Will Silver Wheaton Continue To Recover?

Jul.30.13 | About: Silver Wheaton (SLW)

Silver Wheaton Corp. (NYSE:SLW) is slowly recovering: Shares of Silver Wheaton jumped by 17.6% during the month. In comparison, the price of silver rose by 1.6% during July, and iShares Silver Trust (NYSEARCA:SLV) increased by only 1.85%. Will Silver Wheaton continue to rally in coming months? Let's examine the latest developments related to Silver Wheaton.

Let's start with the recent news related to Silver Wheaton and its potential future progress.

Pascua-Lama Agreement

The recent silver streaming agreement between Silver Wheaton and Barrick Gold Corporation (NYSE:ABX) has reached an impediment; Silver Wheaton extended the completion date to the end of 2016 due to the slow progress of the Pascua-Lama project. This delay led Silver Wheaton to revise down its silver production in 2017. This delay, however, won't adversely affect the company's silver production in 2013. Considering the latest developments in the silver market, perhaps this delay will benefit Silver Wheaton as it will receive back some of its $625 million cash upfront payment; this will enable the company to invest in other projects.

Upcoming Financial reports

Silver Wheaton will come out with its second quarterly financial reports on August 14th. In anticipation of the publication of the quarterly reports, let's examine three key factors that changed during the quarter compared to last year that could affect the company's profit margins, revenues and cash flow situation.

1. The company has augmented its gold production and is expected to produce nearly 145 thousand of ounces of gold in 2013. The sharp rise in gold production is likely to pull up the company's revenues.

The table below shows the expected changes in the company's gold revenues in the second quarter and the potential production and price effect on gold revenues.

Click to enlarge

2. The prices of gold and silver are much lower than they were in the second quarter of 2012. This will reflect in the decline in the company's profit margin. Moreover, considering that gold has a lower profit margin than silver, the rise in gold production and decline in silver's will also pull down the company's profitability.

3. The production of silver has dwindled in the past couple of quarters and the company is expected to slightly lower its silver production in 2013.

The table below shows the expected changes in the company's silver revenues in the second quarter.

Click to enlarge

Therefore, I think the upcoming Silver Wheaton financial report will show a rise in gold production, which will result in a rise in net revenues despite the expected drop in silver production and decline in precious metals prices.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.