1Q13 Largely In-Line; Amended Dividend Policy Has Smoothing Impact
SLW reported 1Q13 FD EPS of C$0.37. EPS results compares to our estimate/consensus of C$0.39. Compared to our EPS, lower attributable silver-equivalent sales of (6.9Moz vs. our 8.2Moz) was offset by lower average cash costs (C$4.08/oz vs. our C$4.17/oz) and lower DD&A (C$3.52/oz vs. our C$5.57/oz).
View: Largely in-line quarter impacted by timing issues. Attributable silver-equivalent production of 8.0Moz was 7% below our estimate of 8.6Moz, largely due to expectedly weaker production at Penasquito. At end-1Q13, payable silver-equivalent ounces produced but not yet sold was 4.1Moz compared to 3.8Moz at end-4Q12. SLW reiterated its FY13 silver-equivalent production target of 33.5Moz, including 25.8Moz of silver and 145Koz of gold.
Catalysts: Amended dividend policy has smoothing impact. SLW amended its dividend policy whereby quarterly dividends will now be equal to 20% of the average of the previous four quarters' operating cash flow (from 20% of the previous quarter only). Following the upfront payment to Vale for the Salobo and Sudbury gold interests, SLW ended 1Q13 with cash of C$76Mln, plus additional liquidity of C$1Bln from a revolving credit facility (undrawn as of end-1Q13; C$500Mln drawn to partially repay bridge facility subsequent qtr end).
Valuation: Maintain Outperform. Our TP of C$38 is based on an equal weighting of 1.1x our cash-adjusted NAVPS (C$27.61) and 23x FY13/14 CFPS (C$1.82) under the Credit Suisse 1-Yr target silver/gold price scenario of $28.70/1580 per ounce. There was no update on the status of the Canada Revenue Agency tax audit (2005-2010). Our primary concern remains adverse changes to the SLW tax structure, which is not factored into our valuation.