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Silver Wheaton Reports Record Second Quarter And First Half 2013 Production

Financial Review


Revenue was $166.9 million in the second quarter of 2013, on silver equivalent sales of 7.2 million ounces (5.1 million ounces of silver and 33,900 ounces of gold). This represents a 17% decrease from the $201.4 million of revenue generated in the second quarter of 2012, due primarily to a 21% decrease in the average realized silver equivalent price ( $23.05 in Q2 2013 compared to $29.07 in Q2 2012), partially offset by a 4% increase in the number of silver equivalent ounces sold.

Costs and Expenses

Average cash costs[1] in the second quarter of 2013 were $4.77 per silver equivalent ounce, compared with $4.06 during the comparable period of 2012. Cash costs rose year over year primarily due to an increase in gold sales (33,900 ounces in Q2 2013 compared to 2,400 ounces in Q2 2012) associated with Hudbay Minerals Inc.'s ("Hudbay") 777 mine and Vale S.A.'s (Vale) Sudbury and Salobo mines. The average cash cost per gold ounce[1] was $391, or $6.31 per silver equivalent ounce[2]. This resulted in a cash operating margin[1] of $18.28 per silver equivalent ounce, a reduction of 27% as compared to the second quarter of 2012. The decrease in the cash operating margin was largely due to a 21% decrease in the silver equivalent price realized in the second quarter of 2013 compared to the second quarter of 2012, as well as increased cash costs, as noted above.

Earnings and Operating Cash Flows

Net earnings in the second quarter of 2013 were $71.1 million ( $0.20 per share), compared with $141.4 million ( $0.40 per share) for the same period in 2012, a decrease of 50%. In the second quarter, a charge of $4.5 million was taken as a result of refinancing the Bridge Facility. Cash flow from operations in the second quarter of 2013 was $125.3 million ( $0.35 per share[1]), compared to $172.9 million ( $0.49 per share[1]) for the same period in 2012, a decrease of 28%. Earnings and cash flow were impacted by lower gold and silver prices, as well as increased costs due to an increase in gold sales, as noted above.

Balance Sheet

At June 30, 2013, the Company had approximately $36.3 million of cash on hand. On May 28, 2013, the Company announced the closing of a $1 billion non-revolving term loan, with a 3-year term, extendable by 1 year with the unanimous consent of lenders. The proceeds were used to repay the remaining balance of $560 million under the Company's $1.5 billion Bridge Facility and $440 million outstanding under the Revolving Facility. The Bridge Facility was terminated following the repayment of the outstanding balance.

The combination of cash and ongoing operating cash flows, combined with the credit available under the Revolving Facility, positions the Company well to fund all outstanding commitments as well as provide flexibility to acquire additional accretive precious metal stream interests.


[1] Please refer to non-IFRS measures at the end of this press release.

[2] Cash cost per silver equivalent ounce calculated using a gold to silver ratio of 61.9 based on either (i) the ratio of the average silver price received to the average gold price received during the period from the assets that produce both gold and silver; or (ii) the ratio of the price of silver to the price of gold on the date of sale as per the London Bullion Metal Exchange for the assets which produce only gold.

Operational and Development Highlights

Attributable silver equivalent production was 8.6 million ounces (6.4 million ounces of silver and 35,600 ounces of gold) in the second quarter of 2013, representing an increase of 28% compared to the second quarter of 2012.

Operational highlights for the quarter ended June 30, 2013, are as follows:

Pascua-Lama -

As per Barrick Gold Corporation's ("Barrick") news release dated August 1, 2013, in the second quarter, Barrick "received a resolution from Chile's Superintendence of the Environment (Superintendencia del Medio Ambiente or "SMA") that required completion of the project's water management system in accordance with previously granted environmental permits before other construction activities in Chile could resume." Barrick has submitted a plan, subject to review by the SMA, to construct the project's water management system in compliance with permit conditions for completion by the end of 2014, after which Barrick expects to complete remaining construction works in Chile, including pre-stripping. Under this scenario, ore from Chile is expected to be available for processing by mid-2016. Subsequent to the end of the second quarter, the Copiapo Court of Appeals in Chile issued its ruling on a constitutional rights protection action filed in September 2012 on behalf of four indigenous communities, on the basis of which a preliminary injunction suspending construction activities had been granted in April 2013. In its ruling, the Court stated that Barrick must complete construction of the water management system in compliance with applicable environmental permits to the satisfaction of the SMA before resuming construction activities in Chile. The Court's ruling is consistent with the earlier SMA resolution, which Barrick has been implementing.

As part of the Company's original contract with Barrick, Barrick has provided Silver Wheaton with a completion guarantee, requiring Barrick to complete Pascua-Lama to at least 75% of design capacity by December 31, 2015. Given the recent developments, Silver Wheaton has agreed to extend the outside completion date to December 31, 2016. If the requirements of the completion guarantee have not been satisfied by the revised outside completion date, the agreement may be terminated by Silver Wheaton. In such an event, Silver Wheaton would be entitled to the return of the upfront cash consideration of $625 million less a credit for silver delivered up to December 31, 2016.

As Barrick is now targeting a mid-2016 commissioning, Silver Wheaton will continue to receive silver production from three of Barrick's currently producing mines, the Lagunas Norte, Pierina, and Veladero mines, during 2014 and 2015.

Peñasquito -

As stated in Goldcorp Inc.'s ("Goldcorp") July 25, 2013 disclosure, a new water source, the Northern Well Field, has been identified within Peñasquito's current permitted Cedros basin. The Northern Well Field is expected to provide sufficient water to continue the plant ramp up to full design plant throughput. Mill throughput has been limited by lower-than expected water production in the current well field due to an unprecedented regional drought. Silver Wheaton's 2013 production guidance related to Peñasquito assumes throughput of 105,000 tonnes per day and production expectations over the balance of the next five years assume throughput of 110,000 tonnes per day. Goldcorp has stated that the addition of the Northern Well Field provides the flexibility to resume ramp-up to the design throughput of 130,000 tonnes per day. Goldcorp is currently working to acquire necessary rights-of-way and is evaluating alternative routes to access the well field. Construction is expected to begin in the fourth quarter of 2013 with completion expected in the second half of 2014. Additional ongoing studies by Goldcorp will continue to assess other potential sources of water as well as ways to conserve fresh water requirements such as thickened tailings.

In the second quarter of 2013, Goldcorp continued an extensive exploration drilling program at Peñasquito focused on defining the intersection of the copper-gold skarn deposit located below and adjacent to the currently designed open pits. Current exploration activities are focused on delineating the vertical and horizontal size and extension of the skarn deposit with intersections continuing to show attractive precious metal and copper grades.

Other -

According to Hudbay's July 31, 2013, disclosure, construction at the Constancia project in Peru continued to progress in the second quarter and initial production remains on track for late 2014 with full production still on schedule for the second quarter of 2015. Hudbay had incurred $658 million in costs as of June 30, 2013, and the project is now over 40% complete. As per the agreement with Hudbay, Silver Wheaton paid $125 million to Hudbay in the second quarter as Hudbay's total capital expenditures related to Constancia reached $500 million. Silver Wheaton will make a final payment of $125 million once capital expenditures of $1 billion have been incurred by Hudbay.

Subsequent to the quarter end, Augusta Resources Corporation ("Augusta") announced that on July 1, 2013, the Preliminary Administrative ("PA") Final Environmental Impact Statement ("FEIS") for Rosemont Copper has been delivered by the U.S. Forest Service ("USFS") to the Federal, State and Local cooperating agencies for their final comments. The cooperating agencies have been given 30 days to provide their final comments, following which the FEIS will be finalized and issued. The USFS is also completing the Record of Decision ("ROD") with the objective of issuing the ROD concurrently with the publication of the FEIS.

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