Silver Wheaton's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Silver Wheaton Corp. (SLW)

Q2 2012 Earnings Call

August 10, 2012 11:00 am ET


Brad Kopp - SVP, IR

Randy Smallwood - President & CEO

Gary Brown - SVP & CFO


John Flanagan - Fundamental Equities

Dan Rollins - RBC Capital Markets

Michael Dalgleish - SAC Capital

Chris Lichtenheldt - UBS

John Bridges - JPMorgan

Andrew Kaip - BMO

Steve Butler - Canaccord Genuity



Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Silver Wheaton's 2012 second quarter results conference call. All lines have been placed to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) Thank you. I would like to remind everyone that this conference call is being recorded on Friday August 10 at 11:00 AM eastern time. I will turn the conference over to Mr. Brad Kopp, Senior Vice President of Investor Relations. Please go ahead

Brad Kopp

Thanks Tracy and good morning, ladies and gentlemen and thank you for participating in today's call. And I'm joined today by Randy Smallwood, Silver Wheaton’s President and CEO and Gary Brown, Senior Vice President and Chief Financial Officer. I would like to bring your attention that some of the commentary on today's call may contain forward-looking statement. There could be no assurance that forward-looking statements will prove be accurate as actual results and future events could differ materially from those anticipated in such statements.

Please refer to the section entitled Description of the Business Risk Factors in Silver Wheaton’s annual information form which is available on SEDAR and in Silver Wheaton’s Form 40-F on file with the US Securities and Exchange Commission. The annual information form sets out the material risk factors that could cause actual results to differ including the assets to control our mining operations from which Silver Wheaton purchases silver and gold with risks related to such mining operations and the risk of a decline in Silver and Gold prices. Lastly it should be noted that all figures refer to on today's call are in US dollars unless otherwise noted. Now I would like to turn the call over to Randy, our President and CEO.

Randy Smallwood

Thank you Brad and good morning ladies and gentlemen. Thank you for dialing in to our second quarter 2012 conference call. We are very pleased to report that another strong quarter puts us on track for our best year ever.

Solid performance from our portfolio of mines combined with a reduction in concentrate produce, but not yet delivered has resulted in record silver sales and revenues for the second quarter in a row.

Operating cash flow has also reached a record high and yesterday we announced our third quarterly dividend for 2012 which increased to $0.10 per share due to the increased cash flows.

As announced earlier in this week, the addition of two new streams from HudBay Minerals subsequent to the quarter will build on our already industry leading growth profile. The first stream is the precious metal stream with both gold and silver from HudBay currently producing flagship mine, the 777.

The second stream is a silver stream under a key growth project Constancia down in Peru. Similar to all of our agreements, this transaction once again highlights the effectiveness of our business model, which provides healthy capital to our operating partners while combining the certainty of fixed capital and operating costs with production from high quality mines that offer exciting upside potential.

These new HudBay streams deliver immediate cash flow with 777 contributing average annual production of approximately 4.2 million silver equivalent ounces until the end of 2016.

Our 2012 production guidance has been increased from 27 million to 28 million silver equipment ounces. Once Constancia reaches full operations, silver equivalent production levels from these two assets will increase to about 4.9 million silver equivalent ounces resulting in 2016 production guidance of 48 million ounces, a 90% increase over our 2011 production levels.

And importantly, we’ve added these assets in to our portfolio by using existing cash on hand allowing us to maintain our exceptionally strong balance sheet and to continue to pursue even further and to continue to pursue even further growth to new value enhancing acquisitions.

In the second quarter of 2012, we achieved production of 6.7 million silver equivalent ounces. Silver equivalent sales reached an all time high of 6.9 million ounces. This strong quarter resulted in record financial results including revenues of over $200 million and operating cash flows in excess of a $170 million which represent a cash operating margin of 86%.

More detail on the finances will be provided shortly by our Senior Vice President and Chief Financial Officer, Gary Brown.

On the operations front, production from most of our assets was very solid with Zinkgruvan once again delivering a storing quarter and with sales of concentrate produced, but not yet delivered from Yauliyacu contributing considerably to our revenues and cash flow.

While we did see some temporary short falls in production at Peñasquito mine and a delay announced at Pascua-Lama, we remain confident in our partners and view both of these assets as core streams which solidify our industry leading growth profile.

Second quarter mill throughput at Goldcorp's Peñasquito mine was impacted by water shortages due to prolonged drought conditions in the region resulting in a reduction of a 2012 forecast silver production attributable to Silver Wheaton.

Gold Corp is working to improve water supplies through additional wells and improvements in decanting of their tailings. At Pascua-Lama Barrick announced a one-year delay to the expected project start up and a substantial increase to its capital cost forecast. So the weakness is not subject to these capital cost increases, but production is now slated to begin in mid 2014. Even with this delay Pascua-Lama remains a world class project and will be one of the best gold, silver mines in the world once it begins operations.

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