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Silver Wheaton: Strong Results, But One Issue Remains

Summary

Silver Wheaton just reported record gold sales for its second quarter of 2016.

It was an outstanding quarter for the company, as cash flow and net earnings increased due to stronger production and higher precious metals prices.

However, there is one lingering issue: A tax reassessment Silver Wheaton received from the Canadian Revenue Agency pertaining to tax years 2005-2010. Once this is resolved, it should result in a higher share price.

Silver Wheaton (NYSE:SLW) Posts Strong Q2 Results

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Silver Wheaton just reported its Q2 2016 financial results. Not surprisingly, the company had one of its strongest quarters ever. I say I'm not surprised because Silver Wheaton clearly benefited from higher gold and silver prices in Q2 (6% and 5% higher, respectively, from Q2 2015), and because the company's new streams are starting to pay off, as I expected. There's is one lingering issue that remains, but as I'll explain below, I think it might be resolved shortly, which should lift the share price higher.

First, for the quarterly results. Silver Wheaton says its silver production rose 5% to 7.6 million ounces, while its gold production jumped 40% to 50,100 ounces. Combined, the company reported silver equivalent production of 12.9 million ounces, an 18% increase from last year.

Due to the fixed-cost nature of the streaming and royalty business model, Silver Wheaton was able to book average cash costs of just $4.46 per silver ounce and $401 per gold ounce. Sure, this is a profitable company with lower silver and gold prices (as we saw last year), but it only gets better during gold/silver bull markets like the one we are in now.

Higher production, fixed cash costs and higher gold and silver prices have a strong impact on Silver Wheaton's results. The company says its revenues rose 29% to $212 million, but more importantly, its operating cash flow was very strong at $134 million ($.31 per share), compared to $109 million ($.27 per share) last year, an increase of 23%.

On an annualized basis, that...


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