Silver Wheaton (SLW +1.80%) hit its goals in the first quarter. Can the company do even better in the second quarter? With nearly a month left in the period, let's look at three factors that could influence the company's quarterly results.
1. Precious metals prices
During the past couple of months, the prices of gold and silver continued their downward trend. So far in the second quarter of 2014, average prices of gold and silver reached $1,293 and $19.50, respectively. These gold and silver prices are 8.7% and 15.8% lower, respectively, than the market prices in the parallel quarter in 2013. Moreover, the lower prices of bullion could cut down the company's operating cash flow, which will reduce its dividend payment. Keep in mind, the company's dividend payment is based on 20% of its average operating cash flow of the past four quarters.
Other precious metals companies such as Royal Gold (RGLD +1.34%), a gold royalty company, and Barrick Gold (ABX +1.67%), a gold producer, are likely to be negatively affected by the recent fall in precious metals prices. But unlike Silver Wheaton, these companies heavily rely on gold rather than silver. Therefore, since gold outperformed silver, these companies, assuming all things equal, are likely to show a smaller adverse price effect in the second quarter of 2014.
2. Attributed production -- reaching goals
The company reached its quarterly goals with respect to its attributed silver production. In the coming months, the company is likely to further increase its attributed gold production from Silver Wheaton's streaming contract with Vale and its Totten mine in Sudbury. The mine started to produce during the first quarter and is likely to further augment the total output Silver Wheaton will receive from Sudbury. Further, Vale's Salobo mine also keeps progressing and is projected to start producing in the coming months.
Looking forward, based on its annual guidance, Silver Wheaton's attributed production is expected to reach over 40,000 ounces of gold and 6.6 million ounces of silver. If the company were to reach these goals, and assuming it sells 90% of this output, then its sales (in ounces) are likely to rise in the coming quarter by nearly 7% and 16% in gold and silver, respectively.
Data from Silver Wheaton
*Gold and silver prices are based on market prices of the past couple months; sales are calculated using the company's sales in the first quarter and annual guidance.
3. Delivery delays
The final issue worth noticing are the changes in the amount of precious metals produced and not yet delivered. During the first quarter, the amount of silver equivalent produced and not yet delivered reached 6.3 million silver equivalent ounces, which wasn't far off from the fourth quarter of 2013. If the amount of precious metals produced and not yet delivered remains relatively unchanged, it could suggest the majority of gold and silver its streaming partners produced were delivered and sold.
Takeaway
If the company reaches its quarterly goals in terms of attributed production, and if the amount of precious metals produced and not yet delivered doesn't rise, then these factors could partly offset the lower prices of metals. Nonetheless, the weak gold and silver markets are likely to further drag down Silver Wheaton's revenue and profitability in the second quarter.
