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« Silver Wheaton: Head and Shoulders Formation | Main | Endeavour Silver Production Q2 Rockets Up 23%! »

Silver Wheaton Q2 2007 Results: Net Earnings Down, Silver Sales Down

Silver Wheaton Q2 2007 Results: Net Earnings Down, Silver Sales Down

Silver Wheaton released their Q2 results just hours ago, announcing net earnings of $22.9 million in the period compared with $25.2 million in the same period of last year.

Silver Wheaton also sold less silver, which explains why earnings are down, as in Q2
they sold 3.8 million ounces of silver in Q2 2006 whereas they sold 3.1 million ounces this year.

As we heard the management at Silver Wheaton explain this morning, there have been some quite significant events in this quarter for Silver Wheaton.

Firstly on April 16th Silver Wheaton agreed to acquire 25% of the silver produced from Goldcorp's Penasquito project located in Mexico for the life of mine. This was an excellent move by the management at Silver Wheaton as this means that they get all the silver for $3.90 per ounce or less, if the market price for silver falls below $3.90. Many mining companies are suffering from increased mining costs such as rising oil prices but Silver Wheaton does not have to deal with these problems as they are getting their silver at a cheap, fixed rate.

Then again on April 23rd, Silver Wheaton agreed with Hellas Gold S.A., a 65% owned subsidiary of European Goldfields Ltd., to acquire all of the silver produced from Hellas Gold's Stratoni mining operations in Greece for the life of mine at $3.90/ounce or less, if the spot price is lower. With silver prices at $13/ounce, Silver Wheaton is selling silver for more than 230% more than they paid for it. The best aspect of these agreements is that when silver prices hit $20/ounce, Silver Wheaton will almost double their profits which will have a profoundly positive impact on the stock price.

In June Goldcorp updated their reserves at the Penasquito Project, which for Silver Wheaton meant an increase as probable silver reserves increased by 25% to 362 million ounces and attributable measured and indicated silver resources increased by 34% to 162 million ounces. We have covered this deal in a previous article, which you can view by clicking here.

Silver Wheaton has also agreed to a revolving credit deal with the Bank of Nova Scotia and BMO Capital Markets in this quarter and they have had little trouble getting financing, which is a good sign. The company expects to have silver sales of approximately 13 million ounces for the year ending December 31, 2007, increasing to 23 million ounces in 2009 and 28 million ounces by 2012.

Silver Wheaton Q2 2007

With many great deals for the future being made this quarter, we are not too concerned that silver sales fell or that earnings dropped off. We would rather Silver Wheaton be selling their silver at higher silver prices, not at a time when the silver market is flat. We think that a large rally is coming in silver prices at the end of the summer and this will send silver stocks like Silver Wheaton through the roof, as silver prices head towards our target of $20/ounce. As some of our readers may recall we sold a proportion of our holding in this company recently as the chart was looking quite spiky, but we are looking for an opportunity to purchase that proportion back at a lower price.

Silver Wheaton trades as SLW on the NYSE and under the same symbol on the TSX.

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