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TABLE OF CONTENTS Jul 28 - Aug 3, 2014 Volume 100 Number 24 - 0 comments

Silver Wheaton a top pick for Salman Partners

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Silver Wheaton (TSX: SLW; NYSE: SLW) has been upgraded to Salman Partners analyst Ash Guglani’s top-picks list due to its attractive production and growth profile.

The large, Vancouver-based precious metal streaming firm, which gathers silver and gold ounces from 19 operations, expects attributable production in 2014 of 36 million equivalent oz. silver, including 155,000 oz. gold. It forecasts production will grow to 48 million equivalent oz. silver, including 250,000 oz. gold by 2018. This is more than a 30% increase, based on the company’s current streaming deals, excluding Barrick Gold’s (TSX: ABX; NYSE: ABX) halted Pascua Lama gold–silver project.

The long-term growth will mainly come from five sources, including Hudbay Minerals’ (TSX: HBM; NYSE: HBM) Constancia copper project in Peru and Augusta Resource’s (TSX: AZC; NYSE-MKT: AZC) Rosemont copper project in Arizona, which are both in development. Production increases are also expected from Primero Mining’s (TSX: P; NYSE: PPP) expanded San Dimas gold–silver mine in Mexico; Goldcorp’s (TSX: G; NYSE: GG) Penasquito polymetallic mine, also in Mexico; and Vale’s (NYSE: VALE) Salobo copper mine in Brazil, and its nickel mines in Sudbury, Ont.

The construction of the Constancia mine is 71% complete, with initial production expected later this year and commercial production by mid-2015. Constancia is slated to churn out 2.4 million oz. silver and 35,000 oz. gold a year in its first five years. Silver Wheaton has an agreement to receive all of Constancia’s silver ounces and half of its gold ounces over the mine’s life. Silver Wheaton predicts Constancia will contribute 12% of its production in 2018.

The Rosemont project, despite facing permitting delays, is the main reason Hudbay is buying Augusta for $555 million. Rosemont is anticipated to deliver 2.9 million oz. silver and 15,000 oz. gold a year over its mine life, which Silver Wheaton would fully acquire under its stream agreement. The firm expects Rosemont will deliver 8% of its 2018 output.

“We remain optimistic on the company’s organic growth profile, as its development projects remain on track for significant growth by 2018,” Guglani writes.

Silver Wheaton has a US$135-million payment on Constancia’s gold stream and a US$230-million payment on Rosemont, which it would make when the projects reach certain milestones.

Looking at existing operations, the firm should see higher output from the San Dimas mine in 2015, Guglani says. Primero recently expanded the mine to 2,500 tonnes per day from 2,150 tonnes, and is assessing plans to boost throughput to 3,000 tonnes per day. 

However, Silver Wheaton’s biggest contributor remains Goldcorp’s Penasquito mine, slated to deliver 20% of this year’s output, and the anticipated output in 2018. Goldcorp intends to improve the mine’s processes, which could “increase silver doré production by 1 million to 1.25 million oz. per year, net to Silver Wheaton,” Guglani writes.

Meanwhile, Vale is wrapping up the mill expansion at its Salobo mine to an annual 24 million tonne, from 12 million tonnes. Earlier this year, it opened the Totten polymetallic mine in Sudbury, which is expected to reach full production of 2,200 tonnes per day in 2016. Both operations would add to Silver Wheaton’s gold count.

“Silver Wheaton’s business model combined with solid production and growth prospects provides minimal risk and longer-term growth — a much-coveted combination,” Guglani writes.

Given the company’s healthy balance sheet, the analyst says Silver Wheaton is in “a good position to acquire other precious metal streams in the current depressed equity market.” Guglani has upgraded his “buy” recommendation to “top pick,” and has a $32.50 target. Shares last traded at $28.63.

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