Silver Wheaton Corporation BUY

SLW : TSX : C$22.50
Target: C$30.50

Silver Wheaton is uniquely positioned as the purest silver producer. The company’s asset base consists of silver
purchase agreements with the San Dimas and Penasquito mines in Mexico, Pascua-Lama project in Chile/Argentina, Zinkgruvan mine in Sweden, Yauliyacu mine in Peru, Stratoni mine in Greece. Most recent streaming deals with Hudbay minerals (silver and gold streams at 777 and Constancia) and Vale (gold streams at Salobo and Sudbury mines).

Metals and Mining — Precious Metals and Minerals
Investment recommendation
Silver Wheaton’s share price has declined almost 15% since Barrick’s unexpected announcement of the halt of construction at Pascua-Lama. With the Pascua risks now largely discounted in the share price, we reiterate our BUY rating on Silver Wheaton.
Investment highlights
 Silver Wheaton reported Q3/13 EPS of $0.22, which was in line with consensus and slightly ahead of our estimate of $0.21. The variance to our estimate was largely due to lower depreciation.
 Silver equivalent production was 8.9mozs, which was in line with our estimate, but sales were lower at 7.8mozs versus our 8.5mozs estimate. Sales from Yauliyacu and Penasquito lagged production in Q3/13 by ~874kozs. We anticipate inventory sales in Q4/13.
 SLW reiterated 2013 production guidance of 33.5mozs silver equivalent, including 145kozs of gold. The company also reiterated its recently revised 2017 production guidance of 42.5mozs silver equivalent, including 210kozs of gold.
 SLW recently announced the acquisition of 50% of the LOM gold production from Constancia for $135 million, which is expected to be paid in Q1/13. We view the transaction as accretive (NPV of the  stream ~$200 million). Risk has been reduced by utilizing a fixed recovery rate. Gold now represents ~30% of SLW’s medium term revenues. SLW continues to look for further accretive streaming opportunities.
 Our 2013 EPS and CFPS estimates have been revised to $1.05 (from $1.06) and $1.50 (from $1.59), respectively.
We are maintaining our 12-month target price of C$30.50, which is predicated on a 1.30x multiple to our forward curve derived operating NAVPS estimate of C$25.41 (previously C$25.71) plus net debt and other assets.


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