Image: Silver Wheaton.
Gold and silver streaming specialist Silver Wheaton (SLW +0.54%) has had a tough time in 2015, as prices for precious metals have suffered from continued weakness in the commodities markets. Nevertheless, Silver Wheaton has done what it can to weather the storm and do its best for shareholders, and a few of its strategic moves stand out as having been especially noteworthy. Let's take a look at some of the best moves Silver Wheaton made in 2015.
Implementing a stock repurchase plan
Silver Wheaton has long believed that its share price didn't appropriately reflect the potential that the company has, with a strong base of silver- and gold-producing assets that have thus far stood the test of a tough market by continuing to produce low-cost precious metals. Yet because its business model requires substantial capital to provide financing to new partners, Silver Wheaton hasn't always put its money where its mouth is when it comes to its shares.
In response, Silver Wheaton decided in September to authorize its first share repurchase program in its history. The company announced it would buy back up to 20.23 million shares, or 5% of its total outstanding share count, based on market conditions. By the time Silver Wheaton announced its third-quarter results in November, it had bought back about 765,000 shares under the program. The streaming company can't overextend itself with buybacks too much, but as an alternative use of capital when partnership opportunities aren't available, Silver Wheaton stock is attractive to company management right now.
Jumping on market opportunities
The strongest part of Silver Wheaton's business model is that it can often take advantage of distressed companies to get great deals in exchange for vital financing. That was the case with Glencore (GLNCY 0.13%), a mining company that found itself in the midst of a debt crisis this fall. With its base-metals business suffering from rock-bottom prices for copper and other key industrial commodities, Glencore set about to raise capital through targeted asset sales. Yet it also turned to the streaming industry for help, and Silver Wheaton obliged with a package that sent $900 million to Glencore.
In exchange, Silver Wheaton will receive 33.75% of the silver production from Glencore's Peruvian Antamina mine until it receives 140 million ounces. After that, the streaming share will drop to 22.5%. The move adds 75 million ounces to Silver Wheaton's proven and probable silver reserves, and it should immediately boost silver production by around 5 million ounces a year over the first 20 years of the deal. As a result of the deal, Silver Wheaton boosted its 2015 production forecast to 44.5 million silver-equivalent ounces. The streaming company will also pay relatively little for the silver, with ongoing payments of just 20% of spot. With Antamina expected to produce until at least 2028 based on current declared reserves, Glencore and Silver Wheaton are poised for a long and mutually beneficial partnership.
Refinancing for the future
Early in the year, Silver Wheaton took advantage of the favorable financing environment to expand its ability to access the credit markets. In February, the company amended and restated its revolving credit facility to double the amount of credit available from $1 billion to $2 billion. The deal also extended the term of the facility by two years, giving Silver Wheaton until February 2020 to obtain financing under the deal.
CFO Gary Brown was pleased with the deal, noting that it gives Silver Wheaton "enhanced flexibility to execute on its growth strategy in an efficient and cost-effective manner." Given how the commodities markets deteriorated during 2015, getting the new facility done early in the year likely gave Silver Wheaton better terms than it would have gotten if it had waited.
Silver Wheaton dealt well with 2015's adversity, making smart strategic moves that helped it get through a tough year. With its long-term vision, Silver Wheaton hopes to weather the long bear market in silver and gold and thrive once metals start to bounce higher again.
