FY25 marks the start of a multi-year growth profile

Wheaton Precious Metals (WPM) has shown itself to be one of the major beneficiaries of the funding stasis for mining projects in western financial markets by entering into a recent precious metals purchase agreement (PMPA) with Montage Gold for its Koné mine in Côte d’Ivoire. In conjunction with other similar projects, we are forecasting that WPM’s attributable production will grow to upwards of 900k gold equivalent ounces (GEOs) in FY30 (cf 635k GEOs in FY24).

Valuation: Still trending up

Using a capital asset pricing model-type method, whereby we discount cash flows at a nominal 9% per year, our terminal valuation of WPM amounts to US$69.46 (or C$100.29) in FY30, assuming zero subsequent long-term growth in real cash flows (which we think unlikely). If we instead assume 7.7% pa long-term growth in cash flows (ie the average compound annual growth rate in the price of gold from 1967 to 2024), our current valuation of WPM in FY25 more than doubles to US$172.42/share, or C$248.95/share. As such, at an implied growth rate of 5.7% per year, WPM’s share price currently appears to be discounting future compound annual average increases in cash flows per share from FY30 only slightly in excess of the long-term average rate of US dollar inflation of 4.0% from 1967 until 2024. However, an alternative interpretation is that the market is assuming currently prevailing precious metals prices up to and including FY30 and compound annual average increases in WPM’s cash flow per share of just 4.7% pa thereafter. Otherwise, assuming no purchases of additional streams, we calculate a value per share for WPM of US$57.93 (or C$83.64, or £44.78) in FY27, based on a historical multiple of 31.2x contemporary earnings (albeit at a gold price of only US$2,239/oz). At current prices, this valuation rises by 53.2%, to US$88.94/share (or C$128.42/share, or £68.74). In the meantime, Wheaton’s average P/E multiple of 38.0x in FY18–24 implies a current year share price of US$74.92/share, or C$108.18/share (£57.91/share), in FY25.

Q424 financial results

WPM’s Q424/FY24 financial results followed its production and sales results announced on 18 February, which showed that the company had exceeded the top end of production guidance for the year by c 2.4%, or 15,007 GEOs. As such, there were no surprises in the volume of its precious metals sales, either for the fourth quarter or for the year.

Production was slightly greater than we had expected for Q4, albeit this largely reflected small prior period adjustments at a number of smaller mines and, effectively, just a redistribution of production throughout the four quarters of the year. As had been appreciated at the time of its 18 February announcement, production outstripped sales for both the quarter and the full year, leading us to believe that Wheaton might have received lower realised prices for its output within the context of a generally rising price trend. In the event, this fear proved to be unfounded, with realised prices very close to actual average prices during the three-month period in question. As a result, there was a positive variance of 2.3% (or US$8.7m) in sales relative to our prior expectations, although this was largely offset by a negative variance in G&A costs (NB it is worth noting that these costs were in the form of ‘other’ items, such as donations, depreciation and professional fees and stock-based compensation, but not salaries). There was also a small positive variance in the depletion charge (ie it was lower than we had expected).

These three factors were predominantly responsible for a US$3.7m or 1.9% positive variance in adjusted EPS relative to our prior expectations. As a result, revenue, adjusted EPS and operating cash flow all achieved record levels for both Q4 and FY24. Exhibit 1, below, summarises Wheaton’s actual results for Q424 and FY24 within the context of our prior expectations and also the first three quarters of the year.

Note that, for the purposes of the above analysis, we have shown Q224 on an underlying basis, with the global minimum tax (GMT) attributable in Q124 but reported in Q224 adjusted back out into Q124 (which is also the basis of our implied re-stated Q124 numbers).

Headline numbers were negatively affected by a US$108.9m impairment at Voisey’s Bay (see Exhibit 18). However, this appears rather technical, given the sharp recovery in cobalt prices in the past few days.

Exhibit 2 compares Wheaton’s actual Q424 and FY24 adjusted EPS results with our (and the market’s) prior expectations, demonstrating its outperformance.

Outperformance in the fourth quarter was driven by production and sales that were ahead of our prior expectations at Constancia, Stillwater, Penasquito and Los Filos, while Salobo achieved record quarterly, albeit we expected this, given the level of copper production of 58,900t reported by Vale for Q4 on 28 January (see Exhibits 3 and 4).

Ounces produced but not yet delivered

Overall, gold production outstripped sales by 29,864oz or 34.1% in Q4, which was close to the top end of the range since Q112. Silver production similarly outstripped sales by 33.3% (or 1,433koz), which was also close to the top end of the historical range.

As a result, gold ounces produced but not yet delivered (PBND) increased by 26.3% (or 24,868oz) to 119,446oz – or 3.74 months of full-year production – relative to a slightly restated Q3 number. Silver ounces PBND increased by 19.3% (or 527koz) to 3,260koz – or 1.88 months of full-year production – also relative to a slightly restated Q3 number. These compare with WPM’s target levels of two to three months of PBND production for gold and palladium and two months for silver. While slightly high within this range, this position sets up the possibility that sales, particularly of gold, could be ‘flushed through’ at some earlier point in FY25 than the last quarter (which is the traditional time period in which this effect occurs).

General and administrative expenses

At the time of its Q423 results, WPM provided guidance for non-stock G&A expenses of US$41–45m, or US$10.25–11.25m per quarter, for FY24, which represented a decline relative to US$47–50m in FY23 and US$47–49m in FY22 and was on a par with guidance of US$42–44m for FY21 and US$40–43m for FY20.

Stock-based G&A expenses are harder to estimate. However, they broadly correlate with movements in WPM’s share price (in US dollars) between quarters. Stock-based G&A expenses were higher than we had expected in Q424, given the movement in Wheaton’s share price (as shown in Exhibit 7, below). However, this is in line with the historical precedent, whereby the charge in the final quarter of the year tends to be higher than in the preceding three quarters.

As noted previously however, while aggregate costs were above the level of our expectations, they were in the form of ‘other’ items, such as donations, depreciation and professional fees etc and stock-based compensation, but not salaries, which were only 0.9% higher quarter-on-quarter, or 3.8% annualised (ie not much above the US’s CPI inflation rate of 2.9% in 2024).

FY24 and future forecasts compared to guidance

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

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

Edison’s forecasts currently appear slightly more conservative. However, at the moment, they only reflect output from Platreef based on its March 2022 integrated development plan. On 18 February however, the operator, Ivanhoe Mines, announced the results of two completed independent studies covering the three-phase development of the Platreef mine including an updated feasibility study on the Phase 2 expansion to 4.1Mtpa processing capacity and a preliminary economic assessment covering a new Phase 3 expansion to 10.7Mtpa of processing capacity. To date, these have not been incorporated into our longer-term models owing to an absence of precise information. When they are included however, we expect them to add in the order of 70koz platinum group metals and gold to Wheaton’s medium-term production profile. Nevertheless, readers will note that, in the meantime, our longer-term production forecasts are within 6% of WPM’s guidance, which is well within the average quarterly under-sales rate of 11.4% (±7.4%) since Q121.

WPM’s guidance for FY25 and beyond is based on standardised pricing assumptions of US$2,600/oz gold, US$30.00/oz silver, US$950/oz palladium, US$950/oz platinum and US$13.50/lb cobalt. Of note is the updated implied gold/silver ratio of 86.7x. This compares with the previous ratio of 87.0x (ie little changed) and also the current ratio of 88.3x. However, they all compare with the longer-term average of 60.1x since gold was demonetised in August 1971.

At the updated standardised prices indicated, our production forecast of 631.2koz gold equivalent (AuE) for FY25 is self-evidently within Wheaton’s guidance range of 600–670k GEOs. However, our sales forecast is slightly more conservative, at 580.4k GEOs (cf 532,468k GEOs in FY24).

FY25 forecasts

For FY25, we have updated (and very slightly upgraded) our EPS forecasts since the time of our last note to reflect changes in precious metals prices and a very small change to silver sales for the year.

This updated adjusted basic EPS forecast of US$1.969 per share remains towards the top end of quite a wide range of brokers’ expectations for FY25:

Within this context, it is worth noting that the discrepancy between brokers’ expectations for FY25 and ‘Sum Q1–Q425e’ at the bottom end of the range suggests that there is a different sample of brokers compiling quarterly forecasts from those compiling annual ones.

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 FY25, in the case of WPM, we discount forecast cash flows back over six years (at our long-term gold prices) to the start of FY25 and then apply an ex-growth terminal multiple to forecast cash flows in that year (FY30) based on the appropriate discount rate.

Our estimate of WPM’s terminal cash flow in FY30 is little changed at US$3.35/share (cf US$3.38/share previously). Assuming 4% growth (the average long-term CPI inflation rate in the US since 1967) in nominal cash flows beyond FY30 (ie 0% growth in real cash flows) and applying a discount rate of 9% (being the expected long-term required nominal equity return), our terminal valuation of the company at end-FY30 is US$69.46, or C$100.29, per share.

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

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

If we instead assume that cash flows per share increase at a compound average annual growth rate of 7.7% (ie the average compound average annual growth rate in the gold price from 1967 to 2024, cf 4.0% above), then our terminal valuation of WPM increases manyfold to US$275.17/share, or C$397.32/share, and our current valuation to US$172.42/share, or C$248.95/share (excluding net cash – see below).

Stated alternatively, WPM’s current share price of C$105.02 appears to be discounting future compound annual average increases in cash flow per share of just 5.7% pa from FY30, which is only slightly higher than the long-term average rate of US inflation of 4.0% pa from 1967 to 2024 (inclusive).

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

An alternative interpretation is that the market is assuming currently prevailing precious metals prices up to and including FY30, in which case WPM’s share price of C$99.12 could be said to be discounting compound annual average increases in cash flows per share thereafter of just 4.6% per annum.

Historical

Excluding FY04 (part-year), WPM’s shares have historically traded on an average P/E multiple of 31.2x current year basic underlying EPS, excluding impairments (cf 36.9x Edison and 39.4x LSEG Data & Analytics consensus FY25e currently, see Exhibit 16).

Applying this 31.2x multiple to our (ostensibly unchanged) EPS forecast of US$1.86 in FY27 implies a potential value per share for WPM of US$57.93 or C$83.64 in that year. However, it is also notable that Edison’s forecast metals prices in that year currently are only US$2,239/oz Au and US$25.32/oz Ag. At current prices, our EPS forecast of US$1.86/share in FY27 rises to US$2.85/share, in which case our equivalent valuation rises to US$88.94, or C$128.42, per share. Moreover, as can be observed from the graph above, during periods of precious metal price appreciation, WPM can command higher current year P/E ratios. In the period 2018–24, for example, its average rating was 38.0x, in which case its corresponding share price in FY25 should be US$74.92/share, or C$108.18/share.

Relative

In the meantime, WPM is maintaining its premium rating relative to its peers, albeit it appears good value within the context of future dividend expectations:

Readers will note Edison’s relatively high year 2 P/E ratio, which arises from our relatively low precious metals forecasts of US$2,105/oz Au and US$24.34/oz Ag. As noted previously, if metals prices remain at current levels, our FY26 EPS estimate instead rises to US$2.62/share, in which case the corresponding P/E ratio would be 27.8x, which is at a marked discount to consensus and in line with its peer group.

Financials: US$813.0m (US$1.79/share) in net cash at end-Q4

As at 31 December, WPM had US$818.2m in cash on its balance sheet and no debt outstanding under its US$2bn revolving credit facility. Including a modest US$5.2m in lease liabilities, it therefore had US$813.0m in net cash after generating a record US$319.5m in operating cash flow.

For the full year, Wheaton generated US$1,027.6m from operating activities, before consuming US$488.3m in investing activities and paying out US$279.1m in dividends. In FY25, we estimate that it will generate US$1,359.1m from operating activities, before consuming a net US$912.2m in net investing activities and paying out an increased US$336.8m in forecast dividends under the influence of its new, progressive dividend policy. However, readers should note that the timing of PMPA payments is uncertain and, inasmuch as investments are advanced or delayed, it is possible that WPM could register either a larger or smaller net cash position on its balance sheet by the year-end than that forecast. However, all other things being equal, in the absence of any major new asset acquisitions, we do not expect WPM to require recourse to its debt facilities in the foreseeable future.