London, UK, 30 August 2017

Edison issues outlook on Wheaton Precious Metals (WPM)

Despite a second quarter in which ounces produced but not yet delivered to Wheaton Precious Metals (WPM) increased, earnings from operations were just US$2.8m (or 3.2%) below our earlier published estimate of US$85.7m. In addition, management formally changed its dividend policy, from 20% of average cash generated by operating activities to 30%, which thus allowed it to declare a relatively generous third quarter dividend of 10c/share compared with our prior expectation of 6c. Silver sales exceeded gold sales for the first time since Q316 (in the ratio 54:46). Finally, WPM also announced that it had entered into an "early deposit" agreement whereby it will advance US$65m to Desert Star in return for the right to purchase 100% of the silver and gold production from Kutcho in British Columbia at 20% of the spot price of the metals over the life of the mine.

Assuming no material purchases of additional streams (which is unlikely), we forecast a per share value for WPM of US$38.29, or C$48.00 (vs US$37.52, or C$51.25, previously) in FY20 (at average precious metals prices of US$23.98/oz Ag and US$1,362/oz Au), implying a 27.9% pa total internal rate of return for investors in US dollar terms over the next three and a half years. These valuations rise to US$44.21, C$55.42 and 32.0% in the event that Vale doubles Salobo's processing capacity within that same time frame. In the meantime, WPM's shares are trading on near-term financial ratios that are lower than those of its royalty/streaming 'peers' on 100% of financial measures considered on page 16, and the miners themselves in at least 44% of the same measures, despite being associated with materially less operating and cost risk. Additional potential upside still then exists in the form of the optionality provided by the development of major assets such as Pascua-Lama.

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