Mr. Randy Smallwood reports
SILVER WHEATON ANNOUNCES FIRST QUARTER RESULTS FOR 2017
Silver Wheaton Corp. has released its results for the first quarter ended March 31, 2017. All figures are presented in U.S. dollars unless otherwise noted.
In the first quarter of 2017, Silver Wheaton's gold production and sales volumes climbed over 35 per cent relative to the first quarter of 2016, putting the company on track to meet or exceed full-year gold production guidance. First quarter silver production and silver sales were affected by a strike action at San Dimas. For the third consecutive quarter, revenue was roughly evenly split between silver and gold, aligning well with the proposed name change to Wheaton Precious Metals.
First quarter highlights
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Attributable production in the first quarter of 2017 was 6.5 million ounces of silver and 84,900 ounces of gold, compared with 7.5 million ounces of silver and 61,900 ounces of gold in the first quarter of 2016, with silver production having decreased 14 per cent and gold production having increased 37 per cent.
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On a silver equivalent basis (1) and gold equivalent basis (1), attributable production in the first quarter of 2017 was 12.5 million silver equivalent ounces (SEOs) or 177,900 gold equivalent ounces (GEOs), compared with 12.5 million SEOs or 156,500 GEOs in the first quarter of 2016, with SEO production being virtually unchanged and GEO production having increased 14 per cent.
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Sales volume in the first quarter of 2017 was 5.2 million ounces of silver and 88,400 ounces of gold, compared with 7.6 million ounces of silver and 65,300 ounces of gold in the first quarter of 2016, with silver sales volume having decreased 31 per cent and gold sales volume having increased 35 per cent.
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On a silver equivalent basis (1) and gold equivalent basis (1), sales volume in the first quarter of 2017 was 11.4 million SEOs or 163,000 GEOs, compared with 12.7 million SEOs or 160,200 GEOs in the first quarter of 2016, with silver sales volume having decreased 10 per cent and gold sales volume having increased 2 per cent.
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As at March 31, 2017, payable ounces attributable to the company produced but not yet delivered (3) amounted to 3.9 million payable silver ounces and 51,500 payable gold ounces, representing an increase of 600,000 payable silver ounces and a decrease of 8,100 payable gold ounces during the three-month period ended March 31, 2017.
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Revenues were $198-million in the first quarter of 2017, compared with $188-million in the first quarter of 2016, representing an increase of 6 per cent.
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The average realized sale price per ounce sold in the first quarter of 2017 was $17.45 per ounce of silver and $1,208 per ounce of gold, representing an increase of 19 per cent and 3 per cent, respectively, compared with the first quarter of 2016.
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Net earnings were $61-million (14 cents per share) in the first quarter of 2017, compared with $41-million (10 cents per share) in the first quarter of 2016, representing an increase of 49 per cent.
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Operating cash flows were $120-million (27 cents per share (2)) in the first quarter of 2017, compared with $114-million (28 cents per share (2)) in the first quarter of 2016, representing an increase of 5 per cent.
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Cash operating margin (2) in the first quarter of 2017 was $12.91 per silver ounce sold and $817 per gold ounce sold, representing an increase of 22 per cent and 4 per cent, respectively, as compared with the first quarter of 2016.
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Average cash costs (2) in the first quarter of 2017 were $4.54 and $391 per ounce of silver and gold, respectively.
- The company declared a quarterly dividend of seven cents per common share.
Asset highlight
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Operations at the San Dimas mine in Mexico resumed on April 18, 2017, after Primero Mining Corp. resolved the work stoppage of unionized employees that began on Feb. 15, 2017. Primero announced that it has a new collective bargaining agreement (CBA) that provides a formal structure for regulating all aspects of the relationship between Primero and its unionized employees.
"Silver Wheaton had a solid start to 2017, with our gold business once again delivering strong results," said Randy Smallwood, president and chief executive officer of Silver Wheaton. "For the third quarter in a row, revenue was roughly balanced between silver and gold, further supporting the proposed name change to Wheaton Precious Metals. While our name may be changing, our focus remains on being the premier investment option for precious metals."
Financial review
Revenues
Revenue was $198-million in the first quarter of 2017, on sales volume of 5.2 million ounces of silver and 88,400 ounces of gold. This represents a 6-per-cent increase from the $188-million of revenue generated in the first quarter of 2016, due primarily to: (i) a 35-per-cent increase in the number of gold ounces sold; (ii) a 19-per-cent increase in the average realized silver price ($17.45 in the first quarter of 2017, compared with $14.68 in the first quarter of 2016); and (iii) a 3-per-cent increase in the average realized gold price ($1,208 in the first quarter of 2017, compared with $1,175 in the first quarter of 2016); partially offset by (iv) a 31-per-cent decrease in the number of silver ounces sold.
Costs and expenses
Average cash costs (2) in the first quarter of 2017 were $4.54 per silver ounce sold and $391 per gold ounce sold, as compared with $4.14 per silver ounce and $389 per gold ounce during the comparable period of 2016. This resulted in a cash operating margin (2) of $12.91 per silver ounce sold and $817 per gold ounce sold, an increase of 22 per cent and 4 per cent, respectively, as compared with the first quarter of 2016. The increase in the cash operating margin was primarily due to a 19-per-cent increase in the average realized silver price and a 3-per-cent increase in the average realized gold price in the first quarter of 2017 compared with the first quarter of 2016.
Earnings and operating cash flows
Net earnings and cash flow from operations in the first quarter of 2017 were $61-million (14 cents per share) and $120-million (27 cents per share (2)), compared with $41-million (10 cents per share) and $114-million (28 cents per share (2)) for the same period in 2016, an increase of 49 per cent and 5 per cent, respectively.
Balance sheet
At March 31, 2017, the company had approximately $115-million of cash on hand and $1.1-billion outstanding under the company's $2-billion revolving term loan. On Feb. 27, 2017, the term of the revolving term loan was extended so that it now matures on Feb. 27, 2022.
First quarter asset highlights
During the first quarter of 2017, attributable production was 6.5 million ounces of silver and 84,900 ounces of gold, respectively, representing a decrease of 14 per cent and an increase of 37 per cent as compared with the first quarter of 2016.
Operational highlights for the quarter ended March 31, 2017, based upon counterparties' reporting, are as follows:
Salobo
In the first quarter of 2017, Salobo produced 53,200 ounces of attributable gold, an increase of approximately 38 per cent relative to the first quarter of 2016. This growth was primarily due to the acquisition of an additional 25 per cent of attributable gold from the Salobo mine in the third quarter of 2016. According to Vale SA's first quarter 2017 production report, production was affected by conveyor belt and plant repairs in February, as well as by lower grades.
Antamina
In the first quarter of 2017, Antamina produced 1.5 million ounces of attributable silver, a decrease of approximately 28 per cent relative to the first quarter of 2016. This decrease was primarily the result of lower throughput, grades and recovery. The mine site was reportedly well prepared for the major floods and mudslides that affected Peru during the month of March, with no long-term effects on production expected in 2017. Antamina is on track to meet the six-million-ounce silver forecast for full-year 2017.
Penasquito
In the first quarter of 2017, Penasquito produced 1.3 million ounces of attributable silver, a decrease of approximately 1 per cent relative to the first quarter of 2016. According to Goldcorp Inc.'s first quarter 2017 MD&A (management's discussion and analysis), higher-grade ore is expected in the second quarter of 2017 as further mining occurs in phase 5, after which mill feed is expected to consist of lower-grade ore and stockpiled material for the remainder of 2017. Goldcorp further reports that it expects increased productivity throughout 2017 as a result of continuing initiatives, including improved pit conditions with large and wide cutbacks, a continued focus on balancing truck haulage with available shovels, and an optimization of drill-and-blast activities. Finally, prestripping of the Chile Colorado pit has reportedly commenced ahead of schedule, with the first two benches being mined. Goldcorp has indicated that mining of ore is expected to start in 2018.
According to Goldcorp, the pyrite leach project (PLP) achieved construction progress of 6 per cent and engineering progress of 81 per cent by the end of the first quarter of 2017, with major procurement activities nearing completion, material and equipment arriving on site, and major works contractors having mobilized to site. Goldcorp also reports that earthwork activities are now complete, concrete works are under way and mechanical works installation will commence in the second quarter of 2017. As part of the PLP, a carbon preflotation facility is being constructed, which will reportedly allow Penasquito to process ore that was previously considered uneconomic, including significant amounts already in stockpiles.
San Dimas
In the first quarter of 2017, San Dimas produced 600,000 ounces of attributable silver, a decrease of approximately 33 per cent relative to the first quarter of 2016. Operations at San Dimas resumed on April 18, 2017, after Primero resolved the work stoppage of unionized employees that began on Feb. 15, 2017. Primero announced that it has a new CBA with the National Union of Mine, Metal, Steel and Allied Workers of the Mexican Republic. Primero believes that the new CBA allows for a competitive cost structure and improved performance bonus parameters aligned to the future success of San Dimas operations. A phased restart of the San Dimas operation is currently under way, and Primero is guiding for 2017 silver production of between 4.5 million to 5.5 million ounces.
On March 30, 2017, Silver Wheaton and certain of its subsidiaries provided a guarantee to the lenders under Primero's existing revolving credit facility, which is set to mature on Nov. 23, 2017, capped at a maximum of $81.5-million, plus interest, fees and expenses. Primero will pay Silver Wheaton a fee of 5 per cent per year in connection with the guarantee.
Sudbury
In the first quarter of 2017, Vale's Sudbury mines produced 15,100 ounces of attributable gold, an increase of approximately 91 per cent relative to the first quarter of 2016. This increase was attributable to higher grades and recovery more than offsetting lower throughput. According to Vale's first quarter 2017 production report, production in the second quarter of 2017 will be affected as Vale took furnace No. 2 off-line mid-March for a three-month rebuild and expansion in its capacity, as this will be the furnace in operation when Sudbury officially transitions to a single furnace in the fourth quarter of 2017. Furthermore, in the second quarter, Sudbury will have its three-week surface-plant-wide scheduled maintenance shutdown, which occurs every 18 months.
Constancia
In the first quarter of 2017, Constancia produced 500,000 ounces of attributable silver and 2,400 ounces of attributable gold, an increase of approximately 6 per cent for silver production and a decrease of approximately 29 per cent for gold production relative to the first quarter of 2016. Lower grades were more than offset for silver and partially offset for gold by increased throughput and recovery. According to Hudbay Minerals Inc.'s first quarter 2017 MD&A, ore mined at Constancia during the first quarter of 2017 increased by 6 per cent compared with the same period in 2016, as the company wanted to increase stockpiles to improve the ability to blend ore at the processing plant.
Other gold
In the first quarter of 2017, total other gold attributable production was 14,200 ounces, an increase of approximately 17 per cent relative to the first quarter of 2016. The increase was driven primarily by higher grades at Minto, partially offset by lower attributable production at 777.
Other silver
In the first quarter of 2017, total other silver attributable production was 2.5 million ounces, a decrease of approximately 7 per cent relative to the first quarter of 2016. The decrease was driven primarily due to lower grades, throughput and recovery at Yauliyacu and Zinkgruvan, partially offset by higher throughput and grades at Pierina.
In March, 2017, the company amended its silver purchase agreement with Alexco Resource Corp. to make the production payment a function of the silver head grade and silver spot price in the month in which the silver is produced. In addition, the area of interest was expanded to include properties currently owned by Alexco and properties acquired by Alexco in the future which fall within a one-kilometre radius of existing Alexco holdings in the Keno Hill silver district. As consideration of the amendments, on April 10, 2017, Alexco issued three million shares to Silver Wheaton with a fair value of $5-million.
Development update -- Rosemont
Hudbay has completed an updated feasibility study for its Rosemont project in Arizona, United States. Since its acquisition of Rosemont, Hudbay has completed an extensive work program, including infill drilling, detailed metallurgical testwork and a bottom-up approach to cost estimation, along with other feasibility-level work, as detailed in the National Instrument 43-101 technical report in respect of the Rosemont project dated March 30, 2017. Rosemont will be a traditional open-pit, shovel-and-truck operation with an expected 19-year mine life. Project capital cost for Rosemont is now estimated at approximately $1.9-billion (100-per-cent basis) and is expected to be spent over a three-year construction period.
Subsequent to the quarter, Hudbay announced in its news release dated May 8, 2017, that the U.S. Forest Service has published a notice to the U.S. Federal Register regarding the Rosemont project. The notice states, "The record of decision (ROD) for the Rosemont copper project is expected to be signed in early June, 2017, by (the) Coronado National Forest Supervisor." The final record of decision is one of the two key federal permits outstanding, the other being the Section 404 water permit from the U.S. Army Corps of Engineers.
As per the precious metals streaming agreement, Silver Wheaton (Caymans) Ltd. will provide a payment of a $230-million deposit upon achievement of certain milestones in exchange for an amount equal to 100 per cent of the life-of-mine silver and gold production from Rosemont
(3).
Produced but not yet delivered (4)
As at March 31, 2017, payable ounces attributable to the company produced but not yet delivered (3) amounted to 3.9 million payable silver ounces and 51,500 payable gold ounces, representing an increase of 600,000 payable silver ounces and a decrease of 8,100 payable gold ounces during the three-month period ended March 31, 2017. Payable silver ounces produced but not yet delivered increased primarily as a result of increases related to the Penasquito, Antamina, Zinkgruvan and Yauliyacu silver interests, partially offset by a decrease related to the San Dimas silver interest. Payable gold ounces produced but not yet delivered decreased primarily as a result of decreases related to the Salobo and 777 gold interests, offset partially by an increase related to the Sudbury gold interest. Payable ounces produced but not yet delivered to Silver Wheaton companies are expected to average approximately two months of annualized production, but may vary from quarter to quarter due to a number of mining operation factors, including mine ramp-up and the timing of shipments.
Detailed mine-by-mine production and sales figures can be found in Silver Wheaton's consolidated MD&A.
Outlook
Silver Wheaton's estimated attributable silver and gold production in 2017 is forecast to be 28 million silver ounces and 340,000 gold ounces. Estimated average annual attributable silver and gold production over the next five years (including 2017) is anticipated to be approximately 29 million silver ounces and 340,000 gold ounces per year. As a reminder, Silver Wheaton does not include any production from Barrick's Pascua-Lama project or Hudbay's Rosemont project in its guidance.
From a liquidity perspective, cash and cash equivalents of $115-million as at March 31, 2017, combined with the liquidity provided by the available credit under the $2-billion revolving facility and continuing operating cash flows, position the company well to finance all outstanding commitments and known contingencies, as well as provide flexibility to acquire additional accretive precious metal stream interests.
Webcast and conference call details
A conference call and webcast to discuss these results will be held on Wednesday, May 10, 2017, starting at 11 a.m. ET. To participate in the live call, please use one of the following methods:
Dial toll-free from Canada or the United States: 888-231-8191
Dial from outside Canada or the United States: 647-427-7450
Passcode: 3204939
Live audio webcast: Silver Wheaton's website
Participants should dial in five to 10 minutes before the call.
The conference call will be recorded and available until May 17, 2017, at 11:59 p.m. ET. The webcast will be available for one year. You can listen to an archive of the call by one of the following methods:
Dial toll-free from Canada or the United States: 855-859-2056
Dial from outside Canada or the United States: 416-849-0833
Passcode: 3204939
Archived audio webcast: Silver Wheaton's website
This earnings release should be read in conjunction with Silver Wheaton's MD&A and financial statements, which are available on the company's website and have been posted on SEDAR.
Neil Burns, vice-president of technical services for Silver Wheaton, is a qualified person as such term is defined under National Instrument 43-101, and has reviewed and approved the technical information, including information on mineral reserves and mineral resources, disclosed in this news release.
Silver Wheaton believes that there are no significant differences between its corporate governance practices and those required to be followed by U.S. domestic issuers under the New York Stock Exchange listing standards.
Notes:
- SEOs and GEOs, which are provided to assist the reader, are calculated by converting gold (in the case of SEOs) or silver (in the case of GEOs) using the ratio of the average price of silver to the average price of gold per the London Bullion Metal Exchange during the period.
- These are non-IFRS (international financial reporting standards) measures.
- In the Rosemont technical report, including the effect of the stream, Hudbay estimates silver to represent only approximately 2 per cent of the mine's revenue, while the financial effect of gold was not estimated, as it is currently thought to be negligible to the overall economics of the mine.
- Payable silver and gold ounces produced but not yet delivered are based on management estimates and may be updated in future periods as additional information is received.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of U.S. dollars, except per-share amounts)
Three months ended March 31,
2017 2016
Sales $ 197,951 $ 187,511
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Cost of sales
Cost of sales, excluding depletion $ 58,291 $ 56,636
Depletion 63,943 71,344
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Total cost of sales $ 122,234 $ 127,980
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Gross margin $ 75,717 $ 59,531
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Expenses
General and administrative (1) $ 7,898 $ 10,844
Interest expense 6,373 6,932
Other expense 94 1,160
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$ 14,365 $ 18,936
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Earnings before income taxes $ 61,352 $ 40,595
Income tax (expense) recovery (128) 384
Net earnings $ 61,224 $ 40,979
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Basic earnings per share $ 0.14 $ 0.10
Diluted earnings per share $ 0.14 $ 0.10
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(1) Equity-settled stock-based
compensation (a non-cash item)
included in general and
administrative expenses $ 1,196 $ 1,397
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