SLW Earnings Preview

One year after revealing a truly stunning silver bonanza, the growth sensation that I have hailed as "The Most Profitable Company in the World" will regale investors Monday with details of its third-quarter profitability. Of course I refer to Silver Wheaton (NYSE: SLW  ) , and I wish to take a moment to discuss some of the key items to be looking for when those earnings are released.

Anyone watching these precious metal markets will be keenly aware that silver prices contracted substantially from their very strong levels recorded in 2011. Based upon the average realized silver price of $28.72 per ounce revealed by fellow growth sensation Endeavour Silver (NYSE: EXK  ) for the third quarter, Fools can expect Silver Wheaton to report a decline of greater than 20% from its prior-year average realized silver price of $36.44. As a powerful counterpoint to that price drop, fortunately, we have some substantial growth in production volume to watch for.

Silver Wheaton expects to produce some 28 million silver-equivalent ounces (SEOs) during the full-year of 2012, which would represent roughly 10% growth from its prior-year mark of 25.4 million SEOs. I don't expect any substantial changes to that guidance, but it's worth pointing out the two most likely sources of any potential surprises regarding production volume. First, Fools will recall that Primero Mining (NYSE: PPP  ) -- the top-performing gold miner of 2012 -- increased its full-year guidance for production from the San Dimas mine by 10% after a terrific first half of the year.

Second, although Goldcorp's Peñasquito mine suffered a rough second quarter after water shortages affected plant throughput, Goldcorp (NYSE: GG  ) reported terrific third-quarter production volumes that powered a 31% sequential increase in the miner's consolidated silver production!

Finally, because Silver Wheaton's brand new stream covering HudBay Minerals' (NYSE: HBM  ) existing 777 mine only went into effect right at the end of the period, we're looking for the near-term bump in silver and gold to commence during the fourth quarter as opposed to the third.

Of course, the beauty of Silver Wheaton's unique business model is that production volume and average silver prices are about the only key variables to watch for when attempting to project earnings expectations. With its fixed, low cash costs of production, its strong production growth profile, and its lean corporate structure yielding a powerfully efficient net profit margin, Silver Wheaton shareholders are bound to be impressed even during those uncommon quarters when the silver price has not obliged with a year-over-year advance. I still believe Silver Wheaton shares are likely to reach $100 before this secular bull market has run its course, and I will remain glued to my own personal holding all the way there.

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Fool contributor Christopher Barker owns shares of Endeavour Silver (CAN), Goldcorp (USA), Primero Mining, and Silver Wheaton (USA). The Motley Fool owns shares of Primero Mining. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On November 04, 2012, at 8:34 AM, skypilot2005 wrote:

    Some "Links":

    http://www.hudbayminerals.com/

    http://www.hudbayminerals.com/English/About-Us/At-a-Glance/d...

    http://www.hudbayminerals.com/files/doc_presentations/Q3%202...

    November 2012

    http://www.hudbayminerals.com/English/Media-Centre/News-Rele...

    HudBay Releases Third Quarter 2012 Results

    November 01, 2012

    TORONTO, ONTARIO--(Marketwire - Nov. 1, 2012) - HudBay Minerals Inc. (TSX:HBM)(NYSE:HBM)

    Highlights

    • Production of all metals in concentrate and unit operating costs remain in line with full year guidance.

    • Third quarter operating cash flow before stream deposit and change in non-cash working capital decreased to $21.5 million, mainly due to the planned permanent closure of Trout Lake in June 2012 and unusually high sales volumes in the same period of 2011 when excess inventory was drawn down.

    • First ore produced at Lalor in the quarter; commercial production from the ventilation shaft expected in the second quarter of 2013.

    • US$1.5 billion Constancia copper project commenced full construction, with board approval granted in August 2012.

    • US$1.25 billion of capital secured through long-term bond financing and precious metals stream to fund development projects.

    • Three drills targeting resource expansion at Pampacancha and exploration at Chilloroya.

    HudBay Minerals Inc. ("Hudbay" or the "company") today released its third quarter 2012 financial results. In the third quarter of 2012, Hudbay recorded a loss and loss per share of $6.1 million and $0.03, respectively, compared to a loss of $41.1 million and $0.23, respectively, in the third quarter of 2011.

    The third quarter of 2012 loss was affected by the following significant items, which Hudbay does not view as part of its core operations:

    "Our year-to-date production and performance remains within expectations," said David Garofalo, Hudbay's president and chief executive officer. "The consistency of our underlying business in northern Manitoba coupled with the US$1.25 billion of capital secured in the third quarter, has allowed Hudbay to advance its plans for significant growth in copper, gold and zinc production over the next three years from three new mines now under construction."

    Flin Flon, Manitoba

    777 and Trout Lake mines, Flin Flon concentrator, zinc plant

    Flagship 777 mine is a long-life copper/zinc/gold/silver operation

    Lalor Starts Production

    Located three kilometres from the Chisel North mine, the Lalor project is on a fast track to become our next major underground mine. The project is believed to hold the second-largest metal deposit in the Flin Flon Greenstone Belt and the largest pre-development deposit discovered in the Flin Flon-Snow Lake region.

    Reed Copper Project Development Progressing on Schedule

    Copper project with first production expected by late 2013

    Construction Commences at Constancia

    Large copper project with full production expected by 2016

    Constancia Exploration Update

    Back Forty, Michigan

    51% interest in an advanced-stage exploration project

    Snow Lake, Manitoba

    Lalor project, Chisel North mine, Snow Lake concentrator

    Lalor will be the next underground mine, scheduled to begin initial production in 2011.

    25% off of 52 week high. +2% dividend.

    Hmmmm

    Placed on watch list.

    Sky

    Official Web Link Assistant to Sinchi

  • Report this Comment On November 04, 2012, at 8:42 AM, skypilot2005 wrote:

    Correction:

    "Lalor will be the next underground mine, scheduled to begin initial production in 2011."

    Should read:

    Lalor ventilation shaft complete; initial ore production commenced in August 2012

    First full year of production from the production shaft is expected in 2015.

    Sky

  • Report this Comment On November 04, 2012, at 9:19 PM, speedybure wrote:

    It is worth noting that Yauliyacu's concerntrate issue has been resolved. which has decreased slw's ,massive inventory buildup over the past 2 years. That is, the ounces produced by not yet delivered. Yaluiyacu still has 400-500,000 oz's. worth of payable silver oz.'s to deliver, so if we see a reduction in this number and as you mentioned increased production from San Dimas and Penasquito, SLW could again suprise on the upside. Futhermore, Zinkgruvan is on pace to produce anywhere from 2.5 - 3m oz.'s versus the 2m projected.

  • Report this Comment On November 05, 2012, at 7:25 PM, XMFSinchiruna wrote:

    P.S.

    I missed in the fine print of the new HudBay stream that attributable production would begin accruing in September, so obviously I was thrilled by the production numbers.

    Please find my discussion of the earnings report here:

    http://www.fool.com/investing/general/2012/11/05/silver-whea...

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