MGW:Silver Wheaton sees more deals once prices settle
TORONTO (miningweekly.com) – Vancouver-based Silver Wheaton is “very busy” looking for new deals, and expects to some deals up its sleeve as soon as silver prices settle down, new CEO Randy Smallwood indicated on Monday.
Silver Wheaton, which pioneered the 'metals streaming' model was created in 2004, with help from Canada's second-biggest gold-miner Goldcorp.
The company pays producers upfront to buy silver output on a long-term basis, at a fixed price, and then sells the silver at the current spot price.
“Our team remains very busy pursuing further partnerships, and some stability in the silver price will likely result in a significant increase in silver streaming opportunities,” Smallwood said on a conference call.
Silver streams as a method of financing are “just as attractive” in a high price environment as when the metal prices were much lower, he said, “especially as mining companies seek to capitalise on the benefits of the current silver price environment”.
The streaming model gives companies more flexibility in financing new mines or expansions than the traditional debt and equity options, he said.
Silver Wheaton has more than $560-million in cash, an undrawn $400-million revolver and “very robust” operating cash flows, which means the company is well positioned to jump on attractive opportunities that come along, Smallwood said.
Silver jumped more than 80% in 2010 and rose sharply in February, March and April, setting a new record high and almost breaching the psychological $50/oz level, but then plummetted 25% last week to below $35/oz.
An increase in the margin requirements for silver futures trading by Comex has been viewed as one of the reasons for the metal's decline, but Smallwood said he viewed the higher requirements as “short term pain for long term gain”.
“I think it will underscore more strength and more stability into silver markets, and we are very supportive of that,” he said.
BONANZA TIMES
Silver Wheaton buys its silver at an average of just over $4/oz, so even though the prices has fallen from record levels, the company still enjoyes pretty steep margins at the current $35/oz or so.
“It has been bonanza times in terms of cash flow,” Smallwood commented.
The company started paying a dividend in the first quarter of this year, at $0,03 a share per quarter, and he conceded that there is room to increase payments.
Smallwood said he will focus on using cash to acquire new silver streams, but indicated that the company could look at a dividend increase in the second half of this year or into 2012.
RECORD EARNINGS
Silver Wheaton increased first-quarter profit to $158,2-million, a record for the company and an increase of 142% compared with a year earlier.
Revenue rose 84%, to $158,2-million and operating cash flows were 121% higher, at $127,2-million.
The company's attributable metal production rose 10% to 6,1-million ounces of silver and 2 900 oz of gold, and the total average cash cost for the metal was just $4,07/oz.
The average realised silver price, meanwhile, leapt 85% year-on-year, and the group's cash operating margin increased 114% to a record US$28,17/oz.
Metal sales lagged the production numbers because of delivery timing, but the firm expects to make up the shortfall over the balance of the year.
The company has maintained its full-year production target of between 27-million and 28-million silver equivalent ounces.
Company president Smallwood was appointed CEO of Silver Wheaton effective April 11, replacing Peter Barnes.
Shares in Silver Wheaton rose 2,6% on Monday, to C$35,54 apiece by 15:49 in Toronto.
