Seeking Alpha
Silver Wheaton's Increased Production Will Support The Company
Oct. 6, 2014 2:55 AM ET (SLW)
"Constancia mine in Peru will start delivering metal to Silver Wheaton in the first quarter of 2015.
The Salobo mine in Brazil and the Totten mine in Canada will spin off increased production from 2015 onwards.
The San Dimas Mine goes from strength with two announced expansions this year. Presently mine expansion is approved at 3000 tonnes per day.
Even though the exploration part of the mining industry is suffering from a lack of capital, Silver Wheaton (NYSE:SLW) is still in good shape with many of their partnering projects now about to go into full operational mode. This makes me bullish on Silver Wheaton because as many mining companies are undergoing cash cutting measures in order to survive (and as a result extract less metal), streaming companies such as Silver Wheaton should be able to weather this drawdown better because their costs are fixed. Moreover RBC capital has an outperform rating on this stock and has actually increased its projection this year up to $38 from $35 a share. Therefore lets look at where Silver Wheaton's increased volume will come from which should result in a higher share price going forward.
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First up is the agreement they have in place with Hud Bay Minerals at the Constancia mine in Peru. Silver Wheaton expects the switch to be turned on there at any time and the CEO Randy Smallwood expects to receive first shipments from the mine in the first quarter of 2015. Silver Wheatons agreement is to get 100% of the Silver and 50% of the Gold for the life of the mine. Smallwood believes the mine will average between 3 and 3.5 million of silver annually which should give a mine life of 16 years as the proven and probable reserves stand at just over 61 million ounces of silver.
Secondly production will increase at Salobo (a Gold mine operated by Vale in Brazil where Silver Wheaton receive 25% of the Gold). There was a second line activated this year on the 5th of June so production will more or less be doubled from this mine going forward. In the last quarter, 8,486 ounces of Gold was produced from Salobo so expect this figure to eventually double in the months to come. Also Silver Wheaton has another streaming agreement in place with Vale (NYSE:VALE) at their Sudbury project in Canada. In total there are 6 mines in this project and one of them (the Totten mine) is about to be started up very shortly so definitely Sudbury will be supplying Silver Wheaton more Gold from 2015 on.
Finally, probably the jewel in the crown is the San Dimas mine in Mexico which is operated by the Primero Mining Corp (NYSE:PPP). This mine has been in operation for over 100 years and is one of the most low cost gold and silver producing mines in the world. This is really important for a streaming company like Silver Wheaton. Even though costs are fixed on their side (Average cash cost of silver is $4.17 an ounce), a productive mine is imperative because it usually means high volumes of metal delivered every quarter. In fact, Primero announced this year that they are expanding the mine from 2500 tonnes per day to 3000 tonnes per day. This will definitely mean more silver for Silver Wheaton going forward.
Therefore to sum up, it would appear that Silver Wheaton may be able to withstand this gold and silver correction better than some popular mining companies out there. The reason being the companies they work with and the assets they have on their books. Their numbers should definitely spike soon and if this is combined with a spike in the silver price, the company could rally beyond beat RBC's estimate."
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