Mr. Patrick Drouin reports
SILVER WHEATON REPORTS RECORD QUARTERLY PRODUCTION RESULTS
Silver Wheaton Corp. has released its
unaudited results for the third quarter ended Sept. 30, 2012.
All figures are shown in U.S. dollars, unless otherwise specified.
Third quarter highlights
Record attributable silver equivalent production of 7.7 million ounces
compared with 6.1 million ounces in third quarter 2011, representing an increase of
26 per cent.
While production was at record levels, silver equivalent sales amounted
to 5.1 million ounces due to the timing of deliveries, with the
difference attributable to an increase of 2.0 million payable silver
equivalent ounces being produced in the quarter that will be recognized
in future sales.
Revenues were $161.3-million compared with $185.2-million in third quarter 2011,
representing a decrease of 13 per cent, attributable to a 14-per-cent decrease in
silver prices from a year earlier with silver equivalent sales being
consistent year over year at 5.1 million ounces.
Net earnings were $119.7-million (34 cents per share) compared with $135.0-million (38 cents per share) in third quarter 2011, representing a
decrease of 11 per cent.
Operating cash flows were $128.7-million (36 cents per share) compared with $167.2-million (47 cents per share) in third quarter 2011,
representing a decrease of 23 per cent.
Cash operating margin was $27.20 per silver equivalent ounce, compared with $32.11 in third quarter 2011,
representing a decrease of 15 per cent.
Average cash costs rose slightly to $4.161 per silver equivalent ounce, compared with $4.12 in third quarter 2011.
As at Sept. 30, 2012, approximately 5.2 million payable silver
equivalent ounces attributable to the company have been produced at the
various mines and will be recognized in future sales as they are
delivered to the company under the terms of their contracts. This
represented an increase of two million payable silver equivalent ounces
during the three months ended Sept. 30, 2012.
At Sept. 30, 2012, the company had approximately $555-million of
cash on hand and $400-million of available credit under its revolving
bank debt facility. This cash and available credit, together with
strong operating cash flows, position the company well to execute on
its growth strategy of acquiring additional accretive silver and
precious metal stream interests.
It declared quarterly dividend of seven cents per common share, representing
20 per cent of the cash generated by operating activities during the three
months ended Sept. 30, 2012.
On Sept. 28, 2012, the company announced that it had closed the
previously announced purchase from Hudbay Minerals Inc. of a
precious metals stream from its currently producing flagship 777 mine,
as well as a silver stream from its cornerstone development
project, Constancia. Initial production covering the period Aug. 1,
2012, through Sept. 30, 2012, from 777 totalled 733,000 silver
equivalent ounces (139,000 ounces of silver and 11,500 ounces of gold).
"With the addition of production from Hudbay's 777 mine in the quarter,
we produced a record 7.7 million silver equivalent ounces, putting us
on track to reach our 2012 annual production forecast of 28 million
ounces," said Randy Smallwood, president and chief executive officer of
Silver Wheaton. "Our diversified asset base once again achieved strong
production, with notable contributions from Yauliyacu, Zinkgruvan and
Minto. While overall production was strong, payable silver equivalent
ounces produced but not shipped during the quarter increased by two
million ounces due to the timing of concentrate shipments, negatively
affecting silver equivalent sales volume. This increase included the
new precious metals contained in base metal concentrates produced at
the 777 mine as the concentrate storage and transportation system was
being filled with materials mined after Aug. 1. It is very
important to remember that these ounces will inevitably be sold, it is
simply a matter of timing.
"During the quarter we paid out over $630-million, including our
first payment to Hudbay and our last payment to Barrick, and yet, we
finished the quarter with $550-million of cash on hand. With this cash,
a fully undrawn revolving credit facility of $400-million, and strong
forecast annual operating cash flow, we remain very focused, capable
and excited about our potential to continue adding additional accretive
ounces to our portfolio."
Financial review
Revenues
Revenue was $161.3-million in the third quarter of 2012, on silver
equivalent sales of 5.1 million ounces (4.8 million ounces of silver
and 6,900 ounces of gold). This represents a 13-per-cent decrease from the
$185.2-million of revenue generated in the third quarter of 2011.
This was due to a 13-per-cent decrease in the realized price per silver
equivalent ounce, which was only slightly offset by a 1-per-cent increase in
the number of silver equivalent ounces sold. The relatively small
increase in ounces sold relative to those produced in the quarter was
primarily related to the timing of shipments of stockpiled concentrate
and dore at some of the mines underlying the company's silver and
precious metal purchase agreements.
Costs and expenses
Average cash costs in the third quarter of 2012 were $4.161 per silver equivalent ounce, compared with $4.121 during the comparable period of 2011. This resulted in cash operating
margins of $27.201 per silver equivalent ounce, a 15-per-cent decrease compared with the third
quarter of 2011, primarily a result of a 13-per-cent decrease in the realized
price per silver equivalent ounce.
During the third quarter of 2012, the company recorded an income tax
expense of $513,000, which includes a non-cash deferred income tax
expense of $361,000, attributable primarily to income from Canadian
operations, partially offset by the recognition of deferred income tax
assets relating to the increase in fair value of long-term investments
in common shares. This compares with an income tax expense of $8.6-million in the comparable period of the previous year, which included a
non-cash deferred income tax expense of $8.4-million which was
primarily due to the reversal of previously recognized deferred income
tax assets due to the decline in fair value of long-term investments in
common shares held.
Earnings and operating cash flows
Net earnings in the third quarter of 2012 were $119.7-million (34 cents per share), compared with $135.0-million (38 cents per share) for the
same period in 2011, a decrease of 11 per cent. Cash flow from operations in
the third quarter of 2012 was $128.7-million (36 cents per share), compared with $167.2-million (47 cents per share) for the same period in 2011, a decrease of 23 per cent. The change in net
earnings and operating cash flows is primarily due to a 13-per-cent decrease in
the realized price per silver equivalent ounce.
Balance sheet
At Sept. 30, 2012, the company had approximately $555-million of
cash on hand. In addition, the company had $400-million of available
credit under its revolving bank debt facility. The combination of cash,
available credit and strong operating cash flows, positions the
company well to execute on its growth strategy of acquiring additional
accretive silver stream interests.
Operational highlights
Attributable silver equivalent production was 7.7 million ounces (6.8
million ounces of silver and 18,000 ounces of gold) in the third
quarter of 2012, representing an increase of 26 per cent compared with the third
quarter of 2011.
Operational highlights for the quarter ended Sept. 30, 2012
Penasquito
As stated in Goldcorp Inc.'s Oct. 25, 2012, disclosure,
the Penasquito mine achieved record production during the third quarter
as higher grades and recoveries partially offset the continued impact
of water shortages from lower well field production. The plant achieved
throughput of 100,000 tonnes per day during the third quarter, within
its previously guided range of 98,000 and 107,000 tonnes per
day. Goldcorp also stated that work continues on the drilling of
additional water wells in the current well field, and that it has initiated a water and tailings study to optimize potential long-term
water constraints and tailings operations. Goldcorp anticipates the
study to be completed during the first half of 2013.
As at Sept. 30, 2012, approximately 1.6 million ounces of cumulative
payable silver equivalent ounces have been produced at Penesquito but
not yet delivered to the company, representing an increase of 500,000 payable silver equivalent ounces during the quarter.
777
On Sept. 28, 2012, the company announced that it had closed the
previously announced purchase from Hudbay of 100 per cent of the life-of-mine
silver production from its currently producing 777 mine, 100 per cent of the
life-of-mine silver production from its Constancia project, as well as 100 per cent of gold production from the 777 mine
until Constancia satisfies a completion test, or the end of 2016,
whichever is later. At that point, Silver Wheaton's share of gold
production from 777 will be reduced to 50 per cent for the remainder of the
mine life.
Production from 777 began accruing to Silver Wheaton on Aug. 1, 2012,
and totalled 733,000 silver equivalent ounces (139,000 ounces of silver
and 11,500 ounces of gold) in third quarter 2012. As at Sept. 30, 2012,
approximately 700,000 ounces of cumulative payable silver
equivalent ounces (100,000 ounces of silver and 11,100 ounces of
gold) have been produced at 777 but not yet delivered to the company,
with the company having received its first delivery of silver and gold
related to the 777 mine on Oct. 3, 2012.
Yauliyacu
Since mid-2009, concentrate shipments from Glencore International AG's
Yauliyacu mine have been affected by the shutdown of the
Doe Run Peru La Oroya smelter, historically the largest buyer of the
bulk concentrate produced at the mine. Since that time, alternative
smelting arrangements have been made by Glencore for a portion of the
stockpiled bulk concentrates at Yauliyacu, leading to an inconsistent
delivery schedule and delaying the eventual complete reduction of this
bulk concentrate. In the second quarter of 2011, Glencore began
producing separate copper and lead concentrates, replacing the bulk
concentrate. During the third quarter of 2012, Glencore established new
offtake agreements for the sale of bulk concentrates. As a result,
Glencore has decided to return to the production of bulk concentrates.
As at Sept. 30, 2012, approximately 1.2 million ounces of cumulative
payable silver equivalent ounces have been produced at Yauliyacu but
not yet delivered to the company, representing an increase of 400,000 payable silver equivalent ounces during the quarter.
Pascua-Lama
As per Barrick Gold Corporation's third quarter 2012 management discussion and analysis, Barrick made substantial progress at its world-class gold-silver
Pascua-Lama project during the quarter. Along with construction
advancement at site, Barrick strengthened the construction management
team and hired Fluor Corporation to assume overall project
management. Fluor is a global leader in construction of large mining
projects, and the same firm that successfully managed construction of
Barrick's recently completed Pueblo Viejo mine. Initial production
from the Pascua-Lama project is now scheduled for the second half of
2014. Previous guidance, announced in July, was for mid-2014. Delays
in the earthworks and underground works for the process plant are the
main reason for the shift in schedule to the second half of 2014. Other
highlights in the third quarter of 2012 include advancing the ore
conveyor tunnel to approximately 60 per cent complete, increasing on-site labour
by approximately 1,900 new hires, and securing 90 per cent of the required
material and equipment for the processing plant.
Until Dec. 31, 2015, Silver Wheaton will be entitled to all or a
portion of the silver production from Barrick's Veladero, Pierina and
Lagunas Norte mines, to the extent Pascua-Lama is operating below 75 per cent
of design capacity. Once in production, Pascua-Lama is forecast to be
one of the largest and lowest cost gold mines in the world with an
expected mine life in excess of 25 years. In its first full five years
of operation, Silver Wheaton's silver production attributable to Pascua
Lama is expected to average nine million ounces annually.
San Dimas
Subsequent to the quarter, Primero Mining Corp. announced a
mine and mill expansion of the San Dimas mine in Mexico. Primero has
elected a staged approach to the full expansion and has approved the
expenditure of a total $14.4-million to expand the San Dimas mine and
mill from the current 2,000 tonnes per day to 2,500 tonnes per day.
Construction of the mine and mill expansion will begin immediately,
with an estimated completion during the first quarter of 2014. A
further plant expansion to 3,000 tonnes per day continues to be
assessed and is dependent on future exploration success by Primero.
Produced but not yet delivered
Payable silver equivalent ounces produced but not yet delivered to
Silver Wheaton by its partners increased by 2.0 million ounces to
approximately 5.2 million silver equivalent payable ounces at Sept. 30, 2012. The increase was primarily due to the timing of sales at
Goldcorp's Penasquito mine, Hudbay's 777 mine and Glencore's Yauliyacu
mine.
This earnings release should be read in conjunction with Silver
Wheaton's management discussion and analysis, and unaudited financial statements, which are available
on the company's website and have been posted on SEDAR.
Webcast and conference call details
A conference call will be held Monday, Nov. 5, 2012, starting at
11 a.m. ET to discuss these results. To participate in the
live call please use one of the following methods:
- Dial toll-free from Canada or the United States: 1-888-231-8191;
- Dial from outside Canada or the U.S.: 1-647-427-7450;
- Live audio webcast: company's website. Participants should dial in five to 10 minutes before the call.
The conference call will be recorded and you can listen to an archive of
the call by one of the following methods:
- Dial toll-free from Canada or the U.S.: 1-855-859-2056;
- Dial from outside Canada or the U.S.: 1-416-849-0833;
- Archived audio webcast: company's website.
CONSOLIDATED STATEMENT OF EARNINGS
(in thousands of U.S. dollars, except per share amounts)
Three months ended Sept. 30, Nine months ended Sept. 30,
2012 2011 2012 2011
Sales $161,273 $185,195 $562,319 $538,130
-------- -------- -------- --------
Cost of sales
Cost of sales, excluding
depletion 21,406 21,036 74,541 61,983
Depletion 14,464 13,647 53,261 40,065
-------- -------- -------- --------
Total cost of sales 35,870 34,683 127,802 102,048
-------- -------- -------- --------
Earnings from operations 125,403 150,512 434,517 436,082
-------- -------- -------- --------
Expenses and other income
General and admin 6,762 6,311 21,680 19,065
Foreign exchange
loss (gain) 77 (11) 86 (518)
Other expense (income) (1,646) 621 (2,152) 3,527
-------- -------- -------- --------
5,193 6,921 19,614 22,074
-------- -------- -------- --------
Earnings before income
taxes 120,210 143,591 414,903 414,008
Income tax expense (513) (8,551) (6,611) (8,727)
-------- -------- -------- --------
Net earnings $119,697 $135,040 $408,292 $405,281
======== ======== ======== ========
Basic earnings per share 0.34 0.38 1.15 1.15
Diluted earnings per
share 0.34 0.38 1.15 1.14
We seek Safe Harbor.
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