Wheaton Precious Metals — Russia-free exposure to precious metals

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

mining@edisongroup.com

Edison profile page

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

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