Resource World Magazine

10 www.resourceworld.com o c t o b e r / n o v e m b e r 2 0 1 5 Although it is not the only one, Silver Wheaton Corp. [SLW-TSX, NYSE] is unusual in that it is a mining company that does not own or operate any mines. Instead, the company has "silver stream- ing" agreements with about 20 operating mining companies and seven develop- ment projects. With a business model that receives a portion of silver and gold pro- duction in exchange for a substantial upfront payment, Silver Wheaton has the right to buy precious metal production for the life of the mine at a discount, and then to sell it at the higher spot price. Since silver can occur as a primary metal, or with gold, and commonly as a by-product of base metal (lead-zinc) mines, Silver Wheaton has agreements with min- ers operating various types of mines. Amazingly, the company has more silver reserves than any other silver company by a large margin – they have almost 800 million ounces proven and probable silver – as well as gold resources. For the second quarter ended June 30, 2015, the company posted record silver equivalent (silver + gold) production and sales volume. Attributable silver equiva- lent production totaled 10.9 million ounces (7.2 million oz silver/50,500 oz gold) com- pared to 8.5 million ounces in Q2 2014, an increase of 29%. Revenues were $164.4 million in Q2 2015 compared with $148.6 million in Q2 2014, an increase of 11%. Net earnings and cash flow in Q2 2015 were $53.7 mil- lion ($0.13 per share) and $109.3 million ($0.27 per share) compared with $63.5 million ($0.18 per share) and $102.5 mil- lion ($0.29 per share) in Q2 2014. The 15% decrease in net earnings was due to lower gold and silver prices. The company fin- ished Q2 2105 with about $72 million in cash and debt of $715 million. In an interview with Resource World, Randy Smallwood, President and CEO, discussed his company's operations and plans. Under their silver streamlining busi- ness model, Silver Wheaton benefits from other companies' success as seen by a 29% increase in attributable production. "This is one of the advantages of a streaming company," said Smallwood. "The capital that we provide contributes to our stream- ing companies' expansion programs and new projects. For example, we are the larg- est single source of funding for Hudbay Minerals at its Constancia Project in Peru where we have paid out close to $800 mil- lion. This is capital they used to build the mine and are using to get it up and run- ning. We also funded most of the second phase expansion of Vale's Salobo copper- gold mine in Brazil." Silver Wheaton's streaming contracts do not include base metals at polymetal- lic mines. "About 70% of the world's silver does not come from silver mines – it comes from lead-zinc mines," said Smallwood. "This means that silver is not a core product at these mines where they are more focused on copper, lead and zinc, for example, so they are quite comfortable selling us their silver." Looking at the outlook for the price of silver, Smallwood remarked, "Although it is tough to guess the silver price short- term, we are very bullish long-term. We have seen a continuing trend, over the last 10 to 15 years, of currency devaluation in several countries, including China, rela- tive to the US dollar. The US can't afford to have the world's strongest currency. When its currency devalues, we will see more strength in precious metals." He added, "We like silver better than gold. Silver has always shown more vola- tility and it also has many more end uses. About half of silver is not consumed in industrial applications. I think that over the next six months to two years we are going to see a rise in the price of precious metals." Smallwood thinks the outlook for his company's business is excellent. "We are a source of funding for the mining indus- try, which always needs capital. Mines become exhausted and new ones need to be built to replace production. But we also compete against debt and equity funding. Right now, most companies are trying to lower their debt levels. On the equity side, the stock market has not done well for the resource sector, so nobody is keen on issu- ing stock as there is not much appetite. So, from a business perspective, we are probably stronger than ever in terms of opportunity." Silver Wheaton also provides its share- Randy Smallwood, President and CEO of Silver Wheaton Corp. Silver Wheaton posts strong second quarter 2015 by Ellsworth Dickson

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