Silver Wheaton Is a Strong Buy

Silver Wheaton (SLW) announced second quarter ended June 30, 2016 total revenue of $212.4 million, up 29 percent year-over-year from $164.4 million during the same period last year and an increase of 13 percent sequentially from $187.5 million in first quarter of 2016.

Silver Wheaton declared second quarter of 2016 adjusted net earnings of $60.3 million or $0.14 per diluted share, up 47 percent sequentially from $41.0 million or $0.10 per diluted share in first quarter of 2016 and an increase of 12 percent year-over-year from $53.7 million or $0.13 per diluted share in second quarter of 2015.

The global metals mining company reported continued sequential and year-over-year growths in both its top and bottom lines primarily driven by the slow but consistent improvement in the global commodity demand and pricing environment, positively impacting the company’s key margins.

Improving production

Going forward, gold as a percentage of net projected production is estimated to expand to 45% on an average from 2016 till 2020 from earlier expected 2016 gold production of 42%.
However, silver as a percentage of net projected production is expected to decline to 55% during the period from 2016 till 2020 from earlier projected silver percentage production of 58%.

Silver Wheaton is strategically increasing gold production from a long-life and low-cost mine, Salobo which allows for instant cash flows, providing gradual growth across all verticals, improves production expansion profile with gold production at the mine estimated at an average of about 300,000 ounces per year between 2016 till 2020, augments superior quality gold production to the company’s portfolio with probable and proven gold reserves estimated to grow by 3.2 million ounces and further, allows extra optionality to the company’s production portfolio to grow net throughput to nearly 36 Mtpa or more.
Silver Wheaton Is a Strong Buy
Image by tookapic / Pixabay
Moreover, the strategic acquisition of Salobo mine is impressively financed through robust cash flows readily servicing debt while providing additional steady growth opportunities.

The extremely well-diversified metals production between gold and silver notably reduces investment risk in the stock while providing significant growth opportunities through the strategic acquisition of Salobo mine.

A smart move  

The planned Salobo mine acquisition through strategic revolving credit optionality has two key agreements including, maximum total debt to tangible total worth ratio of below or same as 0.75:1.00 along with a minimum interest coverage ratio of more than or same as 3.00:1.00. Further, Silver Wheaton is expected to comfortably fulfill the post payments for the key Salobo transaction. Moving ahead, the company is steadily adding superior reserves and production per share, notably enhancing resources, reserves and projected cash flows at the uniquely acquired Salobo mine.

Silver Wheaton is uniquely growing the gold reserve ounces by 37% to 12 million ounces currently from just 8.7 million ounces delivered earlier. In addition, the company is expected to grow its measured and indicated gold resource ounces to 3.4 Moz recently from 2.7 Moz delivered earlier. Also, inferred gold resource ounces are estimated to increase to 2.8 Moz as of now from 2.4 Moz delivered previously. The initial cost-quartile production at Salobo is recorded very low and in the first cost quadrant that signifies attractive cost structure of the company focused on delivering high-quality production at minimized costs.

The consistent increase in superior-quality metals production at minimum costs highlights the attractive cost-optimization strategy of Silver Wheaton that is believed to continue to deliver sustainable long-term company growth while delivering attractive shareholder returns.


Overall, the investors are advised to “Hold” their position in Silver Wheaton Corp. considering the company’s significant long-term growth prospects but, currently weaker financial position with notable total debt of $706 million against weaker total cash position of $124.49 million only, restricting the company to continue with its daily operations profitably. The profit margin of -21.75% seems disappointing and indicate no profit but loss. However, the PEG ratio of 1.91 appears healthy and depicts strong long-term company growth.
Published on Aug 25, 2016
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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