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Silver Wheaton’s Q3 net earnings slide on asset impairments

Silver Wheaton’s Q3 net earnings slide on asset impairments

Photo by Bloomberg

12th November 2014

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – The world’s biggest precious metals streaming firm Silver Wheaton on Wednesday reported a 94% slide in its third-quarter net earnings, after falling metals prices had forced asset write-downs.

For the three months ended October 30, silver prices had dropped 19% and gold prices fell 9%, prompting the Vancouver-based company to review its entire portfolio and booking an impairment charge of $68.2-million related to its shares of Mercator Minerals’ Mineral Park base metals mine, in Arizona, and Nyrstar’s Campo Morado base metals mine, in Mexico.

Gold's spot price had hit a four-and-a-half-year low of $1 131.85/oz last week and continued trading below $1 200/oz this week, the weak performance being mainly underpinned by a strengthening US economy.

Taking into account the impact of the impairment charge, net earnings for the third quarter were $4.5-million, or $0.01 a share, compared with $77.1-million, or $0.22 a share, in the corresponding quarter of 2013.

“While this is certainly disappointing, it's important to recognise that these were the only two assets we found to be impaired - both are relatively small contributors to our portfolio and have generated cash flows well in excess of the original upfront payments,” Silver Wheaton president and CEO Randy Smallwood said.

He added that the strength of Silver Wheaton's streaming model was highlighted in the “challenging” third quarter for precious metals.

“Despite silver and gold prices falling 19% and 9% respectively in the quarter, Silver Wheaton continued to generate cash operating margins of over 70% while maintaining one of the highest production levels in the silver industry,” Smallwood said.

Excluding special items, the company reported adjusted net earnings of $72.6-million, or $0.20 a share, for the period under review, down 6% when compared with earnings of $77.1-million, or $0.22 a share, in the comparable period a year earlier.

Fourteen Wall Street analysts had, on average, predicted adjusted earnings of $0.21 a share on revenue of $177.28-million.

Revenue came in marginally lower year-on-year at $165.9-million in the quarter, on silver equivalent sales of 8.7-million ounces, comprising 6.3-million ounces of silver and 36 700 oz of gold.

The average realised silver equivalent price of $18.98/oz was 11% lower when compared with $21.26/oz a year earlier, being offset by a 12% rise in the volume of silver equivalent ounces sold.

Attributable silver equivalent output was 8.4-million ounces, 7% lower than the 9.1-million ounces produced in the third quarter of 2013. Silver equivalent sales were 8.7-million ounces, comprising 6.3-million ounces of silver and 36 700 oz of gold.

Silver Wheaton pointed out that Hudbay Minerals announced that the Constancia copper porphyry project, located in southern Peru, was about 94% complete as of the end of the quarter and remained on track for first concentrate production in the current quarter. Vale's Salobo II expansion project, in Brazil, continued to ramp up in the third quarter, boosting Silver Wheaton’s gold output by 10 415 oz.

Silver Wheaton reported average cash costs of $4.59/oz of silver equivalent compared with $4.73/oz during the comparable period of 2013. This resulted in a cash-operating margin of $14.39/oz of silver equivalent, down 13% year-on-year.

At the end of the quarter, Silver Wheaton had about $233-million cash in the bank and combined with its ongoing operating cash flows and the credit available under its $1-billion revolving facility, the company was well positioned to fund all outstanding commitments as well as have the flexibility to acquire additional accretive precious-metal stream interests.

Silver Wheaton declared a fourth-quarterly cash dividend payment of $0.06 a share.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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