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Wednesday
Nov162011

Silver Wheaton Corporation: The disparity between production and sales

 

As far as we can ascertain there exists a disparity between silver production and the sales of silver within the silver streaming operations of Silver Wheaton Corporation (SLW). Our readership has also raised similar concerns regarding this matter, so in an attempt to get some clarity regarding this perceived discrepancy, we got in touch with Brad Kopp, Senior Vice President, Investor Relations, Silver Wheaton Corporation.

Today we received an explanation from Brad Kopp and have re-printed it, in full, below:

Hi Bob,

Thanks for your email.

The increase in ‘payable silver produced but not yet delivered’ to Silver Wheaton has been primarily the result of a build-up in concentrate inventory at Glencore’s Yauliyacu mine, which, for the past several quarters, has been experiencing an irregular concentrate shipment schedule. As at September 30, 2011, approximately 1.8 million ounces of cumulative payable silver equivalent ounces have been produced at Yauliyacu but not yet delivered to Silver Wheaton.

Since mid-2009, concentrate shipments from Yauliyacu have been affected by the shut-down of the Doe Run La Oroya smelter in Peru, previously the largest buyer of the bulk concentrate produced at the mine. Since the shut-down, Glencore has had to make alternative smelting arrangements for its stockpiled bulk concentrates produced at Yauliyacu. This has led to an inconsistent delivery schedule, delaying the eventual complete reduction of this bulk concentrate. To remedy this situation, in the second quarter of 2011, Glencore began replacing the production of bulk concentrate with the production of separate (and more marketable) copper and lead concentrates. The consistency and quantity of these new concentrates has recently stabilized.

Of the 1.8 million ounces of cumulative payable silver equivalent ounces produced at Yauliyacu but not yet delivered to Silver Wheaton, approximately 900,000 ounces are attributable to the bulk concentrate, while the remaining 900,000 ounces are attributable to the new copper and lead concentrates. Roughly half of the remaining bulk concentrate is expected to be sold in the fourth quarter of this year, with the remainder to be sold in 2012. Glencore anticipates to begin shipping copper concentrates during the fourth quarter, while discussions between Glencore and prospective offtakers for the new lead concentrates are ongoing (however, Glencore expects these discussions to be finalized in early 2012).

In short, during 2012, Glencore anticipates a more consistent schedule of concentrate deliveries, which should result in more regular silver deliveries from Yauliyacu to Silver Wheaton. 

Some of the increase in ‘payable silver produced but not yet delivered’ to Silver Wheaton is also attributable to Goldcorp’s Peñasquito mine, which has been ramping up production levels since the end of 2009, and is filling its concentrate pipeline in the process. This filling of the pipeline is typical of new concentrate operations.

Lastly, it is also important to be aware that Silver Wheaton is entitled to a percentage of the payable silver produced at the various mines underlying its silver purchase agreements. The average payable rate across our entire portfolio is approximately 90%. This means that if 100% of the silver produced at our partners’ mines in any given quarter is shipped during the same quarter, Silver Wheaton is entitled to approximately 90% of its share of the silver. The other 10% is included in offtakers’ fees, the offtakers often being the smelting or metals trading companies.

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

Best regards,

Brad

In fairness to this company we would add that we always get a reply to our inquiries, however, the same cannot be said for all the producers, unfortunately.

We now need to go back to the drawing board and crunch a few numbers as they say, however, in the mean time please feel free to add your ten cents worth, as the small team here really does appreciate your assistance, comments and observations in such matters.

Silver Wheaton Corporation has a market capitalization of $12.26Bln, a 52 week low of $25.84 and a high of $47.60, average volume of shares traded is between 4.17Mln and 6.29Mln, so the liquidity is good, it also has an EPS of $1.32.

Silver Wheaton Corporation trades on both the NYSE and the TSX under the symbol of SLW.

For disclosure purposes we do own this stock and it currently forms the largest part of our core position in the silver market, so we do have a leaning towards them which you should bear in mind.

Our price target for Silver Wheaton Corporation has been $100.00 for some time now and we see no reason to change it.

In terms of expectations in general, expect volatility to increase as European Bond Rates increase to the danger level of 7%, making their debts more difficult to service as the Eurocrats dither with their 'too little too late' remedial policies.

Regarding www.skoptionstrading.com. We currently have a number of open trades at the moment however, we do not update the charts until the trade is closed and the cash is back in our account. (We have closed one trade just recently and will shortly close another trade this week so hopefully this weekend we will have the charts updated.)

Our model portfolio is up 407.38% since inception

An annualized return of 113.83%

Average return per trade of 42.43%

86 closed trades, 83 closed at a profit

Average trade open for 45.85 days

 

 

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Stay on your toes and have a good one.

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Reader Comments (3)

Please explain what is meant by 'the price target for Silver Wheaton has been $100 for some time now'...bobi

November 29, 2011 | Unregistered Commenterbobi

bobi,

The $100.00 price is the target price that we have placed on this stock, as per previous articles about SLW such as this one below, please follow the link:

http://www.silver-prices.net/home/2010/11/6/silver-wheaton-corporation-the-10000-stock.html


http://www.silver-prices.net/home/2010/11/2/silver-wheaton-corporation-call-options-up-212.html


Hope this helps

Bob K

November 29, 2011 | Registered CommenterSilver Prices

Team,

We recently contacted SLW regarding the difference between production and sales and this is their reply that you may find useful:

For the last eight quarters, attributable silver equivalent ounces produced has totaled 47,882koz. As indicated in my email below, Silver Wheaton is entitled to a percentage of the payable silver produced at the various mines underlying its silver purchase agreements. The average payable rate across our entire portfolio is approximately 90%. This means that if 100% of the silver produced at our partners’ mines in any given quarter is shipped during the same quarter, Silver Wheaton is entitled to approximately 90% of its share of the silver. The other 10% is included in offtakers’ fees, the offtakers often being the smelting or metals trading companies. So, of the 47,882koz produced, the payable silver equivalent ounces that Silver Wheaton would be entitled to is approximately 43,094koz (47,882koz multiplied by 90%).

The silver equivalent ounces sold during the past eight quarters was 40,693koz. This implies a build in payable silver equivalent ounces produced but not yet delivered of approximately 2,401koz over this time period (43,094koz less 40,693koz).

I trust this helps.

Thanks

Brad

November 29, 2011 | Registered CommenterSilver Prices

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