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Barrick Gold Corporation (USA) (ABX): Silver Wheaton Corp. (USA) (SLW)’s Giant Opportunity

On Friday, Silver Wheaton Corp. (USA) (NYSE:SLW) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they’ll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you’ll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

The recent plunge in gold and silver prices have hurt mining companies, which have already struggled under high operating costs and other headwinds. Silver Wheaton Corp. (USA) (NYSE:SLW)’s streaming strategy shelters it from mining-operation challenges, but it still is sensitive to the price of precious metals. Let’s take an early look at what’s been happening with Silver Wheaton over the past quarter and what we’re likely to see in its quarterly report.

Stats on Silver Wheaton Corp. (USA) (NYSE:SLW)

Analyst EPS Estimate $0.40
Change From Year-Ago EPS (2.4%)
Revenue Estimate $252.46 million
Change From Year-Ago Revenue 27%
Earnings Beats in Past 4 Quarters 2

Source: Yahoo! Finance.

Can Silver Wheaton keep its earnings up?
Analysts have made substantial cuts to their earnings estimates for Silver Wheaton Corp. (USA) (NYSE:SLW)in recent months, with a $0.09 per share cut to their first-quarter calls and a 20% reduction for their full-year 2013 estimates. The stock has responded even more unfavorably, losing a third of its value since early February.

From an operational standpoint, Silver Wheaton has shown great success lately. In March, the company announced full-year 2012 figures that included a 16% boost in revenue due to a major new stream from HudBay Minerals Inc Ord Shs (NYSE:HBM), resulting in 17% growth in production and record earnings for the year. Slightly lower silver prices and somewhat higher average costs per ounce weren’t enough to offset the gains.

Yet more recently, the recent plunge in silver and other precious metals has threatened margins a lot more. The iShares Silver Trust (ETF) (NYSEARCA:SLV) has not only seen prices drop 15% in the last month but has also seen its overall holdings drop by 250 tons, reflecting weaker investor demand even in light of purchases of physical silver from dealers that have helped prices recover from their lowest levels.

The plunge has also created both challenges and opportunities for Silver Wheaton. On one hand, struggling miners facing lower prices will need financing and therefore be more willing to turn to the silver streamer for badly needed cash. On the other, existing streaming agreements could face trouble if counterparties have trouble staying operational. However, major partners Goldcorp Inc. (USA) (NYSE:GG) and Barrick Gold Corporation (USA) (NYSE:ABX) are both big enough that they should be able to avoid breaching their production agreements with Silver Wheaton Corp. (USA) (NYSE:SLW), and the streamer typically builds in contractual protections to minimize its risk with counterparties.

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