Silver Wheaton Corp. (USA) Earnings: Is the Long Slide Ending?

On Thursday, Silver Wheaton (NYSE: SLW  ) will release its quarterly report, and investors have had to endure a long period of slumping silver and gold prices that have crushed the mining industry. With major streaming partners Goldcorp (NYSE: GG  ) and Barrick Gold (NYSE: ABX  ) having faced challenges on some of the most lucrative projects in which Silver Wheaton has an interest, will the silver streamer find itself on the short end of the earnings stick? Or are bottoming silver prices marking a potential end to Silver Wheaton's slump?

It was more than a year ago that gold and silver prices plunged to their lowest levels in years, putting an end to the bull market in precious metals in many investors' eyes, and leaving shareholders in mining companies shell-shocked. Now, though, metals seem to have hit bottom, and mining companies are looking for cash to help finance their long-term operations in a tough market environment. The question Silver Wheaton faces is whether it can capitalize on the need for capital by obtaining good terms on its streaming agreements. Let's take an early look at what's been happening with Silver Wheaton over the past quarter and what we're likely to see in its report.


Mine in Toroparu, Guyana, South America, in which Silver Wheaton has a streaming interest. Source: Sandspring Resources.

Stats on Silver Wheaton

Analyst EPS Estimate

$0.22

Change From Year-Ago EPS

(42%)

Revenue Estimate

$186.11 million

Change From Year-Ago Revenue

(9.6%)

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Can Silver Wheaton earnings gain some upward momentum?
In recent months, analysts have been a bit less excited about Silver Wheaton earnings, cutting their first-quarter estimates by a penny per share, and cutting a nickel per share from their full-year 2015 projections. The stock has managed to post a 2% rise since the end of January.

Silver Wheaton's fourth-quarter report once again highlighted the difficulties the silver streamer has faced over the past year, but it also presented some positives. Even though revenue in dollar terms dropped 42% compared to the year-ago quarter, raw silver production amounts have remained relatively constant in 2013, while gold production tripled last year compared to 2012 levels. Moreover, greater delays in delivery led to a big drop in the ratio of precious metal sold versus production amounts, giving Silver Wheaton a potential bump up in revenue at some point in the future, when deliveries catch up.

Silver Wheaton has done an impressive job in keeping profit margins relatively high. Even though drops in metals prices have slashed its operating margins from 65% to around 49%, even that lower figure nevertheless keeps Silver Wheaton well ahead of other streaming specialists. Moreover, gold-streaming agreements have also diversified Silver Wheaton's exposure, although gold and silver prices usually tend to move in the same direction.

Source: Barrick Gold.

Yet Silver Wheaton is vulnerable when its partners face problems in production. Goldcorp's Penasquito mine faced drought conditions throughout much of last year, and although Goldcorp has implemented a plan to get much-needed additional water to the project, it nevertheless could affect Silver Wheaton. Even more dramatic was Barrick Gold's decision late last year to suspend its Pascua-Lama project, with Silver Wheaton agreeing to extend the terms of its agreement and gaining additional silver streams from currently operating mines in exchange.

In the Silver Wheaton earnings report, watch to see whether the company finally sees its slump bottoming out along with the gold and silver market. Even though Silver Wheaton's dividend could come under more pressure, if Silver Wheaton is able to announce more streaming deals, it could end up a big winner in the long run.

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  • Report this Comment On May 08, 2014, at 5:03 PM, speedybure wrote:

    Anyone who invests in the company should know that delays are natural for streams where silver is recovered from lead/zinc/copper (for gold) concentrate. I wouldn't call slw impressive for maintaing high margins because they have no control over them and costs are known. Another thing which still boggles my mind is why does everyone wanna know SLW;s earnings. They have hefty DD&A, so ocf is much larger than net income. And this is a good thing because it serves as a tax shield.

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