as part of our
Silver Wheaton Corporation (
) has announced that its Board of Directors has declared its fourth
quarterly cash dividend payment for 2012 of US$0.07 per common
share. The quarterly dividend will be paid to holders of record of
its common shares as of the close of business on November 21, 2012,
and will be distributed on or about December 5, 2012. It should be
noted that this is down from the August dividend payment of $0.10
and will no doubt be disappointing for investors.
The consensus estimate of $0.40 was missed by $0.06 as earnings
were reported at $0.34 per share, which will not please the
analysts and may result in some near term selling pressure.
Third Quarter Highlights are as follows:
· Record attributable silver equivalent production of 7.7
million ounces compared to 6.1 million ounces in Q3 2011,
representing an increase of 26%.
· While production was at record levels, silver equivalent sales
amounted to 5.1 million ounces due to the timing of deliveries,
with the difference attributable to an increase of 2.0 million
payable silver equivalent ounces being produced in the quarter that
will be recognized in future sales.
· Revenues were US$161.3 million compared to US$185.2 million in
Q3 2011, representing a decrease of 13%, attributable to a 14%
decrease in silver prices from a year earlier with silver
equivalent sales being consistent year over year at 5.1 million
· Net earnings were US$119.7 million (US$0.34 per share)
compared to US$135.0 million (US$0.38 per share) in Q3 2011,
representing a decrease of 11%.
· Operating cash flows were US$128.7 million (US$0.36 per share)
compared to US$167.2 million (US$0.47 per share) in Q3 2011,
representing a decrease of 23%.
· Cash operating margin was US$27.20 per silver equivalent
ounce, compared to US$32.11 in Q3 2011, representing a decrease of
· Average cash costs rose slightly to US$4.16 per silver
equivalent ounce, compared to US$4.12 in Q3 2011.
· As at September 30, 2012, approximately 5.2 million payable
silver equivalent ounces attributable to the Company have been
produced at the various mines and will be recognized in future
sales as they are delivered to the Company under the terms of their
contracts. This represented an increase of 2 million payable silver
equivalent ounces during the three months ended September 30,
· At September 30, 2012, the Company had approximately $555
million of cash on hand and $400 million of available credit under
its revolving bank debt facility. This cash and available credit,
together with strong operating cash flows, positions the Company
well to execute on its growth strategy of acquiring additional
accretive silver and precious metal stream interests.
· Declared quarterly dividend of US$0.07 per common share,
representing 20% of the cash generated by operating activities
during the three months ended September 30, 2012.
· On September 28, 2012, the Company announced that it had
closed the previously announced purchase from Hudbay Minerals Inc.
("Hudbay") of a precious metals stream from its currently producing
flagship 777 mine ("777″), as well as a silver stream from their
cornerstone development project, Constancia. Initial production
covering the period August 1, 2012, through September 30, 2012,
from 777 totaled 733,000 silver equivalent ounces (139,000 ounces
of silver and 11,500 ounces of gold).
Randy Smallwood, President and Chief Executive Officer of Silver
Wheaton commented as follows:
"With the addition of production from Hudbay's 777 mine in
the quarter, we produced a record 7.7 million silver equivalent
ounces, putting us on track to reach our 2012 annual production
forecast of 28 million ounces. Our diversified asset base once
again achieved strong production, with notable contributions from
Yauliyacu, Zinkgruvan, and Minto. While overall production was
strong, payable silver equivalent ounces produced but not shipped
during the quarter increased by 2 million ounces due to the
timing of concentrate shipments, negatively affecting silver
equivalent sales volume. This increase included the new precious
metals contained in base metal concentrates produced at the 777
mine as the concentrate storage and transportation system was
being filled with materials mined after August 1st. It is very
important to remember that these ounces will inevitably be sold,
it is simply a matter of timing."
"During the quarter we paid out over $630 million dollars,
including our first payment to Hudbay and our last payment to
Barrick, and yet, we finished the quarter with $550 million of
cash on hand. With this cash, a fully undrawn revolving credit
facility of $US400 million, and strong forecast annual operating
cash flow, we remain very focussed, capable and excited about our
potential to continue adding additional accretive ounces to our
Average cash costs in the third quarter of 2012 were US$4.16 per
silver equivalent ounce, compared with US$4.12 during the
comparable period of 2011. This resulted in cash operating margins
of US$27.20 per silver equivalent ounce, a 15% decrease compared to
the third quarter of 2011, primarily a result of a 13% decrease in
the realized price per silver equivalent ounce.
Background to Silver Wheaton
Silver stream or silver purchase agreements allow Silver Wheaton
to purchase, in exchange for an up-front payment, the by-product
silver production of a mine that it does not own or operate. Since
approximately 70% of all silver production occurs as a by-product
of base or precious metals production, there are numerous potential
opportunities for further growth with this business model.
The operating costs that Silver Wheaton pays for future silver
production are pre-determined in the agreements, at approximately
$4 per ounce, with a small inflationary adjustment. This amount
offsets our partners' typical cost to produce an ounce of silver.
Fixed costs reduce our shareholders' downside risk while at the
same time providing the upside of leverage to increases in the
price of silver. As well, other than the initial upfront cash
payment, Silver Wheaton does not contribute to future capital
expenditures or exploration costs invested by the mine; yet we
benefit from the production and exploration growth that result from
these expenditures. This business model often translates into
significant value creation for Silver Wheaton shareholders.
Silver Wheaton Corporation has a market capitalization of
$13.79Bln, an EPS of $1.60, a 52 week low of $22.94 and a high of
$41.30; average volume of shares traded is between 4.00Mln and
5.00Mln, so the liquidity is good, with 353.87 million shares
outstanding. Current stock price is $38.98.
Taking a quick peek at the chart below, we can see that the
upswing of the 50dma, crossing the 200DMA, forming a golden
crossover, has been positive for
, in that the price of silver has fallen but the stock price has
held its ground consolidating around the above the $38.00
To conclude, the fortunes of SLW are of course predicated on
prices where the volatility remains on steroids. Silver traded at
$27.00 in August, $35.00 in October and back down to $31.00 today,
a white knuckle ride and definitely not one for the faint hearted.
We also note that silver prices have returned to their 200dma of
$31.00 which we see as a positive sign for silver with the
expectation that silver will rally from here. On a seasonal basis
this quarter is usually a good one for both silver and
prices, so if silver can find the traction and rally back to say
$40.00/oz, then SLW could be trading at $50.00 in the near
As this stock forms the largest element of our silver stock
holdings we are not looking to increase our exposure any further at
the moment, as we are a tad reluctant to place more eggs in the
same basket. Alternatively, we may look to increase our exposure
via the selection of a few well thought out
plays. However, we do believe that SLW should be given full
consideration when building a portfolio in the precious metals
sector, especially if you are new to this tiny sector of the
Our target price remains unchanged at $100.00 and we take heart
in that this stock has come from a low of $23.00 in May to trade
close to $40.00 recently.
For disclosure purposes SLW is our largest single holding in the
Have a good one.
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represents our views and replicates trades that we are making but
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Options contain a high level or risk that may result in the loss of
part or all invested capital and therefore are suitable for
experienced and professional investors and traders only. Past
performance is not a guide nor guarantee of future success.