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Mar 1 2020

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Silver wheaton earnings

Silver Wheaton Earnings Preview: Lower Precious Metal Prices To Weigh On Q1 Results

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Silver Wheaton’s production volumes are likely to be boosted by the signing of a streaming agreement for an additional 25% of the gold by-product stream produced at Vale’s Salobo copper mine in Brazil for a period that extends until the end of the mine’s life. This agreement is in addition to Silver Wheaton’s existing agreement with Vale for the sale of 25% of the gold by-products produced at the Salobo mine. In addition, the ramp-up of production from the Salobo mine post the expansion in production capacity in Q2 2014 would also boost volumes. The increase in production volumes would be partially offset by lower production attributable to Silver Wheaton from the San Dimas mine after August 2014, as per the terms of the streaming agreement for the mine. In addition, the temporary closure of the Keno Hill mine and the termination of the streaming agreement for the Campo Morado mine would also negatively impact production volumes. In this article, we will take a look at what to expect from Silver Wheaton’s Q1 results.

Silver and Gold Prices

Precious metal prices have fallen over the course of 2014, reacting to cues regarding tapering of the Federal Reserve’s Quantitative Easing program. Going forward, the Fed’s outlook on the U.S. economy is important as far as silver and gold prices are concerned. With the economy strengthening, the Fed is expected to raise interest rates some time in 2015. However, the timing of an interest rate hike is contingent upon the pace of economic and jobs growth in the U.S. An interest rate hike is likely to lead to a decline in the price of silver and gold, as investors shift towards higher yielding assets.

London Fix silver spot prices averaged $20-21 per ounce in Q1 2014, as compared to $16-17 per ounce in Q1 2015. Similarly, London PM Fix gold spot prices averaged roughly $1,300 per ounce in Q1 2014, compared to roughly $1,220 per ounce in Q1 2015. Lower silver and gold prices are expected to negatively impact the company’s results in the fourth quarter, as compared to the corresponding period a year ago.

Volumes

Silver Wheaton’s attributable production from the Salobo mine is expected to be significantly higher on a year-over-year basis in Q1. The company recently announced the signing of an agreement with Vale for the acquisition of an additional 25% of the gold by-product stream produced at Vale’s Salobo copper mine in Brazil for a period that extends until the end of the mine’s life. The company already had a streaming agreement in place with Vale for the sale of 25% of the gold by-products produced at the Salobo mine. In addition, a project to expand mill throughput capacity at the Salobo mine from 12 million tons per annum (Mtpa) to 24 Mtpa was completed in Q2 2014, which boosted production pertaining to the agreement already in place. Production from the Salobo mine was 46% higher year-over-year in Q4 2014.

The increase in production at the Salobo mine will be partially offset by lower production volumes from the San Dimas, Campo Morado, and Keno Hill mines. Silver production volumes from the San Dimas mine will decline in Q1, as per the terms of Silver Wheaton’s streaming agreement for the mine with Goldcorp, the operator of the mine. As per the terms of this streaming agreement, Silver Wheaton stopped receiving an additional 1.5 million ounces of silver per annum from Goldcorp with effect from on August 6 , 2014. Production volumes pertaining to the San Dimas mine were 12% lower in Q4 2014, as compared to the corresponding period a year ago. Production from the Campo Morado mine is expected to fall, as the mine has reached the end of its useful life. Silver Wheaton announced the termination of its streaming agreement with Nyrstar Mining for the Campo Morado mine in January due to the depletion of ore grades at the mine. In addition, the temporary closure of the Keno Hill mine will further lower silver production volumes in Q1. Production volumes were 20% lower year-over-year in Q4 2014 for the company’s Other Silver Mines segment, primarily due to lower production at the Campo Morado mine and the temporary closure of the Keno Hill mine.

Outlook

We think that the company is well placed to add more precious metal streams to its portfolio. The prevailing subdued commodity pricing environment presents an opportunity to Silver Wheaton for the acquisition of more precious metal streams. The company’s management was bullish in this regard in its Q4 earnings conference call. Due to the subdued pricing environment, sentiment is negative regarding the mining sector in general, which makes raising capital difficult for mining companies. Equity valuations are subdued, which makes issuing stock less desirable. Debt is hard to come by for mining companies, most of which have highly leveraged balance sheets and are looking to deleverage.

Under such conditions, streaming deals are an attractive source of funding for mining companies. This is especially the case for gold and copper producers, or diversified mining companies that produce these metals, as these are the major counterparties for Silver Wheaton’s precious metal streaming deals. Over 70% of mined silver is produced as a by-product from base metal or gold mines. Currently, Silver Wheaton accounts for only around 4% of the silver produced by its potential target market of gold and base metal mines. Though this is expected to rise to 6% by 2018 through a rise in production from streaming deals already in place, there is clearly significant growth potential in the silver streaming space for the market leader, Silver Wheaton.

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Silver Wheaton will release its first quarter results on May 7 and conduct a conference call with analysts the next day. We expect lower silver and gold prices in the first quarter, as compared to the corresponding period of 2014, to negatively impact the company’s results.

Silver Wheaton’s production volumes are likely to be boosted by the signing of a streaming agreement for an additional 25% of the gold by-product stream produced at Vale’s Salobo copper mine in Brazil for a period that extends until the end of the mine’s life. This agreement is in addition to Silver Wheaton’s existing agreement with Vale for the sale of 25% of the gold by-products produced at the Salobo mine. In addition, the ramp-up of production from the Salobo mine post the expansion in production capacity in Q2 2014 would also boost volumes. The increase in production volumes would be partially offset by lower production attributable to Silver Wheaton from the San Dimas mine after August 2014, as per the terms of the streaming agreement for the mine. In addition, the temporary closure of the Keno Hill mine and the termination of the streaming agreement for the Campo Morado mine would also negatively impact production volumes. In this article, we will take a look at what to expect from Silver Wheaton’s Q1 results.

Silver and Gold Prices

Precious metal prices have fallen over the course of 2014, reacting to cues regarding tapering of the Federal Reserve’s Quantitative Easing program. Going forward, the Fed’s outlook on the U.S. economy is important as far as silver and gold prices are concerned. With the economy strengthening, the Fed is expected to raise interest rates some time in 2015. However, the timing of an interest rate hike is contingent upon the pace of economic and jobs growth in the U.S. An interest rate hike is likely to lead to a decline in the price of silver and gold, as investors shift towards higher yielding assets.

London Fix silver spot prices averaged $20-21 per ounce in Q1 2014, as compared to $16-17 per ounce in Q1 2015. Similarly, London PM Fix gold spot prices averaged roughly $1,300 per ounce in Q1 2014, compared to roughly $1,220 per ounce in Q1 2015. Lower silver and gold prices are expected to negatively impact the company’s results in the fourth quarter, as compared to the corresponding period a year ago.

Volumes

Silver Wheaton’s attributable production from the Salobo mine is expected to be significantly higher on a year-over-year basis in Q1. The company recently announced the signing of an agreement with Vale for the acquisition of an additional 25% of the gold by-product stream produced at Vale’s Salobo copper mine in Brazil for a period that extends until the end of the mine’s life. The company already had a streaming agreement in place with Vale for the sale of 25% of the gold by-products produced at the Salobo mine. In addition, a project to expand mill throughput capacity at the Salobo mine from 12 million tons per annum (Mtpa) to 24 Mtpa was completed in Q2 2014, which boosted production pertaining to the agreement already in place. Production from the Salobo mine was 46% higher year-over-year in Q4 2014.

The increase in production at the Salobo mine will be partially offset by lower production volumes from the San Dimas, Campo Morado, and Keno Hill mines. Silver production volumes from the San Dimas mine will decline in Q1, as per the terms of Silver Wheaton’s streaming agreement for the mine with Goldcorp, the operator of the mine. As per the terms of this streaming agreement, Silver Wheaton stopped receiving an additional 1.5 million ounces of silver per annum from Goldcorp with effect from on August 6 , 2014. Production volumes pertaining to the San Dimas mine were 12% lower in Q4 2014, as compared to the corresponding period a year ago. Production from the Campo Morado mine is expected to fall, as the mine has reached the end of its useful life. Silver Wheaton announced the termination of its streaming agreement with Nyrstar Mining for the Campo Morado mine in January due to the depletion of ore grades at the mine. In addition, the temporary closure of the Keno Hill mine will further lower silver production volumes in Q1. Production volumes were 20% lower year-over-year in Q4 2014 for the company’s Other Silver Mines segment, primarily due to lower production at the Campo Morado mine and the temporary closure of the Keno Hill mine.

Outlook

We think that the company is well placed to add more precious metal streams to its portfolio. The prevailing subdued commodity pricing environment presents an opportunity to Silver Wheaton for the acquisition of more precious metal streams. The company’s management was bullish in this regard in its Q4 earnings conference call. Due to the subdued pricing environment, sentiment is negative regarding the mining sector in general, which makes raising capital difficult for mining companies. Equity valuations are subdued, which makes issuing stock less desirable. Debt is hard to come by for mining companies, most of which have highly leveraged balance sheets and are looking to deleverage.

Under such conditions, streaming deals are an attractive source of funding for mining companies. This is especially the case for gold and copper producers, or diversified mining companies that produce these metals, as these are the major counterparties for Silver Wheaton’s precious metal streaming deals. Over 70% of mined silver is produced as a by-product from base metal or gold mines. Currently, Silver Wheaton accounts for only around 4% of the silver produced by its potential target market of gold and base metal mines. Though this is expected to rise to 6% by 2018 through a rise in production from streaming deals already in place, there is clearly significant growth potential in the silver streaming space for the market leader, Silver Wheaton.

View Interactive Institutional Research (Powered by Trefis):

More Trefis Research

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.

Silver wheaton earnings



Silver wheaton earnings

Silver wheaton earnings

We expect lower silver and gold prices in the first quarter, as compared to the corresponding period of 2014, to negatively impact the company’s results. Silver Wheaton’s production volumes are likely to be boosted by the signing of a streaming agreement for an additional 25% of the gold by-product stream produced at Vale’s Salobo copper mine in Brazil for a period that extends until the end of the mine’s life.
SOURCE: http://www.forbes.com/sites/greatspeculations/2015/05/04/silver-wheaton-earnings-preview-lower-precious-metal-prices-to-weigh-on-q1-results/ Silver wheaton earnings

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