Silver Wheaton shares on a tear after record quarter
Shares in Silver Wheaton (TSX:SLW, NYSE:SLW) jumped on Thursday after the streaming company released second quarter results showing production hitting record levels for a second straight quarter.
In early afternoon trade the Vancouver-based company was trading at $18.35, up more than 6% on the Toronto Stock Exchange, at its high for the day. Nearly 1.2 million shares in the $7.45 billion company changed hands.
The stock is trading down 22% for the year amid the silver and gold price slump, but the counter has also been hurt by a dispute with the Canada Revenue Agency which may slap Silver Wheaton with a tax bill of about C$190 million on income of C$715 million earned by the company's foreign units between 2005 and 2010. Silver Wheaton is contesting and the dispute may take years to resolve.
Silver Wheaton's business model involves paying an upfront fee for the right to buy all or some of a miner's silver or gold production and second quarter output from its investments came in at 10.9 million silver equivalent ounces (including 50,500 ounces of gold), up 29% compared to last year. For the first half the company's production equaled 21 million ounces.
During the quarter Hudbay Minerals' Constancia mine in Peru came on stream, but the record production figure does not include an expected 800,000 ounces from Primero Mining's San Dimas mine in Mexico that was not delivered to Silver Wheaton by end-June due to a hold-up at Mexico customs.
CEO and President Randy Smallwood tells MINING.com that factoring in the delayed delivery Q2 would've been even stronger and since "those ounces have now been delivered [it] sets us up for a great third quarter." In total the company announced 6.5 million ounces of produced but not yet delivered silver equivalent ounces at its nine assets.
Based upon its current agreements, Silver Wheaton forecast 2015 production of approximately 43.5 million silver equivalent ounces, including 230,000 ounces of gold.
Revenues of $164.4 million in Q2 2015 were up 11% compared to the same quarter last 2014, representing an increase of 11% despite a 17% drop in average realized sale price per silver equivalent ounce sold during the quarter. Average cash costs were were $4.26 and $395 per ounce of silver and gold helping the company to achieve operating cash flows of $109 million, a 7% increase.
Smallwood says since Silver Wheaton pioneered the streaming model a decade ago, he's never seen the quality and quantity of opportunities that exists in today's market: "Not only has valuations come down, but the quality of projects and assets on offer means we're definitely looking at expanding."
With equity markets in the doldrums, banks unwilling to lend to resource companies and operational cash flows drying up, streaming companies become attractive for companies looking to raise money or reduce debt says Smallwood. The streaming model also fits in well with miners where precious metals are not the primary commodity – this way copper, nickel and other mines can maximize their non-core assets.
Silver Wheaton has $72 million cash on hand and more than $1.2 billion of debt that can be drawn down should it decide to pounce. Its only outstanding commitment is $230 million for Augusta's Rosemont copper-molybdenum-silver project in Arizona which it acquired back in 2010.
Excluding what it calls "a robust pipeline of very high quality corporate development opportunities", by 2019 annual attributable production is anticipated to increase significantly to roughly 51 million silver equivalent ounces, including 325,000 ounces of gold.