November 25, 2010 / 1:32 PM / 10 years ago

INTERVIEW-Rising silver prices add shine to Silver Wheaton sales

* Sees rev, production growing 20 pct in 2011

* Sees silver price of $50/ounce in 3-4 yrs

* Sees prices hitting $30/ounce in next few months

By Aftab Ahmed and Krishna N Das

BANGALORE, Nov 25 (Reuters) - Silver Wheaton SLW.TO expects to raise production by a fifth next year, even as escalating prices for the metal look set to brighten up the Canadian silver streaming company’s revenue, its chief executive said.

Given the Vancouver-based firm’s forecast of 23.5 million silver equivalent ounces in 2010, it should produce about 28 million silver equivalent ounces in 2011.

Chief Executive Peter Barnes said sales could also grow by at least 20 percent based on his production forecast and could be higher if prices continue to skyrocket. Silver Wheaton is expected to post revenue of $417 million this year, according to Thomson Reuters I/B/E/S.

Two-thirds of silver is mined as a by-product of metals like gold, copper or zinc, which means that though demand for silver is hot now, most miners do not have the flexibility to increase production to capitalize on the high prices. [ID:nN08237951]

Silver Wheaton, which was established in 2004, currently has 15 silver purchase agreements with firms like Goldcorp G.TO, Barrick Gold (ABX.TO) and Primero Mining P.TO.

It pays miners about $4 per ounce up front to build projects in exchange for the silver by-product produced from those mines.

“Silver could go as high as $50 an ounce over the next three-four years ... and $30 easily in the next few months,” Barnes, who is on a visit to India to meet some shareholders, said by phone.

His forecast tallies with that of precious metals research and consulting firm GFMS, which expects prices to rise over $30 per ounce and average $28 in 2011. [ID:nWALHME6SC]

Silver prices XAG= are already up 50 percent year-to-date, outpacing a 22 percent rise for the more glamorous gold XAU=.

The rally in silver has also benefited Silver Wheaton’s shares, which have more than doubled in the last one year.

But risks remain, as silver is a very different animal to gold. While industrial offtake is only a small part of gold demand, some 40 percent of silver consumption comes from industrial applications, like electronics manufacturing, which have been hit hard by the downturn. [ID:nLDE69E0XG]

Barnes is confident of strong demand in the coming years for silver. “Investment demand will continue to drive silver in the next 3-4 years and by then industrial demand will bounce back.”

While the metal’s use in photography, silverware, jewelry, coins and medals fell about 10 percent last year as industrial demand tumbled, Barnes said higher silver prices will not force users to look at alternatives.

He pointed out that silver makes up less than half a percent of the cost of manufacturing a laptop. “Even if silver doubles, it still has no impact on the price of the laptop.” (Reporting by Aftab Ahmed and Krishna N Das in Bangalore; Editing by Jarshad Kakkrakandy)

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