Wheaton Precious Metals — Setting the scene for FY24 and beyond

Wheaton Precious Metals (TSX: WPM)

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Research: Metals & Mining

Wheaton Precious Metals — Setting the scene for FY24 and beyond

Wheaton Precious Metals (WPM) released its Q422/FY22 financial results in the context of known production and sales volumes. As a result, financial results were very close to our prior expectations for both Q422 and FY22. The main (positive) variances were in depletion (US$3.3m) and ‘other’ income (US$1.9m), to result in net earnings that were US$5.0m better than our prior forecasts for both periods (equating to a positive percentage variance of 5.1% for the quarter and 1.0% for the full year; see Exhibit 2).

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

Wheaton Precious Metals

Setting the scene for FY24 and beyond

Q422/FY22 results

Metals and mining

14 March 2023

Price

C$59.41

Market cap

C$26,853m

C$1.3741/US$, US$1.2150/£

Cash (US$m) at end-December
(excluding US$2.0m in lease liabilities)

696.1

Shares in issue

452.0m

Free float

100.0%

Code

WPM

Primary exchange

TSX

Secondary exchanges

LSE, NYSE

Share price performance

%

1m

3m

12m

Abs

3.6

10.0

(3.0)

Rel (local)

9.4

12.4

6.2

52-week high/low

C$64.70

C$39.11

Business description

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

Next events

Ex-dividend date

23 March 2023

Q123 results

4 May 2023

Q223 results

10 August 2023

Q323 results

9 November 2023

Analyst

Lord Ashbourne

+44 (0)20 3077 5700

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

Wheaton Precious Metals (WPM) released its Q422/FY22 financial results in the context of known production and sales volumes. As a result, financial results were very close to our prior expectations for both Q422 and FY22. The main (positive) variances were in depletion (US$3.3m) and ‘other’ income (US$1.9m), to result in net earnings that were US$5.0m better than our prior forecasts for both periods (equating to a positive percentage variance of 5.1% for the quarter and 1.0% for the full year; see Exhibit 2).

Year end

Revenue
(US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/21

1,201.7

592.1

132

57

32.8

1.3

12/22

1,065.1

497.7

112

60

38.6

1.4

12/23e

1,084.2

505.3

115

60

37.6

1.4

12/24e

1,357.8

630.4

139

61

31.1

1.4

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

Making headway despite headwinds

WPM’s results were achieved despite at least five of its major contributing mines (Salobo, Antamina, Penasquito, San Dimas and Voisey’s Bay) mining through coincidentally lower-grade sequences in Q422. Despite such headwinds, other features of its Q4 results were general and administrative expenses that were lower than guidance for the eighth quarter in succession and silver stocks that are now at their lowest level (in terms of months of production) since Q416.

Growth picking up after FY23

Given WPM’s guidance, FY23 seems likely to be year of investment and steady output for Wheaton (we estimate 623.7koz gold equivalent production in FY23 cf 638.1koz in FY22). However, we expect growth in production to pick up smartly thereafter, to reach 852k gold equivalent ounces by FY27.

Valuation: Little changed but marching upwards

Using a CAPM-type method to value WPM and applying a nominal discount rate of 9.0% to cash flows implies a ‘terminal’ valuation for WPM at end-FY26 of US$53.28 (C$73.22) per share, assuming zero subsequent long-term growth in real cash flows and 4% inflation, and a valuation now of US$41.11 (C$56.49) per share. To this should then be added end-FY22 net cash of US$1.54/share (C$2.11/share) to take the total to US$42.65 (or C$58.60) per share. Otherwise, assuming no purchases of additional streams in the foreseeable future (which we think unlikely), we calculate a value per share for WPM of US$54.47, or C$74.85 or £44.83 in FY26, based on a 30.4x historical multiple of contemporary earnings. In the meantime, WPM’s shares are trading on near-term financial ratios that are lower than those of its peers on 63% of common valuation measures if Edison forecasts are used or 55% if consensus forecasts are used. If WPM’s shares were instead to trade at the average level of its peers, then we calculate that its FY23 share value would be US$45.94, or C$63.13 or £37.81, rising to US$47.42, or C$65.15 or £39.03, in FY24 (based on Edison forecasts).

Q422/FY22 results

Wheaton’s Q422/FY22 financial results were released in the context of production and sales volumes having already been pre-released to the market on 21 February. Final sales volumes were exactly in line with the earlier announcement, while the vast majority of a very small difference between the two announcements in gold production could be attributed to production at Sudbury in Q3 and Q2 being retrospectively restated downwards in Q422. A summary of the differences is provided in the table below:

Exhibit 1: Wheaton Precious Metals’ FY22 production and sales by metal (final cf 21 February estimate)

Metal (units)

Wheaton (21 February)

Actual final (9 March)

Q422 variance*

Production guidance

FY22 production

FY22 sales

Implied Q4 production

Implied Q4 sales

Q4 prodn

Q4 sales

FY22 production

FY22 sales

Prodn
(units)

Sales

(units)

Gold (koz)

300–320

286.985

293.234

66.025

68.996

70.099

68.996

286.805

293.234

+4.074

0.0

Silver (Moz)

22.5–24.0

23.979

21.570

5.353

4.935

5.352

4.935

23.997

21.570

-0.001

0.0

Other (k GEO)

35–40

31.347

36.625

Palladium (koz)

15.485

15.076

3.869

3.396

3.869

3.396

15.485

15.076

0.0

0.0

Cobalt (klb)

724

1,038

128

187

128

187

724

1,038

0

0

GEO (k GEO)

640–680

638.048

617.450

148.323

142.190

638.113

617.450

0.0

Source: Wheaton Precious Metals, Edison Investment Research. Note: GEO = gold equivalent ounce, based on US$1,800/oz Au, US$24.00/oz Ag, US$2,100/oz Pd and US$33/lb Co. *9 March minus 21 February.

As a result, Wheaton’s financial results were very close to our prior expectations for both Q422 and FY22, with the main (positive) variances being in depletion (US$3.3m) and ‘other’ income (US$1.9m) to result in net earnings that were US$5.0m better than our prior expectations for both periods (equating to a positive percentage variance of 5.1% for the quarter and 1.0% for the full year). A complete analysis of WPM’s underlying financial and operating results relative to both Q322 and Edison’s prior expectations is provided in the exhibit below:

Exhibit 2: WPM FY22, by quarter*

US$000s
(unless otherwise stated)

Q122

Q222

Q322

Q422e

(prior)

Q422

Change

(%)

Variance

(%)

FY22

FY22e

(prior)

Variance

(%)

Silver production (koz)

6,206

6,537

5,883

5,353

5,352

-9.0

0.0

23,997

23,979

0.1

Gold production (oz)

79,087

68,365

73,508

66,025

70,099

-4.6

6.2

286,805

286,985

-0.1

Palladium production (oz)

4,488

3,899

3,229

3,869

3,869

19.8

0.0

15,485

15,485

0.0

Cobalt production (klb)

234

136

226

128

128

-43.4

0.0

724

724

0.0

Silver sales (koz)

5,553

5,848

5,234

4,935

4,935

-5.7

0.0

21,570

21,570

0.0

Gold sales (oz)

77,901

84,337

62,000

68,996

68,996

11.3

0.0

293,234

293,234

0.0

Palladium sales (oz)

4,075

3,378

4,227

3,396

3,396

-19.7

0.0

15,076

15,076

0.0

Cobalt sales (klb)

511

225

115

187

187

62.6

0.0

1,038

1,038

0.0

Avg realised Ag price (US$/oz)

24.19

22.27

19.16

21.29

21.52

12.3

1.1

21.84

21.78

0.3

Avg realised Au price (US$/oz)

1,870

1,872

1,728

1,731

1,725

-0.2

-0.3

1,806

1,808

-0.1

Avg realised Pd price (US$/oz)

2,339

2,132

2,091

1,939

1,939

-7.3

0.0

2,133

2,133

0.0

Avg realised Co price (US$/lb)

34.61

34.01

22.68

23.56

22.62

-0.3

-4.0

31.00

31.18

-0.6

Avg Ag cash cost (US$/oz)

5.10

5.61

5.59

5.49

5.00

-10.6

-8.9

5.33

5.45

-2.2

Avg Au cash cost (US$/oz)

477

465

474

461

475

0.2

3.0

472

469

0.6

Avg Pd cash cost (US$/oz)

394

408

353

349

357

1.1

2.3

377

376

0.3

Avg Co cash cost (US$/lb)

5.76

6.86

7.21

4.24

***16.52

129.1

289.6

***8.10

5.89

37.5

Sales

307,244

302,922

218,836

235,481

236,051

7.9

0.2

1,065,053

1,064,483

0.1

Cost of sales

Cost of sales, excluding depletion

69,994

74,943

60,955

60,904

61,730

1.3

1.4

267,621

266,795

0.3

Depletion

57,402

65,682

55,728

56,474

53,140

-4.6

-5.9

231,952

235,285

-1.4

Total cost of sales

127,396

140,625

116,683

117,377

114,870

-1.6

-2.1

499,573

502,080

-0.5

Earnings from operations

179,848

162,297

102,153

118,104

121,181

18.6

2.6

565,480

562,403

0.5

Expenses and other income

– General and administrative**

20,118

12,453

9,843

19,843

19,773

100.9

-0.4

62,187

62,257

-0.1

– Foreign exchange (gain)/loss

0

0

0

– Net interest paid/(received)

1,422

1,389

1,398

1,357

1,377

-1.5

1.5

5,586

5,566

0.4

– Other (income)/expense

229

-974

(3,003)

(2,069)

(3,935)

31.0

90.2

(7,683)

(5,817)

32.1

Total expenses and other income

21,769

12,868

8,238

19,131

17,215

109.0

-10.0

60,090

62,006

-3.1

Earnings before income taxes

158,079

149,429

93,915

98,973

103,966

10.7

5.0

505,390

500,397

1.0

Income tax expense/(recovery)

72

144

37

250

222

500.0

-11.2

475

503

-5.6

Marginal tax rate (%)

0.0

0.1

0.0

0.3

0.2

N/A

-33.3

0.1

0.1

0.0

Net earnings

158,007

149,285

93,878

98,723

103,744

10.5

5.1

504,915

499,894

1.0

Average no. shares in issue (000s)

450,915

451,524

451,757

451.757

452,070

0.1

0.1

451,570

451,488

0.0

Basic EPS (US$)

0.350

0.331

0.208

0.219

0.229

10.1

4.6

1.12

1.11

0.9

Diluted EPS (US$)

0.350

0.330

0.208

0.218

0.229

10.1

5.0

1.12

1.08

3.7

DPS (US$)

0.15

0.15

0.15

0.15

0.15

0.0

0.0

0.60

0.60

0.0

Source: WPM accounts, Edison Investment Research. Note: Change is Q422 cf Q322. Variance is actual cf forecast. *Excluding impairments, impairment reversals and exceptional items. **Forecasts now include stock-based compensation costs. ***Cobalt inventory is held on WPM’s balance sheet at the lower of cost and net realisable value; cash cost per pound of cobalt sold during Q422 included an inventory impairment charge of US$1.6m, which resulted in an increase in cash costs of US$8.71/lb. Totals may not add up owing to rounding.

At the level of the individual mines, in general, at least five of Wheaton’s major contributing mines (Salobo, Antamina, Penasquito, San Dimas and Voisey’s Bay) were mining through coincidentally lower-grade areas as part of their mine plans, while the grade at Constancia, despite being higher, was lower than expected. Nevertheless, five mines (Zinkgruvan, Minto, Antamina, Stillwater and Sudbury) noticeably outperformed our expectations in terms of either production or sales or both for the quarter.

Ounces produced but not yet delivered

At 11.8%, the degree of under-sale of silver during Q422, relative to production, was below our prior expectation of 7.8%, but was almost exactly in line with the (prior) long-run average of 11.9% (from Q112 until Q322). The 1.6% under-sale of gold relative to production was similarly slightly below our prior estimate of a 4.5% over-sale, but was noticeably above the prior long-run average of a 6.7% shortfall (Q112–Q322) and possibly indicative of some ‘flushing through’ of sales by Wheaton’s counterparties before the year’s end:

Exhibit 3: Over/(under) sale of silver and gold as a percentage of production, Q112–Q422

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

Gold and silver ounces produced but not yet delivered as at 31 December amounted to 63,601oz and 3.4Moz respectively (cf 67,247oz and 3.6Moz at end-Q322). These were both below our prior estimates (see our note: Adjusting for ‘major maintenance’ at Salobo in Q4, published on 3 March 2023) of 64,275oz Au and 4.0Moz Ag and equated to 2.62 months and 1.41 months of FY22 gold and silver production, respectively (cf 2.63 months and 1.77 months estimated as at end-Q322) and compare with WPM’s target levels of two to three months for gold and palladium and two months for silver (see below).

Exhibit 4: WPM ounces produced but not yet delivered, Q316–Q422 (months of production)

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

General and administrative expenses

At the time of its Q122 results, WPM provided guidance for non-stock general and administrative (G&A) expenses of US$47–49m or US$11.75–12.25m per quarter (cf US$42–44m or US$10.5–11.0m per quarter for FY21 and US$40–43m in FY20), including all employee-related expenses, charitable contributions, etc, but excluding performance share units (PSU) and equity settled stock-based compensation. In the event, at US$11.3m, non-stock G&A expenses in Q422 were below the bottom of the range implied by guidance for the eighth quarter in succession.

Exhibit 5: WPM general and administrative expenses, Q121–Q422 (US$000s)

Item

FY20

Q121

Q221

Q321

Q421

FY21

Q122

Q222

Q322

Q422

FY22

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

16,733

4,709

4,634

4,283

4,618

18,244

5,345

5,061

4,629

4,187

19,222

Other (inc. depreciation, donations and professional fees)

22,013

5,632

5,852

5,173

6,818

23,475

4,871

5,784

5,137

7,112

22,905

Non-stock based G&A

38,746

10,341

10,486

9,456

11,436

41,719

10,216

10,845

9,766

11,299

42,127

Guidance

40,000–43,000

10,500–11,250

10,500–11,250

10,500–11,250

11,717–13,717

42,000–44,000

11,750–12,250

11,750–12,250

11,750–12,250

11,750–12,250

47,000-49,000

PSU* accrual

21,520

305

6,672

2,824

4,203

14,004

8,560

110

(1,491)

7,035

14,214

Equity settled stock-based compensation

5,432

1,325

1,307

1,315

1,315

5,262

1,342

1,498

1,568

1,439

5,846

Stock-based G&A

26,952

1,630

7,979

4,139

5,518

19,266

9,902

1,608

77

8,474

20,060

Total general & administrative

65,698

11,971

18,465

13,595

16,954

60,985

20,118

12,453

9,843

19,773

62,187

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

+69.6

+15.8

+76.1

+43.6

+48.3

+46.2

+96.9

+14.8

+0.8

+75.0

+47.6

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

Given the performance of WPM’s shares during the quarter, stock-based G&A expenses in Q422 were almost exactly in line with our prior estimate for the quarter (as shown in Exhibit 6, below):

Exhibit 6: Graph of historical share price move (US$/share) versus quarterly stock-based G&A expenses, Q419–Q422

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

The analysis of stock-based G&A expenses over the past 13 quarters relative to the change in WPM’s share price (also in US dollars) continues to exhibit a close Pearson product-moment (correlation) coefficient between the two of 0.79, which remains statistically significant at the 5% level for a directional hypothesis (ie there is less than a 5% probability that this relationship occurred by random chance) and this therefore continues to form the basis of our quarterly and full-year forecasts for G&A expenses in Exhibit 9.

FY23 and five-year and 10-year guidance

At the time of its 21 February production and sales announcement, Wheaton also provided detailed production guidance for FY23 (for the first time), as well as for the five years from FY23–27 (inclusive) and the 10 years from FY23–32 (inclusive). These remain unchanged and are presented in the exhibit below compared with Edison’s equivalent forecasts. Note that both include the Marathon, Curipamba and Goose streams (but not yet the Fenix stream) and exclude the Keno Hill and Yauliyacu streams (which have now been sold).

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

FY23e

FY23–27 average*

FY23–32 average

Edison forecast

Silver production (Moz)

20.0

Gold production (koz)

339.3

Cobalt production (klb)

980

Palladium production (koz)

15.5

Gold equivalent (koz)

623.7

777

792

WPM guidance

Silver production (Moz)

20.0–22.0

Gold production (koz)

320–350

Cobalt & palladium production (koz AuE)

22–25

Gold equivalent (koz)

600–660

810

850

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

WPM’s updated five-year and 10-year guidance is based on standardised pricing assumptions of US$1,850/oz gold (cf US$1,800/oz previously), US$24.00/oz silver (unchanged), US$1,800/oz palladium (cf US$2,100/oz previously) and US$18.75/lb cobalt (cf US$33.00/lb previously). Of note in this context is an implied gold/silver ratio of 77.1x, which compares with its current ratio of 86.7x, but a long-term average of 61.5x (since gold was demonetised in August 1971). At the standardised prices indicated, our gold equivalent production forecast of 623.7koz gold equivalent (AuE) for FY23e lies well within WPM’s guidance range of 600–660koz AuE.

Otherwise, readers will note that Edison’s medium-term production forecasts are within 5% of WPM’s guidance for the period FY23–27 and within 7% of its longer-term guidance for FY23–32. However, we regard this as within an acceptable range of variance, especially given WPM’s traditional under-sale of metal relative to production of this order of magnitude. In addition, these estimates necessarily exclude potential future stream acquisitions.

Growth opportunities

Short term

In the short term, production of palladium and gold at Stillwater (operated by Sibanye-Stillwater) will increase under the influence of the Fill-the-Mill project at East Boulder (although the Blitz project has now been delayed to 2024, following the suspension of growth capital activities owing to COVID-19). Similarly, the Voisey’s Bay underground project is ramping up to full production, while First Majestic is increasing production at San Dimas by restarting mining operations at the past-producing Tayoltita mine to add another 300tpd (12%) to throughput. In addition, it has been investigating the installation of a 3,000tpd high-intensity grinding mill circuit and an autogenous grinding mill to improve recoveries and reduce operating costs.

Medium term

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

Sabina Gold & Silver Corp (in the process of being acquired by B2Gold) has announced a formal construction decision for the Goose project with the intention of commencing full construction early this year with first production anticipated in 2025.

On 9 March, Artemis announced the approval of its BC Mines Act Permit for the Blackwater project, which is the last major permit required ahead of major construction work. Last year, the company announced the start of site preparation work at the plant site, including site clearing, bulk earthworks and sediment/erosion control, which is reported to be ‘well advanced’. Since then, it has executed an order for construction equipment with the initial fleet expected to be delivered in early Q223. It has also now closed the associated US$385m project loan facility, with first gold now anticipated in H224.

In November, Generation Mining received the final environmental approvals for its Marathon palladium-copper project in northern Ontario. This year, it is aiming to secure key provincial permits, related to species at risk, tree harvesting and water quality, etc, so that early construction works can commence. The start of construction is anticipated in Q323 and production in Q3–Q425, to which end it has already purchased an unused, surplus SAG mill and a ball mill.

Adventus Mining signed the investment contract for the Curipamba project with the Ecuadoran government in December and is planning for the start of formal construction of the project in Q223.

Long term

Salobo

On 24 October 2018, Vale announced the approval of the Salobo III brownfields mine expansion, intended to increase processing capacity at Salobo from 24Mtpa to 36Mtpa, with start-up at that point scheduled for H222 and an estimated ramp-up time of 15 months. According to its agreement with Vale at the time, depending on the grade of the material processed, WPM was to have made a payment to Vale for this expansion, subject to a 90-day completion test, which WPM estimated was to have been in the range US$550–670m in FY23–25, in return for which it was to be entitled to its full 75% attributable share of expanded gold production.

After the end of the quarter however, Wheaton and Vale agreed to amend the Salobo Precious Metals Purchase Agreement (PMPA) to adjust the expansion payment terms to provide increased flexibility for the ramp-up of the expansion, while also maintaining an incentive for Vale to maximise grade on an annual basis. The expansion payment will now be phased, with Wheaton making an initial payment once actual throughput is expanded above 32Mtpa and a second payment if actual throughput is expanded above 35Mtpa, by 1 January 2031. The total cumulative payments will range from US$283m to US$552m, dependent on Vale’s timing for each of the production increases, and Edison now forecasts that Wheaton will make total payments to Vale of US$552m by the end of FY24. In addition, Wheaton will be required to make annual payments of between US$5.1m and US$8.5m for a 10-year period following payment of the expansion payments if the Salobo mine maintains a high-grade mine plan.

These payments compare to WPM’s purchase of a 25% stream from Salobo in August 2016 for a consideration of US$800m (see our note Going for gold, published on 30 August 2016), the US$900m it paid for a similar stream in March 2015 (when the gold price averaged US$1,179/oz) and the US$1.33bn it paid for its original 25% stream in February 2013.

As at the end of Q422, the Salobo III mine expansion was reported to be 99% complete:

Exhibit 8: Physical completion of Salobo III, by quarter, Q219–Q422

Q219

Q319

Q419

Q120

Q220

Q320

Q420

Q121

Q221

Q321

Q421

Q122

Q222

Q322

Q422

Physical completion (%)

15

27

40

47

54

62

68

73

77

81

85

90

95

98

99

Implied quarterly completion (%)

8

12

13

7

7

8

6

5

4

4

4

5

5

3

1

Source: Vale, Edison Investment Research

According to Vale, the project successfully commenced at the end of 2022 and is expected to achieve full capacity in Q424. Once Salobo III has been completed, however, WPM believes that reserves and resources there could support a further 33% capacity increase at Salobo, from 90ktpd to 120ktpd (denoted Salobo IV). In addition to its long-term underground potential, WPM believes such an expansion could nevertheless still be supported by open-pit mining alone. Under the terms of its agreement with Vale, there would be no additional payment due from WPM in respect of the Salobo IV expansion.

Rosemont/Copper World

Another major project with which WPM has a streaming agreement for attributable gold and silver production is Rosemont in Arizona (now part of the wider Copper World complex).

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

The evolution of the project from Rosemont to Copper World

In March 2019, Rosemont/Copper World’s operator, Hudbay, received both a Mine Plan of Operations from the US Forest Service and a Section 404 Water Permit from the US Army Corps of Engineers (ACOE), which was effectively the final material administrative step before the Rosemont mine could start development. Subsequently, Hudbay indicated it would seek board approval to start construction work by the end of CY19, which would have enabled first production ‘by the end of 2022’. In the meantime, it started early works to run concurrently with financing activities (including a potential joint venture partner).

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

A new development plan

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

In this context, on 24 May 2022, Hudbay received a favourable decision from the US District Court for the District of Arizona on all issues relating to the development of Copper World, including that Copper World and Rosemont are not connected under the National Environmental Policy Act (NEPA) and, therefore, that the ACOE does not have an obligation to include Copper World as part of its NEPA review of Rosemont. The District Court also granted Hudbay’s motion to dismiss the Copper World preliminary injunction request filed by the plaintiffs in the two lawsuits challenging the Section 404 Clean Water Act permit for Rosemont on the basis that the lawsuits were moot after the company surrendered its 404 permit back to the ACOE in April 2022. The ACOE has never determined that there are jurisdictional waters of the United States on the Copper World site and Hudbay has independently concluded through its own scientific analysis that there are no such waters in the area. In this respect, Hudbay believes the District Court’s decision, together with the 12 May 2022 decision, clarifies the permitting path for Copper World, including the requirements to receive federal permits for the second phase only (ie years 16 to 44 of the project) under existing mining regulations.

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

Resources were reported to have expanded materially to 792Mt in the measured category, 381Mt in the indicated category and 262Mt in the inferred category at the time of Hudbay’s PEA at an average grade of 0.40% copper. In April 2022, the company commenced early works at Copper World with initial grading and clearing activities at site – albeit Hudbay is having to contest an ACOE order to stop grading and land clearing on a portion of the site, while also being under a law enforcement investigation by the San Francisco regional office of the US Environmental Protection Agency (EPA) for alleged ‘unauthorized activities’. Nevertheless, main facility engineering has been completed and metallurgical test work is being analysed as part of concentrate leaching trade-off evaluations and Hudbay expects to conclude a pre-feasibility study for Phase I of the Copper World project in Q223. Among other things, this will focus on converting the remaining inferred mineral resources to measured and indicated status and the evaluation of many of the project’s optimisation and upside opportunities. It will then complete a definitive feasibility study as well as receiving all required state and local permits over the next 12 months, while simultaneously evaluating a variety of financing options, including a potential minority joint venture partner, prior to project sanction potentially as early as 2024. As such, Edison is continuing to forecast production from Rosemont/Copper World attributable to WPM in FY27. However, readers should note that any acceleration in the process of being granted federal permits could allow Hudbay earlier access to higher-grade areas of the orebody, especially at Rosemont. In the meantime, it is continuing exploration and technical work at site with seven drill rigs conducting infill drilling to support its feasibility studies.

Antamina

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

Pascua-Lama

WPM’s contract with Barrick provided for a completion test that, if unfulfilled by 30 June 2020, would result in WPM being entitled to the return of its upfront cash consideration of US$625m less a credit for any silver delivered up to that date from three other Barrick mines (at which point it would have no further streaming interest in the mine). Given the test was unfulfilled, WPM had the right to an estimated US$252.3m (WPM’s carrying value of Pascua-Lama) repayment from Barrick in FY20. Given the long-term optionality provided by the Pascua-Lama project, however, WPM instead opted not to enforce the repayment of its entitlement and to instead maintain its streaming interest in the project (which was originally expected to deliver an attributable 1.7–12.0Moz silver pa, averaging 5.2Moz Ag pa, to WPM at a cost of US$3.90/oz inflating at 1% per year). A Chilean court ordered Pascua-Lama to close in 2020. However, Barrick is advancing a comprehensive review into Pascua-Lama and has raised the possibility that the orebody could be developed in a different manner, in which case an investment decision on the project could be forthcoming as early as 2024.

Other potential future growth opportunities

In general, WPM expects to be conducting due diligence processes on approximately 10–12 projects at any one time, which it expects to narrow to three to four target projects over approximately 12 months. Most of the opportunities currently being evaluated by WPM are reported to be the precious metal by-product streams of base metal mines, although there are also reported to be some high-margin, purely precious metals mines included as well. In the first instance, WPM would fund any such transactions via the US$2bn available under its revolving credit facility, plus the US$696.1m in cash that it has on its balance sheet (at end-Q422) and, potentially, its US$300m at-the-market equity programme.

While it is difficult, or impossible, to predict potential future stream acquisition targets with any degree of certainty, it is possible to highlight two that may be of interest to WPM in due course for which it already has strong, existing counterparty relationships, being:

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

the 30% of the gold output at Constancia that is not currently subject to any streaming arrangement.

FY23 guidance and forecasts

In the light of WPM’s FY23 guidance, and recent moves in metals prices, forex rates and WPM’s share price, Edison has updated its quarterly forecasts for Wheaton for FY23 as follows:

Exhibit 9: WPM FY23 forecast, by quarter*

US$000s
(unless otherwise stated)

Q123e

(prior)

Q123e

Q223e

(prior)

Q2233

Q323e

(prior)

Q323e

Q423e

(prior)

Q423e

FY23e

FY23

(prior)

Silver production (koz)

5,000

5,000

5,000

5,000

5,000

5,000

5,000

5,000

20.000

20,000

Gold production (oz)

69,371

69,371

85,746

85,746

87,149

87,149

97,005

97,005

339,271

339,271

Palladium production (koz)

3,871

3,871

3,871

3,871

3,871

3,871

3,871

3,871

15,484

15,484

Cobalt production (klb)

113

113

201

201

289

289

377

377

980

980

Silver sales (koz)

4,405

4,409

5,000

5,000

5,000

5,000

5,000

5,000

19,409

19,404

Gold sales (oz)

64,743

64,824

85,725

85,725

87,128

87,128

96,984

96,984

334,661

334,580

Palladium sales (oz)

3,298

3,298

3,856

3,856

3,856

3,856

3,856

3,856

14,865

14,865

Cobalt sales (klb)

104

104

201

201

289

289

377

377

971

971

Avg realised Ag price (US$/oz)

22.22

22.28

21.03

21.54

21.03

21.54

21.03

21.54

21.71

21.30

Avg realised Au price (US$/oz)

1,860

1,872

1,826

1,868

1,826

1,868

1,826

1,868

1,869

1,833

Avg realised Pd price (US$/oz)

1,577

1,574

1,453

1,462

1,453

1,462

1,453

1,462

1,487

1,480

Avg realised Co price (US$/lb)

18.24

18.22

15.50

15.50

15.50

15.50

15.50

15.50

15.79

15.79

Avg Ag cash cost (US$/oz)

5.15

4.97

5.09

4.93

5.09

4.93

5.10

4.94

4.94

5.10

Avg Au cash cost (US$/oz)

468

469

459

459

457

458

453

454

459

459

Avg Pd cash cost (US$/oz)

284

283

262

263

262

263

262

263

268

269

Avg Co cash cost (US$/lb)

3.28

3.28

2.79

2.79

2.79

2.79

2.79

2.79

2.84

2.84

Sales

225,421

226,672

270,399

276,584

274,327

280,571

293,691

300,349

1,084,176

1,063,837

Cost of sales

Cost of sales, excluding depletion

54,279

53,570

66,320

65,617

67,101

66,400

71,497

70,800

256,387

259,197

Depletion

49,888

48,861

62,938

61,719

65,281

64,070

71,420

70,216

244,865

249,527

Total cost of sales

104,167

102,430

129,258

127,336

132,382

130,470

142,917

141,016

501,253

508,725

Earnings from operations

121,253

124,242

141,140

149,248

141,945

150,101

150,774

159,333

582,924

555,112

Expenses and other income

– General and administrative**

18,118

19,363

16,944

17,488

16,944

17,488

16,944

17,488

71,825

68,950

– Foreign exchange (gain)/loss

0

0

– Net interest paid/(received)

1,454

1,454

1,454

1,454

1,454

1,454

1,454

1,454

5,817

5,817

– Other (income)/expense

(2,315)

(5,492)

(1,816)

(4,756)

(895)

(3,255)

(1,283)

(2,305)

(15,808)

(6,310)

Total expenses and other income

17,257

15,325

16,582

14,186

17,504

15,686

17,115

16,637

61,834

68,458

Earnings before income taxes

103,996

108,917

124,558

135,062

124,442

134,415

133,658

142,696

521,089

486,655

Income tax expense/(recovery)

250

250

250

250

250

250

250

250

1,000

1,000

Marginal tax rate (%)

0.2

0.2

0.2

0.2

0.2

0.2

0.2

0.2

0.2

0.2

Net earnings

103,746

108,667

124,308

134,812

124,192

134,165

133,408

142,446

520,089

485,655

Average no. shares in issue (000s)

451,757

452,319

451,757

452,319

451,757

452,319

451,757

452,319

452,319

451,757

Basic EPS (US$)

0.230

0.240

0.275

0.298

0.275

0.297

0.295

0.315

1.15

1.08

Diluted EPS (US$)

0.223

0.239

0.268

0.297

0.267

0.295

0.287

0.314

1.15

1.05

DPS (US$)

0.15

0.15

0.15

0.15

0.15

0.15

0.15

0.15

0.60

0.60

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

Our improved basic EPS forecast of US$1.15/share for FY23 is 1.7% below the consensus forecast of US$1.17/share (source: Refinitiv, 14 March 2023). In this context, it is worth noting that our gold and silver price forecasts for the remainder of the year are US$1,868/oz and US$21.54/oz, respectively, which are those prevailing at the time of writing.

Exhibit 10: WPM FY23 consensus EPS forecasts (US$/share), by quarter

Q123e

Q223e

Q323e

Q423e

Sum Q1–Q423e

FY23e

Edison forecasts

0.240

0.298

0.297

0.315

1.150

1.15

Mean consensus

0.290

0.280

0.290

0.290

1.220

1.17

High consensus

0.360

0.340

0.330

0.320

1.350

1.38

Low consensus

0.220

0.210

0.260

0.260

0.950

0.91

Source: Refinitiv, Edison Investment Research. Note: As at 14 March 2023.

Valuation

Absolute

WPM is a multi-asset company that has shown a willingness and desire to buy streams in the past to maintain production and maximise shareholder returns. As a result, rather than our customary method of discounting maximum potential dividends over the life of operations back to FY23, in the case of WPM (as with Newmont and Endeavour), we discount forecast cash flows back over four years from the start of FY23 and then apply an ex-growth terminal multiple to forecast cash flows in that year (ie FY26) based on an appropriate discount rate.

Our estimate of WPM’s ‘terminal’ pre-financing cash flow in FY26 is ostensibly unchanged at US$2.57/share (cf US$2.59/share previously), as shown below:

Exhibit 11: WPM cash flow per share and related valuation (US$/share), FY23–26

Source: Edison Investment Research. Note: Valuation line assumes ex-growth cash flow per share growth rate of 4.0% pa post-FY26 in nominal terms, which equals the average US rate of CPI inflation since 1972 (ie 0% per annum growth in real terms).

Note that the negative cash flow that we calculate in FY23 arises almost solely as a result of the assumption that Wheaton will pay Vale US$283m in consideration for the Salobo III expansion over the next 10 months in addition to instalment payments for Santo Domingo, Blackwater, Goose, Curipamba and Marathon. In reality, some (or all) of these could be deferred or delayed. Otherwise, assuming 4% growth in nominal cash flows beyond FY26 (ie 0% growth in real cash flows) and applying a discount rate of 9.0% (being the expected long-term required nominal equity return), our terminal valuation of the company at end-FY26 is US$53.28/share (cf US$53.71/share previously), which, when discounted back to FY23 in combination with intervening cash flows, results in a valuation at the start of FY23 of US$41.11/share (cf US$41.52/share previously), or C$56.49/share (cf C$56.30/share previously). To this should then be added WPM’s end-FY22 net cash position of US$1.54/share (C$2.11/share) to take the total to US$42.65 (or C$58.60) per share. However, 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 7.6% per annum since 1968 and at a simple average annual growth rate of 9.7% per annum (as depicted below).

Exhibit 12: Gold price annual performance, 1968–2021

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

It is also inconsistent with WPM’s longer-term historical performance, wherein operational cash flows have increased at a compound average annual growth rate of 21.0% pa for the 17 years between FY05 and FY22, while its operational cash flows per share have increased at compound average annual growth rate of 14.1% pa.

Historical

Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 30.4x current year basic underlying EPS, excluding impairments (cf 37.6x Edison or 37.1x Refinitiv consensus FY22e – see Exhibit 14).

Exhibit 13: WPM’s historical current year P/E multiples, 2005–22

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

Applying this 30.4x multiple to our (ostensibly unchanged) EPS forecast of US$1.79 in FY26 (cf US$1.80 previously) implies a potential value per share for WPM of US$54.47 or C$74.85 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 (which we would ascribe to macroeconomic uncertainty creating a supportive environment for precious metals). As such, we believe that a multiple of 37.8x (the average of FY18–22) may still be supported in the event of a return to favour of precious metals and precious metals stocks. In this case, applying a 37.8x earnings multiple to our updated EPS forecast of US$1.15 in FY23 implies a potential value per share for WPM of US$43.48 or C$59.75.

Relative

From a relative perspective, it is notable that WPM is cheaper than its peers on at least 63% (23 out of 36) of the valuation measures observed in Exhibit 14 if Edison estimates are used or 55% (20 out of 36) of the same valuation measures if consensus forecasts are used.

Exhibit 14: 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

36.7

36.0

37.2

1.0

1.0

1.0

25.8

24.9

25.4

Royal Gold

31.0

28.8

28.0

1.1

1.1

1.3

16.9

14.7

15.5

Sandstorm Gold

69.8

43.9

29.0

1.2

1.2

1.2

14.2

12.2

9.6

Osisko

37.5

32.1

26.5

1.1

1.1

1.1

18.1

17.0

16.0

Average

43.7

35.2

30.1

1.1

1.1

1.1

18.8

17.2

16.6

WPM (Edison forecasts)

37.6

31.1

25.2

1.4

1.4

1.7

25.1

20.1

17.3

WPM (consensus)

37.1

32.3

32.7

1.3

1.3

1.3

24.6

21.4

20.7

Implied WPM share price (US$)*

50.29

48.97

51.75

55.17

56.34

62.99

32.36

36.95

41.48

Source: Refinitiv, Edison Investment Research. Note: Peers priced on 14 March 2023. *Derived using Edison forecasts and average consensus multiples.

Financials: US$694.1m (US$/share) in net cash

At 31 December, WPM had US$696.1m in cash on its balance sheet and no debt outstanding under its US$2bn revolving credit facility. As such (including a modest US$2.0m in leases), it had US$694.1m in net cash overall after generating US$172.0m in operating cash flow during the quarter.

Exhibit 15: WPM cash, net cash and operating cash flow, by quarter, Q420–Q422

(US$m)

Q420

Q121

Q221

Q321

Q421

Q122

Q222

Q322

Q422

Cash/(debt)

192.7

191.2

235.4

372.5

226.0

376.2

448.6

494.6

696.1

Net cash/(debt)

6.0

187.7

232.1

369.4

223.2

373.5

446.2

492.5

694.1

Operating cash flow

208.0

232.2

216.3

201.3

195.3

210.5

206.4

154.5

172.0

Source: Wheaton Precious Metals

In FY23 we estimate that WPM will generate US$780.2m from (net) operating activities, before consuming US$1,002.0m in investing activities and paying out up to US$271.4m in forecast dividends to leave the company with net cash of US$200.9m on its balance sheet as at end-FY23. However, investors should note that the timing of disbursements relating to the Salobo III, Santo Domingo, Blackwater, Goose, Curipamba, Marathon and Rosemont/Copper World streams is uncertain and inasmuch as investments are delayed, we calculate that it is possible that Wheaton could register a much larger cash balance on its balance sheet by the year’s end. Either way, in the absence of any major new asset acquisitions, we do not foresee that Wheaton will require recourse to its debt facilities at any point in the future (all other things being equal).

Exhibit 16: 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

1,084,176

1,357,849

1,555,509

Cost of Sales

(266,763)

(287,947)

(267,621)

(256,387)

(314,456)

(354,273)

Gross Profit

829,461

913,718

797,432

827,789

1,043,392

1,201,236

EBITDA

 

 

763,763

852,733

735,245

755,963

971,567

1,129,410

Operating profit (before amort. and excepts.)

 

 

519,874

597,940

503,293

511,098

629,990

777,033

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

4,469

162,806

164,214

0

0

0

Other

387

190

7,680

15,808

0

0

Operating Profit

524,730

760,936

675,187

526,906

629,990

777,033

Net Interest

(16,715)

(5,817)

(5,586)

(5,817)

362

409

Profit Before Tax (norm)

 

 

503,159

592,123

497,707

505,281

630,352

777,442

Profit Before Tax (FRS 3)

 

 

508,015

755,119

669,601

521,089

630,352

777,442

Tax

(211)

(234)

(475)

(1,000)

(1,000)

(1,000)

Profit After Tax (norm)

503,335

592,079

504,912

520,089

629,352

776,442

Profit After Tax (FRS 3)

507,804

754,885

669,126

520,089

629,352

776,442

Average Number of Shares Outstanding (m)

448.7

450.1

451.6

452.3

452.3

452.3

EPS - normalised (c)

 

 

112

132

112

115

139

172

EPS - normalised and fully diluted (c)

 

 

112

131

112

115

139

171

EPS - (IFRS) (c)

 

 

113

168

148

115

139

172

Dividend per share (c)

42

57

60

60

61

72

Gross Margin (%)

75.7

76.0

74.9

76.4

76.8

77.2

EBITDA Margin (%)

69.7

71.0

69.0

69.7

71.6

72.6

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

47.4

49.8

47.3

47.1

46.4

50.0

BALANCE SHEET

Fixed Assets

 

 

5,755,441

6,046,427

6,039,813

6,796,945

7,123,506

6,777,929

Intangible Assets

5,521,632

5,940,538

5,753,111

6,510,243

6,836,804

6,491,227

Tangible Assets

33,931

44,412

30,607

30,607

30,607

30,607

Investments

199,878

61,477

256,095

256,095

256,095

256,095

Current Assets

 

 

201,831

249,724

720,093

211,382

239,840

1,036,835

Stocks

3,265

12,102

13,817

2,551

3,195

3,660

Debtors

5,883

11,577

10,187

5,941

7,440

8,523

Cash

192,683

226,045

696,089

202,890

229,205

1,024,652

Other

0

0

0

0

0

0

Current Liabilities

 

 

(31,169)

(29,691)

(30,717)

(30,440)

(33,224)

(35,133)

Creditors

(30,396)

(28,878)

(29,899)

(29,622)

(32,406)

(34,315)

Short term borrowings

(773)

(813)

(818)

(818)

(818)

(818)

Long Term Liabilities

 

 

(211,532)

(16,343)

(11,514)

(11,514)

(11,514)

(11,514)

Long term borrowings

(197,864)

(2,060)

(1,152)

(1,152)

(1,152)

(1,152)

Other long-term liabilities

(13,668)

(14,283)

(10,362)

(10,362)

(10,362)

(10,362)

Net Assets

 

 

5,714,571

6,250,117

6,717,675

6,966,373

7,318,608

7,768,117

CASH FLOW

Operating Cash Flow

 

 

784,843

851,686

749,429

787,006

972,208

1,129,771

Net Interest

(16,715)

(5,817)

(5,586)

(5,817)

362

409

Tax

(2,686)

(503)

34

(1,000)

(1,000)

(1,000)

Capex

149,648

(404,437)

(44,750)

(1,001,997)

(668,137)

(6,800)

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)

(271,391)

(277,117)

(326,933)

Net Cash Flow

770,274

230,869

472,201

(493,199)

26,314

795,447

Opening net debt/(cash)

 

 

774,766

5,954

(223,172)

(694,119)

(200,920)

(227,235)

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)

(200,920)

(227,235)

(1,022,682)

Source: Company sources, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Wheaton Precious Metals and prepared and issued by Edison, in consideration of a fee payable by Wheaton Precious Metals. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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

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

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

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

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

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

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Wheaton Precious Metals and prepared and issued by Edison, in consideration of a fee payable by Wheaton Precious Metals. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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

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

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

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

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

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

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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