Commodities & Metals

Silver Wheaton Faces Low Silver Price, Tax Inquiry

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Canada-based Silver Wheaton Corp. (NYSE: SLW) reported second-quarter 2015 results after markets closed Wednesday. The silver streaming company posted adjusted diluted earnings per share (EPS) of $0.13 on revenues of $164.4 million. In the same period a year ago, the company reported EPS of $0.18 on revenues of $148.6 million. Second-quarter results also compare to consensus estimates for EPS of $0.13 and $168.4 million in revenues.

The company reported record silver-equivalent production of 10.9 million ounces and record silver-equivalent sales of 10 million ounces. The average realized price per silver-equivalent ounce fell 17% year over year, from $19.83 in the second quarter of 2014 to $16.38. This year’s price reflects an average silver price of $16.42 per ounce and an average gold price of $1,195 per ounce.

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.

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In early July, the Canada Revenue Agency (CRA) sent the company a letter proposing to reassess Silver Wheaton’s income for the years between 2005 and 2010. The CRA reckons that Silver Wheaton’s income should be about CDN$715 million (about $550 million) higher for the period and that the company owes additional tax payments of about $146 million and penalties of about $55.3 million. Silver Wheaton disagrees and said it intends to vigorously defend its tax filing positions.

Because Silver Wheaton does not actually operate any mines but participates in production by investing a fixed amount in exchange for a guaranteed stream of production, the company’s business model can be — and has been — whipsawed by the commodity price of silver and, to a lesser extent, gold.

Analysts at CIBC cut their rating on Silver Wheaton Wednesday night from Sector Outperform to Sector Perform.

The consensus analysts’ estimates for the third quarter call for EPS of $0.16 on revenues of $183.32 million. For the full year, analysts are looking for EPS of $0.61 on sales of $660.12 million. The consensus price target on the stock was $22.67 before Thursday’s report.

The stock closed at $14.14 Wednesday, up about 7.1%, in a 52-week range of $12.07 to $26.98. Shares traded down about 1.6% in Thursday’s premarket session at $13.91.

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