Silver Wheaton (TSX: SLW)(NYSE: SLW) is scheduled to publish its quarterly earnings report on Thursday. Following the plunge in precious metal prices last years, the resource industry has been thrown into turmoil. Yet while miners struggle for survival, streaming metal companies like Silver Wheaton have thrived by fronting desperately needed capital to cash-strapped partners.
The question for investors is whether the string of good deals can continue. Let’s take a peek at what has been happening at Silver Wheaton over the past couple of months and what we can expect in this upcoming report.
Stats on Silver Wheaton
Analyst EPS Estimate
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance
What will Silver Wheaton deliver for shareholders next week?
In recent months analysts have been steadfast in their views on Silver Wheaton’s earnings keeping their March quarter and full-year estimates unchanged. The stock has been trading in lockstep, up about 3% over the past 90 days.
Silver Wheaton doesn’t own or operate a single mine. Rather, the company’s business model involves financing new projects for cash-hungry companies in exchange for the rights to buy future metal production at a discount to market prices. This model often works best when metal prices are down because that’s when it can reach the best terms on its streaming finance deals.
Silver Wheaton has been taking full advantage of the crisis in the mining industry. Last November, the company entered into a gold stream agreement with Sandspring Resources. According to the terms of that agreement, Silver Wheaton advanced $13.5 million to the junior miner in exchange for the rights to purchase 10% of the gold production from Sandspring’s Toroparu project in Guyana.
The same month, the company entered into another deal with Hudbay Minerals (TSX: HBM)(NYSE: HBM). In that deal, HudBay will sell 50% of the gold from Constancia to Silver Wheaton at U.S. $400 per ounce in exchange for an upfront payment of U.S. $135 million.The fact that a large, established miner like Hudbay is turning to Silver Wheaton for financing shows just how tough industry conditions have become.
However, it’s not all roses for Silver Wheaton. Many of the company’s streaming partners have struggled in the face of weak metal prices, and that threatens to put a number of deals in jeopardy.
For instance, Barrick Gold (TSX: ABX)(NYSE: ABX) announced late last year that it would halt development of its flagship Pascua-Lama mining project. That has forced Silver Wheaton to revise its 2017 guidance to reflect the extended time frame until the mine begins production. While Chief Executive Randy Smallwood is confident Barrick will complete the project, the deal could still turn into a money loser for Silver Wheaton if it doesn’t become operational by 2016.
Moreover, with precious metal prices rallying sharply over the past couple of months, miners are starting to demand more value from Silver Wheaton in negotiations. That could result in lower returns or put a halt to the company’s deal making.
What’s next for Silver Wheaton?
In Silver Wheaton’s upcoming report, listen to hear how the company is planning to navigate the current market environment. Also, listen for colour on some of the company’s troubled deals, namely Barrick’s Pascua-Lama project and Augusta’s Rosemont mine.