Silver Wheaton’s Quarter: Shiny or Tarnished?

Get the rundown on SLW’s 2nd quarter results.

| More on:
The Motley Fool

A Look at Silver Wheaton’s Tarnished Quarter

Silver streamer Silver Wheaton (TSX:SLW) is out with its second-quarter earnings report. While its sales volume was up on the quarter, the record plunge in gold prices, as well as a large drop in silver prices, hurt its earnings. Let’s dig in and see what that means for investors.

Digging into the quarter
Silver Wheaton enjoyed record silver equivalent production on the quarter of 8.6 million ounces, which was a 28% increase over last year. However, silver equivalent sales were only 7.2 million ounces, or an increase of 4% from last year. Despite record production, revenue was actually down by 17% to $166.9 million due to commodity prices being crushed last quarter, and the price Silver Wheaton realized for silver equivalents was down 21% over last year.

The bad news on the quarter is that net earnings came in at just $71.1 million, or $0.20 per share, which is down 50% from the same quarter of last year. However, operating cash flow did come in at $125.3 million or $0.35 per share, which was a 28% drop over last year’s second quarter.  Not great, but relatively good compared to earnings.

In addition to lower commodity prices, there were two other factors contributing to the lower profits. First, Silver Wheaton’s cash costs were higher due to increased gold sales which came in at lower margins. In addition to that, the company took a $4.5 million charge in the quarter after refinancing its bridge facility.

Shiny future?
While there isn’t much Silver Wheaton can do about commodity prices, what it can do is continue to sign streaming deals which will add to its production and earnings. In addition to signing new deals, investors need to keep an eye on two projects which have the potential to be future drivers for the company.

Water issues at Goldcorp‘s (TSX:G) Penasquito mine has hampered production attributable to Silver Wheaton. For the year, the company sees production of 105,000 tonnes per day, with the ramp-up to 110,000 tonnes per day over the next five years. However, Goldcorp recently found a new water source which could enable it to ramp up its production to 130,000 tonnes per day. That means that there could be some upside in the future for Silver Wheaton.

Looking out over the longer term, the Pascua-Lama mine belonging to Barrick Gold (TSX:ABX) is the mine investors really need to watch. Barrick is contractually required to have 75% of the project’s design capacity completed by the end of 2016, after Silver Wheaton recently agreed to extend the deadline. This mine has also encountered water issues and Barrick is having trouble getting the necessary approvals to move forward with the project. At the end of 2016, Silver Wheaton has the option to simply walk away and get its initial investment back, net of any silver credits from Barrick’s other mines. However, this is an important mine for Silver Wheaton as it would represent 17% of its forecasted production in 2017 – making it the top mine in its portfolio – so if it walked away, it would have a large hole to fill.

Final Foolish thoughts
While Silver Wheaton’s earnings were tarnished by the large drop in the price of silver and gold last quarter, it still delivered solid cash flow. As a silver streamer the company is still much better insulated from commodity prices as its investments are fixed, meaning it won’t be taking large writedowns like Goldcorp’s $1.96 million charge at Penasquito this past quarter, nor will it run into cost overruns like those plaguing Barrick. Instead, it can just enjoy all the benefits of the cash flow as these projects begin producing.

The Canadian market is dominated by resource oriented companies like Silver Wheaton, Barrick, and Goldcorp.  To help open your eyes to what else might be out there, the Motley Fool Canada created a special FREE report that profiles 5 great Canadian companies that are a perfect fit for every portfolio.  In fact, one of these 5 just got taken out a huge premium.  Simply click here now to learn all about the other 4.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Matt DiLallo does not own shares in any of the companies mentioned at this time.  The Motley Fool does not own shares in any of the companies mentioned at this time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing


These 2 Stocks Carry a Lot of Risk, But Their Upside Is Huge

These two stocks have some significant risks, but they trade so cheaply that they offer unbelievable capital gains potential.

Read more »

Payday ringed on a calendar
Dividend Stocks

Boost Your Monthly Dividend Income With This TSX Gem

A high-yield TSX gem in the real estate sector can boost your monthly dividend income.

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Bank Stocks Look Like a Steal: Here’s My Favourite for October 2023

TD Bank (TSX:TD) stock looks dirt cheap, as it continues to fluctuate in this rocky economic environment.

Read more »

little girl in pilot costume playing and dreaming of flying over the sky

Better Buy: Air Canada Stock or WestJet Airlines?

With the airline industry yet to recover fully from the pandemic, is Air Canada one of the top stocks to…

Read more »

oil and gas pipeline
Dividend Stocks

Is Enbridge Stock a Buy for its 7.6% Dividend Yield?

Enbridge stock is a TSX giant that offers investors a tasty dividend yield of 7.6%. Is this high-dividend stock a…

Read more »

Early retirement handwritten in a note
Dividend Stocks

Retire Early With These 3 Canadian Passive-Income Stocks

Three Canadian passive-income stocks are smart choices for people with early retirement goals.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Energy Stocks

This 7 Percent Dividend Stock is My Top Pick for Immediate Income

Looking for a solid dividend stock that can provide an immediate income source? Consider this dividend gem now while its…

Read more »

man sitting in front of 3 screens programming
Tech Stocks

Shopify Stock or Microsoft Shares: Better Buy for the AI Revolution?

Shopify (TSX:SHOP) and Microsoft (NASDAQ:MSFT) are two of the most impressive growth stocks to watch, as tech slips further from…

Read more »