SLW Earnings Preview


One year after revealing a truly stunning silver bonanza, the growth sensation that I have hailed as "The Most Profitable Company in the World" will regale investors Monday with details of its third-quarter profitability. Of course I refer to Silver Wheaton (NYS: SLW) , and I wish to take a moment to discuss some of the key items to be looking for when those earnings are released.

Anyone watching these precious metal markets will be keenly aware that silver prices contracted substantially from their very strong levels recorded in 2011. Based upon the average realized silver price of $28.72 per ounce revealed by fellow growth sensation Endeavour Silver (NYS: EXK) for the third quarter, Fools can expect Silver Wheaton to report a decline of greater than 20% from its prior-year average realized silver price of $36.44. As a powerful counterpoint to that price drop, fortunately, we have some substantial growth in production volume to watch for.

Silver Wheaton expects to produce some 28 million silver-equivalent ounces (SEOs) during the full-year of 2012, which would represent roughly 10% growth from its prior-year mark of 25.4 million SEOs. I don't expect any substantial changes to that guidance, but it's worth pointing out the two most likely sources of any potential surprises regarding production volume. First, Fools will recall that Primero Mining (NYS: PPP) -- the top-performing gold miner of 2012 -- increased its full-year guidance for production from the San Dimas mine by 10% after a terrific first half of the year.

Second, although Goldcorp's Peñasquito mine suffered a rough second quarter after water shortages affected plant throughput, Goldcorp (NYS: GG) reported terrific third-quarter production volumes that powered a 31% sequential increase in the miner's consolidated silver production!

Finally, because Silver Wheaton's brand new stream covering HudBay Minerals' (NYS: HBM) existing 777 mine only went into effect right at the end of the period, we're looking for the near-term bump in silver and gold to commence during the fourth quarter as opposed to the third.

Of course, the beauty of Silver Wheaton's unique business model is that production volume and average silver prices are about the only key variables to watch for when attempting to project earnings expectations. With its fixed, low cash costs of production, its strong production growth profile, and its lean corporate structure yielding a powerfully efficient net profit margin, Silver Wheaton shareholders are bound to be impressed even during those uncommon quarters when the silver price has not obliged with a year-over-year advance. I still believe Silver Wheaton shares are likely to reach $100 before this secular bull market has run its course, and I will remain glued to my own personal holding all the way there.

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Fool contributor Christopher Barker owns shares of Endeavour Silver (CAN), Goldcorp (USA), Primero Mining, and Silver Wheaton (USA). The Motley Fool owns shares of Primero Mining. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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