SILVER STOCKS NEWS – Silver stocks fell Wednesday morning as the Global X Silver Miners ETF (SIL) slid 1.0% to $23.84 per share. Silver stocks and the SIL were dragged down by broad-based selling in the U.S. equity markets stemming from further economic concerns in the U.S. and Europe. Weakness in silver stocks came despite gains in the price of silver, which advanced $0.59, or 1.6%, to $38.27 per ounce.
Today’s divergence between silver stocks and the silver price is reminiscent of the sector’s significant underperformance in 2011. Year-to-date, the SIL is lower by 12.1%, compared to a 23.7% gain in the price of silver.
One member of the silver stocks sector whose shares have been hit hard this year is Silver Wheaton (SLW.TSX, NYSE: SLW), the world’s largest metals streaming company. Shares of SLW have tumbled 10.7% year-to-date. Earlier this week, Silver Wheaton reported second quarter financial and operating results.
The Canadian-based silver company reported that revenue more than doubled relative to the second quarter of 2010 – to a record $194.8 million. While net earnings almost tripled to $0.42 per share, this figure missed the consensus estimate among analysts of $0.48 per share.
Silver Wheaton’s attributable silver equivalent production came in at 6.2 million ounces, a 5% increase over the prior year period. However, the Company lowered its full-year 2011 production guidance to 25-26 million silver equivalent ounces from 27-28 million. Silver Wheaton attributed its guidance reduction to a slow than expected production ramp-up at Goldcorp’s Peñasquito mine in Mexico.
While Silver Wheaton’s earnings report disappointed investors, several analysts remained positive on the Company’s stock. Tony Lesiak at Macquarie maintained his C$45 target and Outperform rating on SLW.TSX. Lesiak contended that the worse than expected earnings were already priced into the company’s shares. Lesiak highlighted the new silver streaming contracts and dividend growth as key positive catalysts for Silver Wheaton moving forward.
CIBC analyst Cosmos Chiu reiterated his $62 target and Sector Outperformer rating on SLW. “We believe investors should continue to focus on Silver Wheaton’s strong cash flow ($168 million for Q2/11) and strong balance sheet ($700 million of cash to grow the company,” he wrote in a note to clients.
Other silver stocks in the news this week included Fortuna Silver Mines (FVI.TSX), an emerging Canadian-based silver miner. The Company reported that that the processing plant at its 100% owned San Jose silver-gold mine in Mexico has been in operation since July 15, 2011. Fortuna plans to declare commercial production on September 1, 2011 – which will give the Company operating silver mines in the two largest silver producing nations (Mexico and Peru) in the world.
In morning trading on Wednesday, SLW fell alongside the silver stocks sector, by 1.8% to $34.81 per share. Other notable silver stocks moving lower included SIL components Coeur d’Alene Mines (CDE), Pan American Silver (PAAS), and Silver Standard Resources (SSRI). CDE, PAAS, and SSRI declined 3.15, 1.7%, and 1.0%, respectively.
Fortuna Silver Nears Production at San Jose
Commercial production will be declared when operating performance is within 80% of design parameters for throughput and recovery. The start-up and balancing phase to date has been progressing as planned and Fortuna expects commercial production to begin on September 1, 2011. Full Fortuna Silver Press Release
- San Jose is expected to produce 520,000 ounces of silver and 4,600 ounces of gold in 2011 and 1.7 million ounces of silver and 15,000 ounces of gold in 2012 at an estimated cash cost per silver ounce of US$5.04, net of by-products.
- Ore being run through the mill during the balancing phase is being sourced from the 46,000 tonne development ore stockpile grading 124 g/t silver and 1.15 g/t gold.
- The size of the stockpile can sustain over a month of production at the initial design rate of 1,000 tonnes per day.
