Can Silver Wheaton Outperform iShares Silver and Pan American Silver?

Silver Wheaton (WPM -0.64%) will release its quarterly report on Monday, and the stock has reflected the continuing depressed level of silver prices. While the silver-streaming specialist has underperformed the bullion-owning iShares Silver Trust (SLV -0.57%), it has fared better than Pan American Silver (PAAS -0.71%) and other silver-specialist mining stocks. Will Silver Wheaton earnings establish a starting point for renewed success, and if silver prices rebound, will the silver-streamer produce better returns than alternative silver investments?

Silver Wheaton's business model has a lot of advantages over the iShares ETF and Pan American Silver. With its agreements with mining-company clients to buy streams of silver production at low fixed rates in exchange for start-up financing, Silver Wheaton gives investors more highly levered exposure to silver than iShares Silver. Yet the partnerships with miners leave Silver Wheaton without the challenges that Pan American Silver and its peers face in overcoming operational challenges like mine closures and labor problems. 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.

Stats on Silver Wheaton

Source: Yahoo! Finance

When will Silver Wheaton earnings finally recover?
Analysts have recently made further cuts to their projections for Silver Wheaton earnings, slicing a dime per share from their full-year 2013 and 2014 projections. The stock has made minimal headway in recovering a small portion of its huge losses earlier in the year, rising 7% since early August.

Silver Wheaton's second-quarter earnings showed the impact of plunging silver prices on its business. Although silver-equivalent production volume soared 28% to a new record, revenue declined 17% because of a greater than 20% fall in prices realized for its precious metals. That led earnings to fall by half from year-ago levels, with production issues at some of its partners' mines weighing on results as well.

Even with its silver-streaming model, though, Silver Wheaton bears substantial risk with conditions in the mining industry as bad as they have been. For instance, Barrick Gold (GOLD -0.54%) recently decided to put its Pascua-Lama project on the Chilean-Argentine border on hold, threatening Silver Wheaton's right to purchase 25% of silver production from the mine. Silver Wheaton was smart enough to negotiate a completion guarantee that will force Barrick to return the $625 million in upfront cash that Silver Wheaton paid, and the streamer renegotiated its contract with Barrick to give it until 2017 to satisfy its completion test in exchange for another year of production rights from other Barrick mining properties. Still, the long-term loss of projected profits from silver production both at Pascua-Lama and other partners' projects could prove to be much larger if Barrick never moves forward.

The big long-term question for Silver Wheaton is whether silver prices will rebound. Earlier in the quarter, the Federal Reserve's decision not to reduce its bond-buying program led to a brief spike in gold and silver prices, helping iShares Silver and Pan American rebound along with Silver Wheaton. Yet those declines reasserted themselves, and with both Silver Wheaton and Pan American unhedged against silver-price changes, both stocks followed the trend lower.

In the Silver Wheaton earnings report, watch to see whether the company is finding new financing deals in this tough environment. With the potential to negotiate lucrative provisions with cash-starved miners, Silver Wheaton could use the downturn in silver prices to its advantage, helping give it much better long-term return potential than iShares Silver or Pan American Silver.

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