Low Commodity Prices Upend Silver Wheaton Profits

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Silver Wheaton Corp. (NYSE: SLW) reported first-quarter 2015 results after markets closed Thursday. The silver streaming company posted adjusted diluted earnings per share (EPS) of $0.13 on revenues of $130.5 million. In the same period a year ago, the company reported EPS of $0.22 on revenues of $165.38 million. First-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.15 and $162.28 million in revenues.

The company reported record silver equivalent production of 10 million ounces and silver equivalent sales of 7.7 million ounces. The average realized price per silver equivalent ounce fell 17% year over year, from $20.38 in the first quarter of 2014 to $16.90. This year’s price reflects an average silver price of $16.95 per ounce and an average gold price of $1,214 per ounce for 28,400 ounces sold.

The company’s current forecast for 2015 includes estimated annual attributable production of approximately 43.5 million silver equivalent ounces, including 230,000 ounces of gold. By 2019, estimated annual attributable production is anticipated to increase significantly to approximately 51 million silver equivalent ounces, including 325,000 ounces of gold. The company assumes a ratio of silver to gold ounces of 72 to one.

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In January, Silver Wheaton amended its deal with Barrick Gold Corp. (NYSE: ABX) to replace production from Barrick’s stalled Pascua-Lama project on the border between Chile and Argentina. Silver Wheaton now receives 100% of production from three other Barrick mines through March 2018. If the Pascua-Lima project has not passed certain milestones by the end of June 2020, Silver Wheaton will be repaid its $625 million investment in the project less the amount paid in deliveries from Barrick to that point. At the end of last September, Barrick still owed the company approximately $350 million.

During the first quarter, the company upped the limit on its revolving credit facility from $1 billion to $2 billion and used the proceeds, together with cash on hand, to repay an outstanding debt of $1 billion on a non-revolving term loan.

In early March, Silver Wheaton sold 38.93 million common shares to Scotiabank for $20.55 per share to raise $800 million. The stock tumbled from around $21 to low of around $19 following the sale.

Late in April the Vancouver, B.C.-based company filed a $2 billion shelf registration with both Canadian and U.S. regulators. The company said it had no immediate intentions to undertake an offering.

The company will pay a $0.05 quarterly dividend in early June to shareholders of record on May 20. The annual dividend yield is currently 1%.

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The consensus estimates for the second quarter call for EPS of $0.16 on revenues of $177.73 million. For the full year, analysts are looking for EPS of $0.69 on sales of $711.31 million. The consensus price target on the stock was $28.23 before Thursday’s report.

The stock closed at $19.86 Thursday, up about 1.4%, in a 52-week range of $16.57 to $27.66.