Silver Wheaton Corp. (USA) (NYSE:SLW)’s distinctive business model has helped it benefit from the long-term rise in silver prices while also protecting it from many of the challenges that have plagued ordinary mining companies recently. Can the silver-streamer take advantage of current market conditions to build its profits even further? Let’s take an early look at what’s been happening with Silver Wheaton Corp. (USA) (NYSE:SLW) over the past quarter and what we’re likely to see in its quarterly report on Thursday.
Stats on Silver Wheaton
| Analyst EPS Estimate | $0.49 |
| Change From Year-Ago EPS | 19.5% |
| Revenue Estimate | $259.4 million |
| Change From Year-Ago Revenue | 35% |
| Earnings Beats in Past 4 Quarters | 1 |
Source: Yahoo! Finance.
Will Silver Wheaton shine itself up this quarter?
Over the past few months, analysts have soured a bit on Silver Wheaton Corp. (USA) (NYSE:SLW)’s long-term prospects. Although consensus estimates have stayed stable for the just-ended quarter, full-year 2013 views have dropped by $0.18 per share. The stock has reflected that uncertainty, falling 18% since mid-December.
Fool readers were recently fortunate enough to benefit from Fool metals expert Christopher Barker’s interview with Silver Wheaton CEO Randy Smallwood. In that interview, Smallwood said that he sees a big opportunity to expand Silver Wheaton’s scope among the biggest companies in the mining industry. However, he noted that smaller companies have been trying to add price-adjustment clauses to streaming agreements, potentially forcing Silver Wheaton to accept the cost risk that it has historically avoided.
The big news for Silver Wheaton came at the beginning of February, when it announced it would partner up with Brazilian mining giant Vale SA (ADR) (NYSE:VALE) in a streaming deal involving payments totaling $1.9 billion upfront. What’s particularly remarkable about the deal is that it involves gold mines, with 25% of gold production from Vale’s Salobo mine in Brazil and 70% of gold produced from its Canadian Sudbury mines going to Silver Wheaton Corp. (USA) (NYSE:SLW) at a fixed cost of $400 per ounce. Even more unprecedented for the company is the fact that Silver Wheaton gave Vale warrants to buy 10 million Silver Wheaton shares at a price of $65 at any time during the next 10 years. Smallwood assured Barker in his interview that the company still prefers silver to gold, but it’s clear that Silver Wheaton’s future relies on a mix of metals.
Silver prices haven’t cooperated with Silver Wheaton lately. Even as the economic outlook has looked more favorable, iShares Silver Trust ((NYSEMKT:SLV) and other silver investments have lagged behind platinum and palladium, both of which are tied a bit more to industrial demand than silver is. Still, with mining stocks seeing cost pressures and other margin-squeezing factors, Silver Wheaton’s business model looks superior in the current environment.
In its quarterly report, watch for Silver Wheaton Corp. (USA) (NYSE:SLW) to talk in greater detail about its latest deal with Vale. As more big players become willing to make silver-streaming agreements, Silver Wheaton’s prospects only grow larger, no matter which direction silver prices move in the future.
The article Silver Wheaton Earnings: An Early Look originally appeared on Fool.com and is written by Dan Caplinger.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.
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