If anyone has a shot at becoming the next 50m ounce producer at peak production, it’s certainly Silver Wheaton (SLW). Currently, the consensus estimates are between 41-44m ounces by 2014/2015, but this seems conservative given their current liquidity available and OCF that will more than meet their future payments to Barrick (ABX) and Augusta (AZC). Assuming they will produce only produce 41-44m ounces a year ignores several factors.
1. Goldcorp (GG) will decide to construct an underground mine at Penasquito, which I believe to be worth an extra .5-1.0m ounces to Silver Wheaton.
2. I also believe that Barrick will ultimately increase their production estimates as well as have success in Breccia West at Pascua-Lama. It is very possible for this to increase Silver Wheaton’s attributable production by an additional .5-1m ounces.
3. Amendment with San Dimas - Goldcorp sold these mines as Silver Wheaton agreed to amend the contract. In return, they get a minimum of 6m ounces a year plus 50% above that. This is very positive as Mala Noche has more incentive to extract as much metal as possible as well as engage in exploration projects. Silver Wheaton therefore has its land package and has right of first refusal on any additional streams entered into by Mala Noche. As Mala Noche has much more incentive to maximize output, this could potentially be very beneficial to Silver Wheaton. This should add at least an additional 500k-1m ounces by 2015 especially if Mala Noche is able to capitalize on the vast exploration potential.
4. Investment in Ventana - Though this is quite a few years off, it is highly likely Silver Wheaton eventually purchases a stream from them for financing purposes. Due to the fact Ventana (OTC:VENGF) is primarily after the gold in the La Bodega mine, Silver Wheaton may have the opportunity to purchase up to 25%-50% of the silver produced. Silver Wheaton was granted right of first refusal, therefore if anyone is going to be getting a stream from La Bodega it’s them. It’s hard to tell how much silver Ventana will produce annually, but Silver Wheaton will likely try to acquire a percentage amounting to 5m ounces annually or less due to geopolitical risks.
5. Bear Creek - in not so many words has planned on increasing its mill throughput at Corani to 22,500 Tpd, allowing them to produce approx 18-20m ounces of silver as opposed to 10m which was originally planned. Silver Wheaton owns 15% of the project; therefore attributable ounces should increase by an additional 1.2m-1.5m ounces by 2015.
6. Silver Wheaton has an arsenal of cash of available debt at their disposal to the tune of approx $750m. This has many implications: The first being that this will not likely be spent on the La Bodega project due to the way SLW organizes their contracts (milestone payments). Rather, OCF could easily cover this expense as the payments to Barrick and Augusta will most likely be paid off by the time Silver Wheaton owes its first payment. Based on how they typically structure their agreements and the cost they pay per ounce, $750 should easily be able to purchase a 8-10m ounce stream or a combination of two streams adding up to this amount. The fact that future acquisitions will likely be more expensive is negated by the fact that Silver Wheaton will continue to accumulate cash, especially if two separate streams are purchased.
The following is my current forecast for peak production either in 2015 or 2016:
1. Penasquito – 8.5m ounces
2. Pascua-Lama – 9.2
3. San Dimas – 7.5m
4. Yauliyacu - 4.6m
5. Zinkgruvan- 2m
6. Cozamin – 1.5m
7. Minto – 1.1 silver equivalent ounces
8. Stratoni – 1.8
9. Campo-Morado – 1.2m
10. Neves-Corvo - .2m
11. Mineral Park - .5m
12. La Negra- .3m
13. Los Filos - .25m
14. Rosemont – 3m silver equivalent ounces
15. Keno Hill- .5m
16. Navidad- 2m
17. Bear Creek – 3m ounces
18. La Bodega – 3m ounces
19. Future Acquisition(s)- 8-10m
20. Investments in Revett, Sabina, Mines Mgmt – 1m oz
Disclosure: Long SLW