Silver Wheaton Tops, Net Slips

Zacks

Silver Wheaton Corp.’s (SLW) second-quarter 2012 earnings of 40 cents a share topped the Zacks Consensus Estimate by 3 cents but trailed the year-ago quarter’s earnings of 42 cents. The Canada-based silver mining company said that its profit fell 4.5% year over year to $141.4 million. A decline in silver price weighed on the bottom line.

Revenues rose 3% year over year to a record $201.4 million, easily beating the Zacks Consensus Estimate of $182 million. The growth was fueled by a 36% rise in the number of silver equivalent ounces sold to 6.9 million, partly offset by a 24% decline in silver price. Silver equivalent ounces sold include 6.8 million ounces of silver and 2,400 ounces of gold.

Attributable silver equivalent production jumped 10% year over year to 6.7 million ounces including 6.5 million ounces of silver and 3,200 ounces of gold. The company noted that it ended the quarter with attributable proven and probable silver reserves of 798 million ounces.

Average cash costs per silver equivalent ounce fell to $4.061 in the second quarter from $4.141 a year ago. Cash operating margins declined 27% year over year to $25.011 per silver equivalent ounce due to lower realized price per silver equivalent ounce.

Silver Wheaton exited the quarter with cash and cash equivalents of $1.1 billion, up roughly 57% year over year. Total debt declined 31% year over year to $64.3 million. Operating cash flows increased 3% year over year to $172.9 million.

The company recently announced that it has entered into an agreement with HudBay Minerals Inc. (HBM) to acquire silver and gold production from two of the latter’s mines. Under the deal, Silver Wheaton will acquire 100% of the silver produced from HudBay’s 777 Mine in Canada and Constancia Project in southern Peru. The company will also acquire 100% of the gold produced from the 777 Mine until Constancia satisfies a completion test or the end of 2016, whichever is later.   

Silver Wheaton will pay HudBay $750 million for the acquisition, of which $500 million is payable following the transaction closure. The remaining two payments of $125 million each will be made upon the satisfaction of specific conditions by Constancia. The company will use its cash on hand to make the $500 million upfront payment.

Silver Wheaton noted that 777 and Constancia together will raise its long-term average annual silver equivalent production by roughly 4.9 million ounces. Average annual attributable production from the 777 Mine is expected to be roughly 4.2 million silver equivalent ounces until end-2016.

Factoring in the acquisition of these assets, the company increased its silver equivalent production forecast for 2012 to roughly 28 million ounces from 27 million ounces.

Silver Wheaton currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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