Silver Wheaton Reports Record Production As Outlook Sparkles

Silver Wheaton (NYSE:SLW) announced its Q4 and 2012 annual results on March 21. The company reported record production and sales figures this year, primarily due to the addition of the precious metals stream from Hudbay’s 777 mine in the fourth quarter. The other factors were better ore grade at Veladero and the fixed sharing mechanism at San Dimas. Silver equivalent sales volumes in the fourth quarter at 9.1 million ounces were almost 80% higher than the prior quarter. This was due to higher production at San Dimas and the delivery of silver produced at Yauliyacu, Penasquito and 777 in the previous quarter being accounted for in the fourth quarter. Compared to Q4 2011, sales volumes increased by over 50%.

Silver Wheaton is targeting a steep production increase by 2017. This growth is expected to come primarily from mines which are yet to begin production but will contribute substantially once they do. Also, the figure could rise further if the company is able to seal more deals using its significant cash reserves and credit facilities provided by banks.

See our full analysis for Silver Wheaton

Performance In 2012

The company reported its highest ever annual attributable production figure of 29.6 million silver equivalent ounces, an increase of 17% over 2011. The figure includes 26.9 million ounces of silver and 50,000 ounces of gold. Sales of silver equivalent ounces rose by 30% over 2011 to reach 9.1 million ounces. It also reported revenues of $849.6 million for the whole year, an increase of 16% over the 2011 figure of $730 million. Net earnings for the year stood at $586 million, a 7% increase over 2011 levels of $550 million. The increase in revenues and earnings came entirely as a result of higher production and sales since the average realized price per ounce of silver equivalent declined from $34.65 in 2011 to $31.09 in 2012. ^[1]

Future Plans

With the recent additions of Hudbay and Vale, Silver Wheaton now has just over 850 million silver ounces and almost 5 million gold ounces, which when combined is more than 1.1 billion ounces of silver equivalent reserves. This represents a 38% increase over reserves in 2011.

Silver Wheaton is targeting production of 33.5 million silver equivalent ounces in 2013 and 53 million ounces in 2017. This increase is expected to be driven largely by contributions from Hudbay’s Constancia mine and Barrick Gold’s Pascua Lama mine. Further contributions will come from Vale’s newly added Salobo and Sudbury mines and Augusta’s Rosemont mine. This figure could rise further since the company has significant cash reserves and credit facilities at hand, and is actively looking for more good deals to add to its portfolio.

Does It Have The Financial Firepower For More Deals?

As on December 31, 2012, Silver Wheaton had $778 million in cash and cash equivalents and $50 million of debt outstanding under the term loan facility.

On February 28, the company obtained two new credit facilities. These include a $1.5 billion bridge loan facility with a term of one year and a $1 billion revolving credit facility having a five year term. The two facilities replaced the prior term loan and the $400 million revolving credit facility and repaid the $50 million of term debt outstanding on December 31, 2012. ^[2]

In addition, the company acquired two gold streams from Vale, making $1.9 billion in upfront payments using a combination of cash on hand and a $1.09 billion drawdown under the bridge facility. The company’s strong future cash flows combined with available credit capacity, including $1 billion available under the new revolving credit facility, position the company well. We think that it should be able to satisfy its funding commitments, sustain its dividend policy and conclude more metal purchase agreements.

We have a price estimate for the company of $38, which will be revised shortly to include details of the earnings results.

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1. Silver Wheaton 6-K, SEC [↩]
2. Silver Wheaton Q4 2012 Earnings Conference Call, Seeking Alpha [↩]