Silver Wheaton Corporation Triples Quarterly Dividend Payment

By: Bob_Kirtley

Silver Wheaton Corporation (SLW) Q4 Earnings have been reported as $0.41 which is around the Mean for the analysts who's expectations were in the order of US$0.460 US$0.406 US$0.370. Hopefully this result will be reasonably well received as it is in line with expectations. When earnings fall short they tend to disappoint the analysts and subsequently the stock can be sold off.

There was also good news for investors as the new dividend policy linking quarterly dividend payments to 20% of the previous quarter's operating cash flows, produced a dividend payment of US$0.09 per common share and will be paid to holders of record of its common shares, as of the close of business on April 4, 2012. This dividend is three times larger than the US$0.03 paid in the previous quarter and takes the total payout to $0.18 for the year, nothing to write home about, but a step in the right direction.

Also of note are the cash costs of US$4.09 per silver equivalent ounce (US$3.99 per ounce of silver and US$300 per ounce of gold), a 1% increase compared to 2010. Now compare that to the cash operating margins which increased by 82% to US$30.61 per ounce of silver and the future starts to sparkle for this silver steaming enterprise.

For disclosure purposes we must point out that do own stock in Silver Wheaton

Full Year Highlights are listed below:

• Third consecutive year of increasing attributable production to a record 25.4 million silver equivalent ounces (24.6 million ounces of silver and 18,400 ounces of gold), a 7% increase compared to 2010. This resulted in record revenue, earnings and operating cash flows.
• Revenue increased 73% compared to 2010, to US$730.0 million, on silver equivalent sales of 21.1 million ounces (20.2 million ounces of silver and 18,300 ounces of gold).
• Net earnings increased 92% compared to 2010 (on an adjusted basis1), to US$550.0 million(US$1.56 per share).
• Operating cash flows increased 96% compared to 2010, to US$626.4 million (US$1.77 per share1).
• Cash operating margin1 increased 84% compared to 2010, to US$30.56 per silver equivalent ounce. Silver Wheaton's average realized silver equivalent price increased by 68% over this same period, demonstrating Silver Wheaton's leverage to increasing silver prices.
• Average cash costs of US$4.091 per silver equivalent ounce (US$3.99 per ounce of silver and US$300 per ounce of gold), a 1% increase compared to 2010.
• Adopted new dividend policy linking quarterly dividend payments to 20% of the previous quarter's operating cash flows, providing shareholders with additional exposure to increasing silver prices and to Silver Wheaton's exceptional production growth profile. During 2011, the Company paid US$63.6 million in dividends (US$0.18 per share).
• Year-end cash balance of US$840.2 million, with a net cash position of US$761.6 million.

Q4 Highlights are listed below:

• Record attributable silver equivalent production of 6.9 million ounces (6.7 million ounces of silver and 3,900 ounces of gold), a 12% increase compared to 2010.
• Revenue of US$191.9 million, on record silver equivalent sales of 6.0 million ounces (5.8 million ounces of silver and 3,800 ounces of gold).
• Net earnings of US$144.7 million (US$0.41 per share).
• Operating cash flows of US$163.7 million (US$0.46 per share1).
• Average cash costs of US$4.061 per silver equivalent ounce.
• Quarterly dividend US$0.09 per common share was paid to shareholders, representing a threefold increase from the prior quarter.
• Appointed Mr. Haytham Hodaly as Senior Vice President, Corporate Development, effective January 1, 2012.

Outlook for 2012

• Goldcorp Inc.'s world-class Peñasquito mine is forecast to achieve full production capacity of 130,000 tonnes per day by the end of Q1 2012. This cornerstone asset is poised to become our largest contributor of silver and will drive our production growth in 2012. As a result, Silver Wheaton anticipates a 6% increase in its 2012 attributable production to approximately 27 million silver equivalent ounces, including 16,500 ounces of gold.
• Given the Company's unique business model of essentially fixed cash costs2, average cash  costs in 2012 are estimated to be approximately US$4.071 per silver equivalent ounce,  virtually unchanged from 2011.
• Executing on its growth strategy of acquiring additional value-enhancing silver and precious metals streams will remain Silver Wheaton's top priority in 2012.

Silver Wheaton is the largest silver streaming company in the world. Based upon its current agreements, forecast 2012 attributable production is approximately 27 million silver equivalent ounces, including 16,500 ounces of gold. By 2016, annual attributable production is anticipated to increase significantly to approximately 43 million silver equivalent ounces, including 35,000 ounces of gold. This growth is driven by the Company's portfolio of world-class assets, including silver streams on Goldcorp's Peñasquito mine and Barrick's Pascua-Lama project. 

Silver Wheaton Corporation has a market capitalization of $11.30Bln, an EPS of $1.32, a 52 week low of $25.84 and a high of $47.60, average volume of shares traded is between 4.00Mln and 5.00Mln, so the liquidity is good, with 353.50 million shares outstanding. Current stock price is $31.98.

Taking a quick peek at the chart above, we can see that the upswing of the 50dma, crossing the 200dma, forming a golden crossover, should have been positive for SLW, however, the fall in silver prices has capped any advance. The technical indicators now suggest that SLW is oversold, so there may be a rebound in the short term.

To conclude we are not convinced yet that the silver prices are about to reverse and head north in the short term, which is disappointing for all the silver bulls, including us. However, should silver drop below the $30.00/oz level (currently standing at $31.57) then we will become interested. Should SLW fall further as a consequence than we will look to increase our exposure via the selection of a few well thought out option plays. Note that we didn't say via acquiring more stock, that is for the simple reason that SLW is already the largest holding we have in the silver space and we are a tad reluctant to place more eggs in the same basket. However we do believe that it should be given full consideration when building a portfolio in the precious metals sector.

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