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Silver Wheaton’s Q1 results fell short of analysts’ expectations, but CEO Randy Smallwood doesn’t think that’s a problem.
Silver Wheaton (TSX:SLW,NYSE:SLW) is a precious metal streaming company, which means that it secures the right to buy companies’ future silver and gold production at a fixed rate by helping miners fund their projects with upfront payments.
The company prides itself on using this model to create shareholder value by providing investors with exposure to gold and silver prices “while reducing the downside risks faced by traditional mining companies.” With silver companies suffering after the white metal’s April crash, the company is now doing its best to make good on its word.
Q1 results disappoint
While Silver Wheaton ended 2012 on a high note, putting out a record 8.5 million ounces of attributable silver equivalent production and selling 9.1 million silver equivalent ounces, also a record, in the year’s fourth quarter, silver’s sharp mid-April decline led to speculation that the company’s first-quarter results would be negatively affected by weak silver prices and the suspension of Barrick Gold’s (NYSE:ABX,TSX:ABX) Pascua Lama mine.
When the results came in on May 10, those predictions did not miss the mark: the company’s net earnings amounted to $133.4 million, a 9-percent decrease from the year-ago quarter, and, according to the Financial Post, “slightly below expectations.”
Further, while the company produced 8 million silver equivalent ounces during the quarter, a 20-percent increase compared to Q1 2012, it was only able to sell 6.9 million ounces of the white metal.
CEO Smallwood still optimistic
Although the company’s results fell short of expectations, President and CEO Randy Smallwood remains optimistic, noting in the company’s press release that Silver Wheaton is on track to produce 13 percent more silver equivalent ounces than it did in 2012. He cited the company’s February acquisition of gold streams from two Vale (NYSE:VALE) mines and a full year’s production from Hudbay Minerals’ (TSX:HBM) 777 mine as responsible for the growth.
He also emphasized that “[w]hile the past few weeks have been characterized by volatility in the commodity markets, we continue to provide shareholders with the stability of low, predictable costs.”
In order to continue doing so, Silver Wheaton has amended its dividend policy so that its quarterly dividend will be equal to 20 percent of “the trailing four quarters’ operating cash flow.”
Smallwood’s optimism about Silver Wheaton is also visible in his recent interview with ETF Daily News. He told the publication, “[n]ow is the time … when streaming and royalties should play a very pivotal role. It is important to remember that this is a cyclical industry. At some points in the cycle, exploration finance is very hard to come by, which subsequently results in a dearth of new discoveries and ultimately a supply shortage. When supply becomes tight, the funding comes back, and hence the cycle. For Silver Wheaton, these periods of tight financing create opportunity — and this is exactly what we are seeing now.”
Brighter future ahead?
Smallwood is not alone in his optimism. A Forbes article published last week notes that although Silver Wheaton has now moved into oversold territory — meaning that its Relative Strength Index reading has slipped below 30 — bullish investors could take that “as a sign that the recent heavy selling is in the process of exhausting itself, and begin to look for entry point opportunities on the buy side.”
Analysts appear to be thinking along the same lines. Mideast Times reported that research analysts at Raymond James recently reaffirmed their “buy” rating on the company, though they lowered their price target from $42 to $41. Similarly, TD Securities analysts have placed a “buy” rating on the stock, though their price target sits lower, at $35, according to DailyPolitical.com.
TheStreet, however, is erring on the side of caution: last Thursday it downgraded Silver Wheaton from a “buy” rating to “hold.” Yet it notes that “the fact that the stock has come down in price over the past year should not necessarily be interpreted as negative; it could be one of the factors that may help make the stock more attractive down the road.”
The question, then, seems to be not if Silver Wheaton will rise again, but when.
Silver Wheaton is currently trading at $22.98 per share; its 52-week low is $22.09 and its 52-week high is $41.18.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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