Silver Wheaton rises on record 2011 revenues

Vancouver — Silver Wheaton (SLW-T, SLW-N) is the reigning king of silver-stream financing, and the company continued to experience notable growth in 2011.

Silver Wheaton released annual results in late March highlighting a third-consecutive-yearly increase in silver-equivalent production, as well as record revenues, earnings, and operating cash flows. 

The company’s silver streams generated 25.4 million silver-equivalent oz. in 2011, including 24.6 million oz. of silver and 18,400 oz. of gold, which marked a 7% increase from 2010 levels, including a 12% year-on-year increase in the fourth quarter to 6.9 million silver-equivalent oz.

The production jump resulted in a 92% increase in net earnings to US$625 million, translating to US$1.77 per share.  Operating cash margins were US$30.56 per silver-equivalent oz. with average-cash costs of US$4.09 per oz.

Silver Wheaton registered a year-end cash balance of US$840 million, including a net cash position of US$762 million.

The company’s US$191.9 million fourth quarter revenue — attributable to the sale of 6.0 million silver-equivalent oz. — fell short of estimates by five analysts polled by S&P Capital IQ, who projected revenue of US$202 million on average.

The main production driver through 2011 was Goldcorp’s (G-T, GG-N) gold-silver-zinc-lead Penasquito mine near the town of Mazapil, Mexico. Silver Wheaton received 5.3 million oz. of silver from Penasquito in 2011 — a 39% increase from 2010. Goldcorp continues to ramp up production at the mine, with throughput increasing to 107,000 tonnes per day in December.

A number of projects are underway to push Penasquito’s throughput up to a full design capacity of 130,000 tonnes per day, including a supplemental feed system and tailings dam height increase. The mine is expected to hit target throughput levels in the second quarter.

“We expect 7 million oz. silver production from Penasquito this year, and we’re extremely excited about the production potential,” Silver Wheaton president and chief executive officer Randy Smallwood said, “It is truly a world-class mining asset.”

Silver Wheaton’s other major silver-stream contributor during 2011 was Barrick Gold (ABX-T, ABX-N), with streaming agreements that include: the Veladero gold-silver mine in San Juan, Argentina; and the Lagunas Notre and Pierina gold-silver mines in north-central Peru. Barrick’s streams accounted for 3 million oz. silver — a 14% annual increase — though the quantity was lower than forecast due to underwhelming silver production at Veladero and Pierina.

Silver Wheaton also expects production to start-up at Barrick’s Pascua-Lama gold-silver project on the Chilean-Argentinean border by mid-2013. Once operational, the mine is expected to have a 25-year life, and Silver Wheaton projects an average of 9 million silver equivalent oz. annually from the stream over the first five years.

“We’re projecting 43 million oz. in silver-equivalent production by 2016,” Smallwood explained, “Advanced-stage projects like Pascua-Lama are a big part of our growth profile.”

Silver Wheaton has silver-stream agreements with 12 additional active mines, which contributed a total of 6.5 million oz. silver during 2011. The company also maintains a stock of produced but not yet delivered silver totalling 4.1 million oz., including 1.7 million oz. of silver payable by Glencore International (GLEN-L) from its Yauliyacu lead-zinc mine in central Peru.

Silver Wheaton is projected to stream 27 million oz. of silver equivalent in 2012, and average-cash costs are expected to remain unchanged at US$4.07 per oz.

According to Smallwood the company should generate roughly US$700 million in operating cash flow during 2012 at current gold and silver prices. When combined with cash-in-hand of roughly US$840 million and the availability of an untouched US$400 million revolving credit facility it brings the financing potential into focus,

“We are ready and able to act quickly to make strategic acquisitions,” Smallwood said by phone, “With most mining companies facing tighter debt and equity markets, as well as depressed equity valuations and increasing capital costs, we are in a strong position to meet financing requirements.”

Markets reacted warmly following the company’s annual report on March 23. Silver Wheaton’s shares rose 5% or $1.68 in Toronto to a $33.66 close on a 1.3-million-share trade volume.

Silver Wheaton adopted a new dividend policy in 2011 designed to increase shareholder exposure to rising silver prices by tying dividend payments to 20% of the previous quarter’s operating cash flows. The company paid US$63.6 million in dividend payments in 2011, which equalled 18¢ per share.

Silver Wheaton has 353.5 million shares outstanding and a presstime market cap of $11.9 billion.