Silver Wheaton Corp's (NYSE:SLW) Q316 results were characterised by exceptionally strong production from its gold assets, supported by record quarterly output at Salobo and Minto and a strong performance at 777. Production from SLW’s silver assets was in line with our expectations. However, a 20.0% under-sale of silver relative to production (towards the upper end of the historical range) and a 22.1% under-sale of gold resulted in a return of inventory to more normal levels. This detracted from financial results, although PBT was still at its highest since Q113 (when silver and gold prices were US$29.89/oz and US$1,645/oz, respectively). Given broadly flat production expectations, however, plus the end-of-year ‘flush through’ effect, no repetition of this inventory build is expected in Q416.
Inventory now near target levels
Ounces produced but not yet delivered to Silver Wheaton by its operating counterparties (considered as ‘inventory’) amounted to 3.8Moz silver and 63,300oz gold as at end-September 2016, equating to 1.5 months and 2.3 months of forecast FY16 production, respectively, or 1.9 months in aggregate – close to SLW’s target level of two months.
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