30.00/oz silver, US$950/oz palladium, US$950/oz platinum and US$13.50/lb cobalt. Of note is the implied gold/silver ratio of 86.7x. This compares with the current ratio of 87.3x, a longer-term average of 60.6x since gold was demonetised in August 1971 (Exhibit 10, below) and a recent low of 44.7x in 2011:

At the updated standardised prices indicated, our production forecast of 634.3koz gold equivalent (AuE) for FY25 is self-evidently in the middle of WPM’s guidance range of 600–670k GEOs. Our sales forecast is fractionally more conservative, at 623.6k GEOs, representing a sales shortfall of 1.7% relative to production for the year as a whole.

Valuation

Absolute

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

Our estimate of WPM’s terminal cash flow in FY30 has increased very slightly from US$3.62/share to US$3.68/share, largely as a result of our updating our longer-term platinum group metals price forecasts. Assuming 4% growth (the average long-term CPI inflation rate in the US since 1967) in nominal cash flows beyond FY30 (ie 0% growth in real cash flows) and applying a discount rate of 9% (being the expected long-term required nominal equity return), our terminal valuation of the company at end-FY30 is US$76.32, or C$103.83, per share.

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

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

If we instead assume that cash flows per share increase at a compound average annual growth rate of 7.7% (ie the compound average annual growth rate in the gold price from 1967 to 2024, cf 4.0% above), then our terminal valuation of WPM increases manyfold to US$302.34/share, or C$411.33/share, and our current valuation to US$189.68/share, or C$258.06/share (excluding net cash – see below).

Stated alternatively, WPM’s current share price of C$130.19 appears to be discounting future compound annual average increases in cash flow per share of just 6.3% per year from FY30, which is only slightly higher than the long-term average rate of US inflation of 4.0% per year from 1967 to 2024 (inclusive) and well below the rate by which Wheaton’s cash flows per share have historically grown (14.3% since FY05).

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

An alternative interpretation is that the market is assuming currently prevailing precious metals prices up to and including FY30, in which case WPM’s share price of C$130.19 could be said to be discounting compound annual average increases in cash flows per share thereafter of just 5.0% per year.

Historical

Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 31.2x current year basic underlying EPS, excluding impairments (cf 38.9x Edison and 42.3x LSEG Data & Analytics consensus FY25e currently, see Exhibit 15).

Applying this 31.2x multiple to our (effectively unchanged) EPS forecast of US$1.90 in FY27 implies a potential value per share for WPM of US$59.45 or C$80.88 in that year. However, it is also notable that our forecast metals prices in that year currently are only US$2,239/oz Au and US$25.30/oz Ag. At current prices, our EPS forecast of US$1.90/share in FY27 rises to US$3.40/share, in which case our equivalent valuation rises to US$106.83, or C$145.35, per share. Moreover, as can be observed from the graph above, during periods of precious metal price appreciation, WPM can command higher current year P/E ratios. In the period 2018–24, for example, its average rating was 38.0x, in which case its corresponding share price in FY25 would be expected to be US$93.55/share, or C$127.27/share.

Relative

In the meantime, WPM is maintaining its premium rating relative to its peers:

Readers will note our relatively high year 2 P/E ratio, which arises from our relatively low precious metals forecasts of US$2,105/oz Au and US$24.33/oz Ag. As noted previously, if metals prices remain at current levels, our FY26 EPS estimate rises to US$2.87/share, in which case the corresponding P/E ratio would be 33.3x, which is at a marked discount to consensus and almost exactly in line with its peer group. In a growing production scenario, this would appear to suggest that the market is assuming precious metals price falls into FY26 and FY27 to (approximately) offset WPM’s growth in output. In the event that precious metals prices remain flat (or increase) and production grows, it would appear to make WPM inexpensive relative to current market expectations.

Financials: US$1,077.5m ( US$2.37/share) in net cash at end Q125

As at 31 March, WPM had US$1,085.6m in cash on its balance sheet and no debt outstanding under its US$2bn revolving credit facility. Including a modest US$8.1m in lease liabilities, it therefore had US$1,077.5m in net cash after generating a record US$360.8m in operating cash flow.

In Q225, we estimate that it will have generated c US$338m from operating activities, before consuming US$347m in investing activities, in respect of payments relating to the Salobo III, Kone, Blackwater, Curraghinalt and Kurmuk streams, and paying out US$150m in (two) dividends to leave it with c US$918m in net cash at the end of the quarter.

In FY25, we estimate that it will generate US$1,605m from operating activities, before consuming a net US$913m in net investing activities and paying out an increased US$358m in forecast dividends under the influence of its new, progressive dividend policy, to leave it with net cash of c US$1,150m as at 31 December 2025. However, readers should note that the timing of PMPA payments is uncertain and, inasmuch as investments are advanced or delayed, it is possible that WPM could register either a larger or smaller net cash position on its balance sheet by the year-end than that forecast. All other things being equal, however, in the absence of any major new asset acquisitions, we do not expect WPM to require recourse to its debt facilities at any time in the foreseeable future.