Silver Wheaton: Q3 Earnings Mixed, New Dividend Policy

November 11th, 2011 by Trefis Team
SLW: Wheaton Precious Metals logo
SLW
Wheaton Precious Metals

Silver Wheaton (NYSE:SLW) recently released its third quarter earnings, posting a modest increase in overall silver equivalent ounces sold and a huge jump in net earnings over Q3 2010, primarily driven by higher selling price of silver. Silver Wheaton, the world’s largest silver streaming company, competes with silver miners like Silver Standard Resources (NASDAQ:SSRI), Pan American Silver (NASDAQ:PAAS), Bear Creek Mining Corporation (CVE:BCM) and Endeavor Silver (NYSE:EXK).

We have a $43 price estimate for Silver Wheaton’s stock, which is roughly 20% above the market price.

See our full analysis for Silver Wheaton

Good realized prices of silver continues the bumper profits for the company

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Silver Wheaton makes upfront payments to mining companies for the development of specific mines, where silver or gold is produced as a byproduct of the primary mining. Silver Wheaton is liable to pay a fixed amount to buy silver from these mines. During the third quarter, the average cost that the company had to bear was just above $4 per ounce of silver. The average cash cost Q3 2010 was also around $4, whereas the realized selling cost jumped from $19.50 in 2010 to over $36 this quarter. As a result, the company’s net earnings increased by 570 percent on a year-on-year basis. [1]

We expect that the 2011 attributable production for Silver Wheaton will be in the range of 25-26 million silver equivalent ounces. As per the existing agreements, the attributable production should increase to 43 million silver equivalent ounces by 2015, primarily driven by the silver produced from Barrick Gold‘s (NYSE:ABX) Pascua Lama mine and Goldcorp’s (NYSE:GG) Peñasquito project.

Silver Wheaton’s new dividend policy

The company is implementing a new dividend policy, whereby the quarterly dividend payout will be linked to operating cash flows in the prior quarter. The company will distribute 20 percent of the cash generated by the operating activities in the previous quarter. With the new scheme, the dividend payout in the fourth quarter should be about three times that of the third quarter. The company continues to generate enough cash to fund more projects and increase its existing portfolio of silver streaming agreements.

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See our full analysis for Silver Wheaton
Notes:
  1. Silver Wheaton Revenues and Operating Cash Flows Double in the Third Quarter, Company Press Release, Nov 2011 [↩]