Silver Wheaton: New Streaming Agreements Signed

Growing streaming opportunities
Silver Wheaton Corp, (SLW) reported record production in Q313, although a declining silver price weighed on operating cash flow and declared dividend. Since the 2017 forecast production downgrades reflecting the suspension of Barrick Gold’s Pascua-Lama project, Silver Wheaton has signed two new streaming agreements. These include an Early Deposit Agreement with Sandspring Resources, which could prove an attractive business model to junior miners and represent a growing opportunity for Silver Wheaton.

Record silver production in Q313
Silver Wheaton reported a fifth successive increase in attributable production to a record 8.9Moz silver equivalent in Q313. The decline in average realised silverequivalent price to US$21.3/oz led to stable revenues, with sales rising to 7.8Moz. The average silver-equivalent cash cost of US$4.73/oz was marginally below Q213. Q313 EPS increased to US$0.22 from US$0.20 in Q213, but cash flow per share declined to US$0.33 from US$0.35 in Q213 and the Q313 declared dividend decreased to US$0.10 per share from US$0.12 per share in Q213.

New streaming agreements signed
Silver Wheaton has signed two new streaming agreements in November. The first is an expansion of the precious metal stream on Hudbay Minerals’ Constancia project. The second is an Early Deposit Gold Stream Agreement with Sandspring Resources, allowing completion of the Toroparu bankable feasibility study without excessive equity dilution. This development of the streaming model should allow Silver Wheaton to access other high-quality earlier-stage projects.

Consensus Q413 estimates look too high
Consensus Q413 revenue estimate of US$200m, at the qtd average of US$21.6/oz silver price, implies 9.3Moz Q413 silver-equivalent sales compared to 7.8Moz sales and 8.9Moz production in Q313. In our view, the Q413 consensus forecast looks too high and, unless the silver price recovers, we would expect it to move down.

Valuation multiples reflect growth profile
FY13 and FY14 P/E multiples of c 20x reflect Silver Wheaton’s forecast growth profile from 33.5Moz silver equivalent in 2013 to 42.5Moz in 2017. We see the realinvestment value as the exposure the shares offer to potentially rising precious metal prices with limited exposure to mining development and operating risks.

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