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« Precious Metals in Europe | Main | Portfolio Update 20 November 2008 »

Silver Wheaton Corporation: Contractual Position Explained!

We recently put the following question to Silver Wheaton, as we were unclear about their ability to achieve sales targets if the base metal miners were to close down their operations. This morning we received a response Brad Kopp, Director, Investor relations, which is copied exactly as we received it below.


As most silver production is a by product of Zn/PB mining and some of those mines are closing down, how does Silver Wheaton protect itself should the agreed silver production be not forthcoming


Thanks for your email. In the current economic environment, certainly there is always a risk of production cuts; however, we’ve received no indication from any of our partners that their operations are in jeopardy of scaling back production. Keep in mind, year to date, approximately 85% of Silver Wheaton’s silver sales have come from three mines, San Dimas, Yauliyacu and Zinkgruvan. Each of these mines has been in production for over 100 years and survived through numerous commodity cycles. In addition, Zinkgruvan and Yauliyacu are low cost producers, offering a key advantage in today’s low metal price environment. Given their extensive operating history, we feel that the probability of one of these mines shutting down is very low. In fact, each of these operations is planning to increase production over the next few years.

Most of our future growth will result from Goldcorp’s flagship asset, the Penasquito mine. Now a flag ship asset of Silver Wheaton, Penasquito is scheduled to commence production from the phase one sulphide mill in mid-2009. Once Penasquito is in full production, our share of its silver sales is expected to average almost 8 million ounces per year. There have been no delays to their schedule and, Penasquito promises to be a long-life, profitable asset for our company.

When Silver Wheaton completes new silver stream agreements, its partners provide completion guarantees regarding certain minimum production criteria by specific dates. If an operation fails to meet its minimum target rate on or before a certain date it may be considered an event of default and Silver Wheaton can terminate the agreement and demand repayment of any remaining balance (default fee). Silver Wheaton may also have security interest in properties and equipment but these may be subordinate to other creditors. If an operation scales back or halts production after meeting the requirements of the completion guarantee, Silver Wheaton simply would receive scaled back silver deliveries from that operation. However, once the operation commences and ramps up production, silver deliveries would resume as per the terms of the original silver stream agreement.

Please don’t hesitate to contact me if you have any additional questions.

Best regards,

Brad Kopp
Director, Investor Relations
Suite 3150 - 666 Burrard Street
Vancouver, BC V6C 2X8
Tel: 604-696-3044
Fax: 604-684-3123

Silver Wheaton Corporation trades on the New York Stock Exchange under the symbol of SLW and closed yesterday at $2.75 The Company has a market capitalisation of $646.32 million, a P/E ratio of 6.67, with 251.49 million shares outstanding.

Got a comment – then let us have it!

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Reader Comments (4)

I thought you gave some credit to your subsribers who sent in the inquiry initially. Guess bulletbob doesn't qualify.

Anyway are you satisfied with Kopp's answer? I am partially. He did NOT address the large upfront $. If a co halts production how can you have lower silver deliveries?
There are none. Did you not receive my answer from Silversstone? No mention of them was included.

I agree SLW is pretty safe with GG's Penisquito mine and the other two, but their recent agreements have all kinds of questions for me.

I have read that GG is going to buy SLW? I know they just sold al their shares to an investment house, but the house is trying to raise capital and SLW if up for sale. Do you guys know anything about this?

Gold- I love Kinross's buy of Lobo-Marte. Right between their other projects, 6 mil oz of gold, and 30,000 hectares of land for only $240 mil. Cheap. REAL CHEAP.

November 21, 2008 | Unregistered Commenterbulletbob

Are you satisfied with their answer ?

November 21, 2008 | Unregistered CommenterBruno in TX

Sorry bulletbob, please accept our apologies.

November 21, 2008 | Unregistered CommenterSilver Prices

Did you guys read Silverstone's 3rd qtr news release yesterday? I am referring to the $39 Mil impairement charge. Well it means they told me the truth that the upfront $ are lost if the mine doesn't produce the metals.

Of course I am referring to the closing of Aljustrel.

Have a great Thanksgiving. I will because I believe that the COMEX[Crimex} will default on Friday and we will be off to the races BIG TIME.

November 26, 2008 | Unregistered Commenterbulletbob

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