Wheaton Precious Metals — Russia-free exposure to precious metals

Wheaton Precious Metals (TSX: WPM)

Last close As at 01/03/2024

CAD56.93

1.00 (1.79%)

Market capitalisation

CAD24,453m

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Research: Metals & Mining

Wheaton Precious Metals — Russia-free exposure to precious metals

Gold and silver sales in Q421 were exactly in line with our forecasts, albeit this was expected given that Wheaton had updated the market with production and sales figures on 7 February. As a result, revenue, total cost of sales, earnings from operations, earnings before tax and net earnings (excluding a US$156.7m impairment reversal) were all within 1% of our prior expectations for the quarter.

Lord Ashbourne

Written by

Lord Ashbourne

Director, Energy & Resources

Metals & Mining

Wheaton Precious Metals

Russia-free exposure to precious metals

Q421/FY21 results

Metals & mining

17 March 2022

Price

C$60.07

Market cap

C$27,083m

C$1.2810/US$, US$1.3046/£

Net cash at end-December (US$m) excluding US$2.9m in lease liabilities

226.0

Shares in issue

450.9m

Free float

100%

Code

WPM

Primary exchange

TSX

Secondary exchange

LSE, NYSE

Share price performance

%

1m

3m

12m

Abs

10.2

14.7

21.5

Rel (local)

9.8

10.8

6.9

52-week high/low

C$62.75

C$46.72

Business description

Wheaton Precious Metals (WPM) is the world’s pre-eminent ostensibly precious metals streaming company, with 33 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

Q122 results

5 May 2022

Q222 results

11 August 2022

Q322 results

3 November 2022

Q422 results

March 2023

Analyst

Lord Ashbourne

+44 (0)20 3077 5724

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

Gold and silver sales in Q421 were exactly in line with our forecasts, albeit this was expected given that Wheaton had updated the market with production and sales figures on 7 February. As a result, revenue, total cost of sales, earnings from operations, earnings before tax and net earnings (excluding a US$156.7m impairment reversal) were all within 1% of our prior expectations for the quarter.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/20

1,096.2

503.2

112

42

41.8

0.9

12/21

1,201.7

592.1

132

57

35.4

1.2

12/22e

1,394.0

709.4

157

65

29.8

1.4

12/23e

1,562.2

834.1

185

75

25.4

1.6

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

Attributable reserves and resources increase

Proven & probable gold reserves attributable to Wheaton increased by 20% to 14.01Moz, while measured & indicated resources increased 18% to 5.34Moz and inferred resources increased 11% to 4.96Moz (largely on account of WPM’s recent acquisitions of five precious metals purchase agreements plus an increase at Salobo). Attributable silver reserves increased by 3% to 567.9Moz, while measured & indicated resources increased 3% to 766.6Moz and inferred resources decreased by 1% to 464.0Moz. Note that none of WPM’s assets are in the former Soviet Union.

Strengthened ESG policies and disclosure

Post year-end, Wheaton announced the adoption of a climate change policy and commitment to net zero carbon emissions by 2050. As part of this policy, WPM plans to establish targets across both Scope 2 and Scope 3 attributable emissions to support a 1.5°C (2.7°F) trajectory. To this end, it has also established a fund to support its mining partners’ efforts to transition to renewable energy sources.

Valuation: C$71.34 but potentially C$91.27

In normal circumstances and assuming no material purchases of additional streams in the foreseeable future (which we think unlikely), we forecast a value per share for WPM of US$55.69 or C$71.34 or £42.69 in FY23, based on a multiple of earnings (note: updated to reflect a lower medium-term silver price forecast). In the meantime, WPM’s shares are trading on near-term financial ratios that are cheaper than those of its peers on at least 83% of common valuation measures if Edison forecasts are used or 50% if consensus forecasts are used. Note that, within this context, it is significant that Edison forecasts that WPM’s earnings, cash-flows and dividends will rise in FY23 compared to FY22 (in line with production expectations), while the market appears to believe that they will fall. Nevertheless, if WPM’s shares were to trade at the same level as the average of its peers, then we calculate that its year one share price should be US$59.60 (C$76.35 or £45.69), based on our forecasts for FY22. Alternatively, if precious metals return to favour and WPM to a premium rating, we believe a US$71.25 (C$91.27 or £54.61) per share valuation is achievable (see page 7).

Q421/FY21 results

Gold and silver sales during the quarter were exactly in line with our forecasts, albeit this was not a surprise given that Wheaton had updated the market with its own production and sales figures on 7 February. As a result, revenue, total cost of sales, earnings from operations, earnings before tax and net earnings were all within 1% of our prior expectations. A summary of WPM’s underlying financial and operating results in the context of both its results in the preceding quarters and Edison’s prior expectations is provided in the exhibit below:

Exhibit 1: WPM underlying Q221 results versus Q121 and Q221e, by quarter*

US$000s
(unless otherwise stated)

Q120

Q220

Q320

Q420

Q121

Q221

Q321

Q421e

Q421a

Chg
**(%)

Variance
***(%)

FY21a

Silver production (koz)

6,704

3,650

6,028

6,509

6,754

6,720

6,394

5,933

6,356

-0.6

7.1

25,999

Gold production (oz)

94,707

88,631

91,770

93,137

77,733

90,290

85,941

88,582

88,321

2.8

-0.3

342,546

Palladium production (koz)

5,312

5,759

5,444

5,672

5,769

5,301

5,105

4,733

4,733

-7.3

0.0

20,908

Cobalt production (klbs)

1,161

380

370.5

382

381

2.8

-0.3

2,294

 

 

Silver sales (koz)

4,928

4,729

4,999

4,576

6,657

5,600

5,487

5,116

5,116

-6.8

0.0

22,860

Gold sales (oz)

100,405

92,804

90,101

86,243

75,104

90,090

67,649

79,622

79,622

17.7

0.0

312,465

Palladium sales (koz)

4,938

4,976

5,546

4,591

5,131

3,869

5,703

4,641

4,641

-18.6

0.0

19,344

Cobalt sales (klbs)

132.3

395

131.2

228

228

73.8

0.0

886

 

 

Avg realised Ag price (US$/oz)

17.03

16.73

24.69

24.72

26.12

26.69

23.80

23.35

23.36

-1.8

0.0

25.08

Avg realised Au price (US$/oz)

1,589

1,716

1,906

1,882

1,798

1,801

1,795

1,796

1,798

0.2

0.1

1,798

Avg realised Pd price (US$/oz)

2,298

1,917

2,182

2,348

2,392

2,797

2,426

1,947

1,918

-20.9

-1.5

2,369

Avg realised Co price (US$/lb)

22.19

19.82

23.78

28.04

28.94

21.7

3.2

23.11

 

 

Avg Ag cash cost (US$/oz)

4.50

5.23

5.89

5.51

6.33

6.11

5.06

5.33

5.47

8.1

2.6

5.78

Avg Au cash cost (US$/oz)

436

418

428

433

450

450

464

430

472

1.7

9.8

459

Avg Pd cash cost (US$/oz)

402

353

383

423

427

503

468

350

340

-27.4

-2.9

433

Avg Co cash cost (US$/lb)

4.98

4.41

5.15

5.05

4.68

-9.1

-7.3

4.67

 

 

Sales

254,789

247,954

307,268

286,213

324,119

330,393

268,957

277,881

278,197

3.4

0.1

1,201,665

Cost of sales

 

 

Cost of sales, excluding depletion

66,908

65,211

70,119

64,524

78,783

78,445

62,529

64,257

68,190

9.1

6.1

287,947

Depletion

64,841

58,661

60,601

59,786

70,173

70,308

54,976

62,099

59,335

7.9

-4.5

254,793

Total cost of sales

131,748

123,872

130,720

124,310

148,956

148,753

117,505

126,356

127,525

8.5

0.9

542,740

Earnings from operations

123,040

124,082

176,548

161,902

175,164

181,640

151,452

151,525

150,672

-0.5

-0.6

658,925

Expenses and other income

 

 

– General and administrative

13,181

21,799

21,326

9,391

11,971

18,465

13,595

19,019

16,954

24.7

-10.9

60,985

– Foreign exchange (gain)/loss

0

0

0

0

 

 

0

– Net interest paid/(received)

7,118

4,636

2,766

2,196

1,573

1,357

1,379

1,249

1,508

9.4

20.7

5,817

– Other (income)/expense

-1,861

234

391

850

420

136

(684)

(58)

-91.5

N/A

(190)

Total expenses and other income

18,438

26,669

24,483

12,437

13,964

19,958

14,290

20,267

18,404

28.8

-9.2

66,612

Earnings before income taxes

104,602

97,413

152,065

149,465

161,199

161,682

137,162

131,258

132,268

-3.6

0.8

592,313

Income tax expense/(recovery)

8,442

59

58

24

67

56

75

250

36

-52.0

-85.6

234

Marginal tax rate (%)

8.1

0.1

0.0

0.0

0.0

0.0

0.1

0.2

0.0

-100.0

-100.0

0.0

Net earnings

96,160

97,354

152,007

149,441

161,132

161,626

137,087

131,008

132,232

-3.5

0.9

592,079

Average no. shares in issue (000s)

447,805

448,636

449,125

449,320

449,509

450,088

450,326

450,507

450,614

0.1

0.0

450,138

Adjusted basic EPS (US$)

0.215

0.217

0.338

0.333

0.358

0.359

0.304

0.291

0.293

-3.6

0.7

1.32

Adjusted diluted EPS (US$)

0.214

0.216

0.336

0.331

0.358

0.358

0.303

0.290

0.293

-3.3

1.0

1.31

DPS (US$)

0.10

0.10

0.10

0.12

0.13

0.14

0.15

0.15

0.15

0.0

0.0

0.57

Source: WPM, Edison Investment Research. Note: *As reported by WPM, excluding exceptional items. **Q421 versus Q321. ***Q421 actual versus Q421 estimate.

Note that this representation of ‘underlying’ results specifically excludes a fourth quarter benefit of US$156.7m relating to the reversal of an earlier impairment of the value of WPM’s precious metals purchase agreement at Voisey’s Bay (among other things). Otherwise, operationally, San Dimas, Penasquito, Antamina, Minto, Statoni and Neves-Corvo all outperformed our prior expectations in terms of both sales and production, while Sudbury and a suite of smaller operations slightly underperformed. Wheaton’s flagship asset, Salobo in Brazil, performed in line with our expectations in terms of production and slightly ahead in terms of sales. In broad terms, Penasquito, Constancia, San Dimas and Minto all benefited from higher grades, while production was restrained at Sudbury and Stillwater by lower throughput, in the case of the former by a bucket scoop blocking and damaging the shaft causing its temporary closure.

In the meantime, according to Vale’s most recent performance report, physical completion of the Salobo III mine expansion was 85% at end-Q421 (cf 81% at end-Q321, 77% at end-Q221, 73% at end-Q121, 68% at end-Q420, 62% at end-Q3, 54% at end-Q2, 47% at end-Q1, 40% at end-Q419 and 27% at end-Q319), despite heavy rainfall causing a landslide that damaged a conveyor belt and blocked access to the project site. Safety protocols in the area were subsequently re-established and the operator, Vale, is currently working on additional preventative measures. In the meantime, a full assessment of the impact of the landslip by Vale is underway and is expected to be completed early in Q222. Salobo III had hitherto been expected to be commissioned in H222 to be followed by a 15-month ramp-up to full capacity. It remains to be seen whether Vale will be able to maintain this timetable in the light of the landslide. However, Salobo III is not (and never has been) included in Edison’s estimates for FY22, but only from FY23, which continues to remain the case.

Ounces produced but not yet delivered

At 9.8% and 19.5%, respectively, under-sales of gold and silver relative to production were within their normal ranges, albeit perhaps slightly high for a fourth quarter in which a ‘flush through’ effect before the year-end is sometimes observed:

Exhibit 2: Over/(under) sale of silver and gold as a percentage of production, Q112–Q421

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

Gold and silver ounces produced but not yet delivered as at 31 December amounted to 85,900oz and 4.2Moz, respectively. Both of these were less than our prior forecasts of 90,206oz and 4.0Moz (respectively), albeit in part this could be attributed to the comparable figures in the prior quarter (anyway always an estimate) being restated downwards by 427oz and 211koz (respectively). At the period end, ounces produced but not yet delivered equated to 3.01 months and 1.92 months of gold and silver production (respectively) and compared with WPM’s target of two to three months of gold and palladium production and two months of silver production:

Exhibit 3: WPM ounces produced but not yet delivered, Q316–Q421 (months of production)

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

Note that, for these purposes, the use of the term ‘inventory’ reflects ounces of gold and silver produced by WPM’s operating counterparties at the mines over which it has streaming agreements, but which have not yet been delivered to WPM. It in no way reflects the other use of the term in the mining industry, where it typically refers to metal in circuit and ore on stockpiles etc.

General and administrative expenses

At the time of its Q321 results, WPM provided updated guidance for non-stock general and administrative (G&A) expenses of US$42–44m (or US$10.5–11.0m per quarter) in FY21, cf US$42–45m previously and to a guided range of US$40–43m in FY20 and an actual outcome of US$38.7m (ie 3.1% below the bottom of the range), including all employee-related expenses, charitable contributions, etc, but excluding performance share units (PSUs) and equity settled stock-based compensation. In the event, at US$11.4m, non-stock G&A expenses in Q421 were below the bottom of the range of expenses implied by WPM’s updated post-Q321 guidance for the fourth quarter in succession:

Exhibit 4: WPM FY19–21 general and administrative expenses (US$000s)

Item

FY21

Q421

Q421e

Q321

Q221

Q121

FY20

Q420

Q320

Q220

Q120

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

18,244

4,618

4,283

4,634

4,709

16,733

4,466

4,037

4,095

4,135

Other (inc. depreciation, donations and professional fees)

23,475

6,818

5,173

5,852

5,632

22,013

5,957

5,488

6,302

4,266

Sub-total

41,719

11,436

11,587

9,456

10,486

10,341

38,746

10,423

9,525

10,397

8,401

Guidance

42,000–44,000

11,717-13,717

10,500–11,250

10,500–11,250

10,500–11,250

40,000–43,000

10,000–10,750

10,000–10,750

10,000–10,750

10,000–10,750

PSU* accrual

14,004

4,203

2,824

6,672

305

21,520

(2,336)

10,482

10,097

3,277

Equity settled stock-based compensation

5,262

1,315

1,315

1,307

1,325

5,432

1,305

1,319

1,305

1,503

Total general & administrative

60,985

16,954

19,019

13,595

18,465

11,971

65,698

9,392

21,326

21,799

13,181

Total/sub-total (%)

+46.2

+48.3

+64.1

+43.6

+76.1

+15.8

+69.6

-9.9

+123.9

+109.7

+56.9

Source: WPM, Edison Investment Research. Note: *Performance share units.

Stock-based G&A expenses were also US$2.1m below our prior expectations, as shown by the ‘below trend’ point relating to Q421 in the exhibit comparing stock-based G&A expenses against the change in Wheaton’s share price (both in US dollars) below.

Exhibit 5: Graph of historical share price move (US$/share) versus quarterly stock-based G&A expense, Q419–Q421

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

Nevertheless, this analysis of stock-based G&A expenses over the past nine quarters relative to the change in WPM’s share price (also in US dollars) continues to exhibit a relatively close Pearson product moment (correlation) coefficient between the two of 0.76 (cf 0.78 previously), 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). On this basis, and on the basis of Wheaton’s share price having risen by US$3.94 so far in FY22, we have revised our estimate for stock-based G&A expenses for Q122 to US$6.8m. In combination with Wheaton’s guidance for non-stock based G&A of US$47–49m in FY22 (ie c US$12m per quarter), this suggests total G&A expenses of US$18.8m in Q122, followed by US$17.0m thereafter in Q2–Q422.

FY22 guidance

WPM’s guidance for FY22 remains unchanged at 350–380koz of gold production, 23.0–25.0Moz of silver production and 44–48koz gold equivalent ounces in other metals to result in total gold equivalent production of 700–760koz for the year.

In the longer term, its guidance for the five-year period ending in FY26 is 850koz gold equivalent ounces per annum, while its guidance for the 10-year period ending in FY31 is 910koz gold equivalent ounces per annum.

Updated FY22 forecasts by quarter

In the light of Q4/FY21 results, recent moves in metals prices, forex rates and WPM’s share price, Edison has updated its quarterly estimates for FY22 as follows:

Exhibit 6: WPM FY22 forecast, by quarter*

US$000s
(unless otherwise stated)

Q122e

(prior)

Q122e

Q222e

(prior)

Q222e

Q322e

(prior)

Q322e

Q422e

(prior)

Q422e

FY22e

(current)

FY22e

(prior)

Silver production (koz)

5,900

5,900

5,900

5,900

5,900

5,900

5,900

5,900

23,598

23,598

Gold production (oz)

95,097

95,097

95,097

95,097

91,474

91,474

95,097

95,097

376,763

376,763

Palladium production (koz)

4,750

4,750

4,750

4,750

4,750

4,750

4,750

4,750

19,000

19,000

Cobalt production (klb)

347

347

347

347

347

347

347

347

1,386

1,386

Silver sales (koz)

5,900

5,900

5,900

5,900

5,900

5,900

5,900

5,900

23,598

23,598

Gold sales (oz)

95,065

95,065

95,065

95,065

91,442

91,442

95,065

95,065

376,635

376,635

Palladium sales (oz)

4,731

4,731

4,731

4,731

4,731

4,731

4,731

4,731

18,924

18,924

Cobalt sales (klb)

347

347

347

347

347

347

347

347

1,386

1,386

Avg realised Ag price (US$/oz)

23.74

23.95

23.90

24.64

23.90

24.64

23.90

24.64

24.47

23.86

Avg realised Au price (US$/oz)

1,876

1,876

1,890

1,926

1,890

1,926

1,890

1,926

1,913

1,886

Avg realised Pd price (US$/oz)

2,328

2,336

2,382

2,444

2,382

2,444

2,382

2,444

2,417

2,368

Avg realised Co price (US$/lb)

32.81

33.66

33.01

37.14

33.01

37.14

33.01

37.14

36.27

32.96

Avg Ag cash cost (US$/oz)

5.28

5.61

5.29

5.64

5.29

5.64

5.29

5.65

5.63

5.29

Avg Au cash cost (US$/oz)

430

430

430

431

432

432

431

431

431

431

Avg Pd cash cost (US$/oz)

419

421

429

440

429

440

429

440

435

426

Avg Co cash cost (US$/lb)

5.91

6.06

5.94

6.68

5.94

6.68

5.94

6.68

6.53

5.93

Sales

340,717

342,334

343,379

352,891

336,531

345,913

343,379

352,891

1,394,029

1,364,005

Cost of sales

Cost of sales, excluding depletion

76,035

78,054

76,201

78,613

74,751

77,164

76,284

78,696

312,528

303,271

Depletion

72,358

75,262

72,358

75,262

68,649

71,552

72,358

75,262

297,337

285,724

Total cost of sales

148,394

153,316

148,559

153,875

143,400

148,716

148,642

153,958

609,865

588,995

Earnings from operations

192,323

189,018

194,820

199,016

193,131

197,197

194,736

198,933

784,164

775,010

Expenses and other income

– General and administrative**

18,329

18,781

18,329

16,965

18,329

16,965

18,329

16,965

69,678

73,316

– Foreign exchange (gain)/loss

0

0

– Net interest paid/(received)

1,201

1,292

1,166

1,257

1,172

1,260

1,160

1,246

5,055

4,699

– Other (income)/expense

0

0

Total expenses and other income

19,530

20,073

19,495

18,222

19,501

18,226

19,489

18,212

74,733

78,015

Earnings before income taxes

172,793

168,945

175,324

180,794

173,630

178,972

175,248

180,721

709,432

696,995

Income tax expense/(recovery)

250

250

250

250

250

250

250

250

1,000

1,000

Marginal tax rate (%)

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

Net earnings

172,543

168,695

175,074

180,544

173,380

178,722

174,998

180,471

708,432

695,995

Average no. shares in issue (000s)

450,507

450,864

450,507

450,864

450,507

450,864

450,507

450,864

450,864

450,507

Basic EPS (US$)

0.383

0.374

0.389

0.400

0.385

0.396

0.388

0.400

1.57

1.54

Diluted EPS (US$)

0.373

0.364

0.378

0.390

0.375

0.386

0.378

0.389

1.53

1.50

DPS (US$)

0.15

0.15

0.16

0.16

0.16

0.17

0.16

0.17

0.65

0.64

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

Our basic EPS forecast of US$1.57/share for FY22 is little changed relative to our prior estimate of US$1.54/share and is 11.3% above the (unchanged) consensus forecast of US$1.41/share (source: Refinitiv, 15 March 2021), albeit within an (almost unchanged) range of analysts’ expectations of US$1.20–1.68 per share. Within this context, it is worth noting that our gold price forecast for the remainder of the year is now US$1,926/oz, which is that prevailing at the time of writing. Should it revert to its average of US$1,799/oz for FY21, then our estimate of EPS for FY22 reduces by 5.1% to US$1.49/share and our DPS forecast by 2c to 63 US cents per share.

Exhibit 7: WPM FY22 consensus EPS forecasts (US$/share), by quarter

Q122e

Q222e

Q322e

Q422e

Sum Q1–Q422e

FY22e

Edison forecasts

0.374

0.400

0.396

0.400

1.570

1.57

Mean consensus

0.35

0.35

0.35

0.35

1.40

1.41

High consensus

0.42

0.41

0.41

0.43

1.67

1.68

Low consensus

0.31

0.31

0.31

0.30

1.23

1.20

Source: Refinitiv, Edison Investment Research. Note: As at 15 March 2022.

Metals prices

Edison has recently reviewed its longer-term metals price forecasts. We have left our gold price forecasts unchanged. However, in deference to the continued and increasing macro-economic uncertainty prevailing in markets at the current time, we have reduced our medium-term silver price forecasts, such that the gold/silver ratio tends towards 70.4x, rather than the 61.5x average exhibited since gold was demonetised in August 1971.

A summary of our updated silver price forecasts (in real terms) for the next four years is provided in the table below:

Exhibit 8: Edison updated silver price forecasts (US$/oz, real)

Forecast

2023

2024

2025

2026

Unchanged gold price forecast (US$/oz)

1,749

1,681

1,617

1,554

Updated silver price forecast (US$/oz)

23.60

23.00

22.80

22.50

Previous silver price forecast (US$/oz)

28.53

27.47

26.45

25.47

Change (%)

-17.3

-16.3

-13.8

-11.7

Gold/silver ratio

74.1

73.1

70.9

69.1

Source: Edison Investment Research

Valuation

Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 30.1x current year basic underlying EPS, excluding impairments (cf 29.8x Edison or 33.1x Refinitiv consensus FY22e – see Exhibit 10).

Exhibit 9: WPM’s historical current year P/E multiples, 2005–21

Source: Edison Investment Research

Applying this 30.1x multiple to our reduced (owing to the silver price) EPS forecast of US$1.85 in FY23 (previously US$2.12) would ordinarily imply a potential value per share for WPM of US$55.69 or C$71.34 in that year. However, the graph above suggests that the investing environment post-2017 has been able to support an enhanced WPM multiple relative to earlier years. We would ascribe this observation to macro-economic uncertainty and loose monetary policy combining to create a supportive environment for precious metals prices. As such, we believe that a multiple of 38.6x (the average of FY18, FY19, FY20 and FY21) may still be supported in the event of a return to favour of precious metals and precious metals stocks. In this case, applying a 38.6x earnings multiple to our updated EPS forecast of US$1.85 in FY23 implies a potential value per share for WPM in that year of US$71.25 or C$91.27. Even at such share price levels, however, a multiple of over 38.6x would still put WPM’s shares on a notable discount to those of Franco-Nevada (see Exhibit 10).

In the meantime, from a relative perspective, it is notable that WPM has a lower valuation than the average of its royalty/streaming ‘peers’ on all nine of nine valuation measures if Edison forecasts are used and five out of nine measures if consensus forecasts are used. On an individual basis, it is cheaper than its peers on 83% (30 out of 36) of the valuation measures observed in Exhibit 10 if Edison estimates are adopted or 50% (18 out of 36) of the same valuation measures if consensus forecasts are adopted.

Exhibit 10: 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

42.6

44.8

45.5

0.8

0.8

0.9

29.2

29.8

31.0

Royal Gold

33.6

32.2

35.8

1.0

1.1

1.1

18.9

18.2

19.3

Sandstorm Gold

47.0

46.1

45.7

0.8

0.8

0.8

17.3

18.4

18.7

Osisko

36.6

30.1

29.0

1.2

1.2

1.2

18.6

16.1

15.6

Average

39.9

38.3

39.0

1.0

1.0

1.0

21.0

20.6

21.2

WPM (Edison forecasts)

29.8

25.4

25.6

1.4

1.6

1.6

20.4

18.4

18.2

WPM (consensus)

33.1

36.0

34.9

1.1

1.1

0.7

23.0

23.9

22.5

Implied WPM share price (US$)*

62.77

70.76

71.41

67.79

77.13

77.75

48.25

52.59

54.58

Source: Refinitiv, Edison Investment Research. Note: Peers priced on 15 March 2022. *Derived using Edison forecasts and average consensus multiples.

Within this context, it is worth noting that Edison forecasts imply that WPM’s EPS, DPS and cash-flow will increase in FY23 and FY24 (relative to FY22), not least under the influence of the company’s increasing production profile (in line with its guidance). By contrast, consensus forecasts appear to indicate that the market expects WPM’s EPS and cash flow to fall in FY23, relative to FY22, before recovering slightly in FY24. The consensus also appears to indicate that WPM’s dividend will decline in FY22, relative to FY21, then remain flat in FY23, before being cut in FY24.

Financials: US$223.2m in net cash and growing

At 31 December, WPM had US$226.0m in cash on its balance sheet (cf US$372.5m in Q321, US$235.4m in Q221, US$191.2m in Q121 and US$192.7m in Q420) and no debt outstanding (cf US$195.0m in Q420) under its US$2bn revolving credit facility. As such (including a modest US$2.9m in leases), it had US$223.2m in net cash overall (cf US$369.4m in Q321, US$232.1m in Q221, US$187.7m in Q121 and US$6.0m in Q420) after US$195.3m of cash generated by operating activities during the quarter (cf US$201.3m in Q321, US$216.3m in Q221, US$232.2m in Q121 and US$208.0m in Q420) and US$304.1m in cash consumed in investing activities. Given this net cash position and the rate at which it is accumulating cash, we believe that Wheaton will be able to pay for its remaining known streaming investment commitments without resorting to its revolving credit facility.

Exhibit 11: Financial summary

US$'000s

2016

2017

2018

2019

2020

2021

2022e

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

891,557

843,215

794,012

861,332

1,096,224

1,201,665

1,394,029

1,562,160

1,574,892

Cost of Sales

(254,434)

(243,801)

(245,794)

(258,559)

(266,763)

(287,947)

(312,528)

(343,963)

(341,821)

Gross Profit

637,123

599,414

548,218

602,773

829,461

913,718

1,081,501

1,218,197

1,233,071

EBITDA

 

 

602,684

564,741

496,568

548,266

763,763

852,733

1,011,824

1,148,520

1,163,394

Operating Profit (before amort. and except.)

 

 

293,982

302,361

244,281

291,440

519,874

597,940

714,487

833,238

825,841

Intangible Amortisation

0

0

0

0

0

0

0

0

0

Exceptionals

(71,000)

(228,680)

245,715

(156,608)

4,469

162,806

0

0

0

Other

(4,982)

8,129

(5,826)

217

387

190

0

0

0

Operating Profit

218,000

81,810

484,170

135,049

524,730

760,936

714,487

833,238

825,841

Net Interest

(24,193)

(24,993)

(41,187)

(48,730)

(16,715)

(5,817)

(5,055)

833

821

Profit Before Tax (norm)

 

 

269,789

277,368

203,094

242,710

503,159

592,123

709,432

834,071

826,662

Profit Before Tax (FRS 3)

 

 

193,807

56,817

442,983

86,319

508,015

755,119

709,432

834,071

826,662

Tax

1,330

886

(15,868)

(181)

(211)

(234)

(1,000)

(1,000)

(1,000)

Profit After Tax (norm)

266,137

286,383

181,400

242,746

503,335

592,079

708,432

833,071

825,662

Profit After Tax (FRS 3)

195,137

57,703

427,115

86,138

507,804

754,885

708,432

833,071

825,662

Average number of shares outstanding (m)

430.5

442.0

443.4

446.0

448.7

450.1

450.9

450.9

450.9

EPS - normalised (c)

 

 

62

63

48

54

112

132

157

185

183

EPS - normalised and fully diluted (c)

 

 

62

63

48

54

112

131

153

180

178

EPS - (IFRS) (c)

 

 

45

13

96

19

113

168

157

185

183

Dividend per share (c)

21

33

36

36

42

57

65

75

77

Gross Margin (%)

71.5

71.1

69.0

70.0

75.7

76.0

77.6

78.0

78.3

EBITDA Margin (%)

67.6

67.0

62.5

63.7

69.7

71.0

72.6

73.5

73.9

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

33.0

35.9

30.8

33.8

47.4

49.8

51.3

53.3

52.4

BALANCE SHEET

Fixed Assets

 

 

6,025,227

5,579,898

6,390,342

6,123,255

5,755,441

6,046,427

6,252,340

6,757,308

6,670,256

Intangible Assets

5,948,443

5,454,106

6,196,187

5,768,883

5,521,632

5,940,538

6,146,451

6,651,419

6,564,367

Tangible Assets

12,163

30,060

29,402

44,615

33,931

44,412

44,412

44,412

44,412

Investments

64,621

95,732

164,753

309,757

199,878

61,477

61,477

61,477

61,477

Current Assets

 

 

128,092

103,415

79,704

154,752

201,831

249,724

476,492

471,258

1,035,848

Stocks

1,481

1,700

1,541

43,628

3,265

12,102

3,280

3,676

3,706

Debtors

2,316

3,194

2,396

7,138

5,883

11,577

7,639

8,560

8,630

Cash

124,295

98,521

75,767

103,986

192,683

226,045

465,573

459,022

1,023,513

Other

0

0

0

0

0

0

0

0

0

Current Liabilities

 

 

(19,057)

(12,143)

(28,841)

(64,700)

(31,169)

(29,691)

(46,581)

(49,681)

(49,470)

Creditors

(19,057)

(12,143)

(28,841)

(63,976)

(30,396)

(28,878)

(45,768)

(48,868)

(48,657)

Short term borrowings

0

0

0

(724)

(773)

(813)

(813)

(813)

(813)

Long Term Liabilities

 

 

(1,194,274)

(771,506)

(1,269,289)

(887,387)

(211,532)

(16,343)

(16,343)

(16,343)

(16,343)

Long term borrowings

(1,193,000)

(770,000)

(1,264,000)

(878,028)

(197,864)

(2,060)

(2,060)

(2,060)

(2,060)

Other long term liabilities

(1,274)

(1,506)

(5,289)

(9,359)

(13,668)

(14,283)

(14,283)

(14,283)

(14,283)

Net Assets

 

 

4,939,988

4,899,664

5,171,916

5,325,920

5,714,571

6,250,117

6,665,908

7,162,542

7,640,290

CASH FLOW

Operating Cash Flow

 

 

608,503

564,187

518,680

548,301

784,843

851,686

1,041,474

1,150,303

1,163,083

Net Interest

(24,193)

(24,993)

(41,187)

(41,242)

(16,715)

(5,817)

(5,055)

833

821

Tax

28

(326)

0

(5,380)

(2,686)

(503)

(1,000)

(1,000)

(1,000)

Capex

(805,472)

(19,633)

(861,406)

10,571

149,648

(404,437)

(503,250)

(820,250)

(250,500)

Acquisitions/disposals

0

0

0

0

0

0

0

0

0

Financing

595,140

1,236

1,279

37,198

22,396

7,992

0

0

0

Dividends

(78,708)

(121,934)

(132,915)

(129,986)

(167,212)

(218,052)

(292,640)

(336,437)

(347,914)

Net Cash Flow

295,298

398,537

(515,549)

419,462

770,274

230,869

239,528

(6,551)

564,490

Opening net debt/(cash)

 

 

1,362,703

1,068,705

671,479

1,188,233

774,766

5,954

(223,172)

(462,700)

(456,149)

HP finance leases initiated

0

0

0

0

0

0

0

0

0

Other

(1,300)

(1,311)

(1,205)

(5,995)

(1,462)

(1,743)

0

0

0

Closing net debt/(cash)

 

 

1,068,705

671,479

1,188,233

774,766

5,954

(223,172)

(462,700)

(456,149)

(1,020,640)

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 2022 Edison Investment Research Limited (Edison).

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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.

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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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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 2022 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.

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Sydney +61 (0)2 8249 8342

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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KEFI Gold and Copper — Hawiah developing rapidly behind Tulu Kapi

Since we published our last outlook note on KEFI in July 2021, the company has raised additional equity to deleverage its balance sheet and announced a turnaround in the working environment in Ethiopia, plus the take-off of its projects in Saudi Arabia. In particular, KEFI reports the civil war in Ethiopia effectively ceased in December with no clashes outside the northern part of the country (which is over 1,000km from Addis Ababa and over 1,300km from Tulu Kapi) since then. It also reports that, with the explicit support and agreement of the Ministry of Mines, the finance syndicate members are now all engaging to launch full construction programmes and the field teams are back on the ground, restarting tasks suspended in 2021, as well as completing development tasks to demonstrate safe conditions ahead of project launch.

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