Image source: Getty Images.

Silver Wheaton (NYSE:WPM) investors were expecting big numbers during the third quarter because precious metal prices were at their highest point in more than a year. Unfortunately, the company received weaker-than-anticipated production at two key mines. That led it to report a quarter that didn't quite live up to investors' lofty expectations.

Digging into the numbers

On a positive note, Silver Wheaton reported record gold production of 109,200 ounces, up 86% year over year, due in large part to its recent acquisition of an additional stake in the gold sales of the Salobo mine from Brazilian iron ore giant Vale (NYSE:VALE). Meanwhile, silver production volumes rose 11.6% to 7.7 million ounces. That said, actual silver sales volumes declined 7% during the quarter to 6.1 million ounces.

Because of that drop in silver sales, operating cash flow only rose 20.9% versus the second quarter, to $162 million. While that is 62% higher than the year-ago quarter, investors wanted more considering what other precious metal companies delivered during the quarter. For example, streaming and royalty company Royal Gold's (NASDAQ:RGLD) operating cash flow exploded higher during the quarter, rising from $2.5 million in last year's third quarter to $55.1 million in 2016. Driving Royal Gold's cash flow was a 19% increase in its realized gold price and a 34% improvement in volumes.

One of the culprits holding Silver Wheaton's cash flow down during the quarter was production at Goldcorp's (NYSE:GG) Penasquito mine. Output at the Goldcorp mine was down 29% in the quarter to 1.5 million ounces because of lower grades and throughput. In addition to that, Primero Mining's (NYSE:PPP) San Dimas mine also lagged behind the year-ago quarter. Overall, Primero Mining reported an 11% decrease in output, which, like Goldcorp, experienced lower ore grades and throughput.

Because of this, Silver Wheaton was not able to fully display what CEO Randy Smallwood articulated last quarter when he said the company looked forward to showing "how powerful our cash flow generation can be in an environment of increasing precious metals prices."

Image source: Getty Images.

A less shiny outlook

Despite the lackluster quarter, there were some positives, including the fact that the company now sees its gold production rising well above its initial forecast. Silver Wheaton now expects to produce 335,000 ounces in 2016, which is up 9.8% from its prior guidance. Driving that improvement is the expectation for strong fourth-quarter production from Vale's Salobo and Sunbury mines.

Unfortunately, the company sees the exact opposite for its silver output, which it now forecasts coming in well below its initial guidance. The company's new outlook for silver production is 30 million ounces, which is 2 million ounces, or 6.3%, below its prior guidance. Driving that weakness is the lower-than-expected results from Goldcorp's Penasquito and Primero Mining's San Dimas.

Overall, these adjustments cancel each other out. As a result, the company's forecast remains unchanged at 55 million ounces of silver equivalent or 740,000 ounces of gold equivalent. Investors would have preferred to see an increase.

Investor takeaway

Investors were expecting Silver Wheaton to demonstrate the full power of its portfolio during the quarter. Unfortunately, the company missed those elevated expectations because of some shortcomings at two of its partners' silver mines. That said, the quarter was not bad by any means, and the company could have more chances in the future to show the power of its portfolio should precious metal prices regain their recent highs. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.