EX-99.2 3 exhibit99-2.htm EXHIBIT 99.2 Silver Wheaton Corp. - Exhibit 99.2
Exhibit 99.2
 
 

 
 
Management’s Discussion and Analysis of Results of Operations and Financial Condition for the Year Ended December 31, 2011

This Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with Silver Wheaton Corp.’s (“Silver Wheaton” or the “Company”) audited consolidated financial statements for the year ended December 31, 2011 and related notes thereto which have been prepared in accordance with International Financial Reporting Standards (“IFRS”).  As the year ended December 31, 2011 represents the first year that the Company is presenting its results and financial position under IFRS, these financial statements were prepared in accordance with IFRS 1, First-time Adoption of IFRS (“IFRS 1”), as more fully described in Note 24 to the financial statements.  This MD&A contains “forward looking” statements that are subject to risk factors set out in the cautionary note contained herein. All figures are presented in United States dollars unless otherwise noted.  This MD&A has been prepared as of March 22, 2012.


Highlights

·  
Record attributable silver equivalent production for the three months and year ended December 31, 2011 of 6.9 million ounces (6.7 million ounces of silver and 3,900 ounces of gold) and 25.4 million ounces (24.6 million ounces of silver and 18,400 ounces of gold), respectively, representing an increase of 12% and 7% over the comparable periods in 2010.

·  
Record silver equivalent sales for the three months and year ended December 31, 2011 of 6.0 million ounces (5.8 million ounces of silver and 3,800 ounces of gold) and 21.1 million ounces (20.2 million ounces of silver and 18,300 ounces of gold), respectively, representing an increase of 6% and 3% over the comparable periods in 2010.

·  
Revenue for the three months and year ended December 31, 2011 of $191.9 million and $730.0 million, respectively, compared with $149.6 million and $423.4 million for the comparable periods in 2010, with revenue for the most recently completed year representing a record for the Company.

·  
Net earnings for the three months and year ended December 31, 2011 of $144.7 million ($0.41 per share) and $550.0 million ($1.56 per share), respectively, compared with adjusted net earnings1 of $120.7 million ($0.35 per share) and $286.6 million ($0.83 per share) for the comparable periods in 2010, with net earnings for the most recently completed year representing a record for the Company.

·  
Operating cash flows for the three months and year ended December 31, 2011 of $163.7 million ($0.46 per share2) and $626.4 million ($1.77 per share2), respectively, compared with $124.7 million ($0.36 per share2) and $319.7 million ($0.93 per share2) for the comparable periods in 2010, with operating cash flows for the most recently completed year representing a record for the Company.

·  
Average cash costs3 for the three months and year ended December 31, 2011 of $4.06 and $4.09 per silver equivalent ounce, respectively, compared with $4.02 and $4.04 per silver equivalent ounce for the comparable periods in 2010.

·  
Cash operating margin4 for the three months and year ended December 31, 2011 of $28.06 per silver equivalent ounce and $30.56 per silver equivalent ounce, respectively, representing an increase of 25% and 84% over the comparable periods in 2010.

·  
As at December 31, 2011, approximately 4.1 million payable silver equivalent ounces attributable to the Company have been produced at the various mines and will be recognized in future sales as they are delivered to the Company under the terms of their contracts.
 

 

1  
Refer to discussion on non-IFRS measure (i) on page 19 of this MD&A.
2  
Refer to discussion on non-IFRS measure (ii) on pages 19 and 20 of this MD&A.
3  
Refer to discussion on non-IFRS measure (iii) on page 20 of this MD&A.
4  
Refer to discussion on non-IFRS measure (iv) on pages 20 and 21 of this MD&A.
SILVER WHEATON 2011 ANNUAL REPORT [1]
 
 

 
 

 
 
·  
On November 9, 2011, the Board of Directors adopted a new dividend policy linking quarterly dividend payments to operating cash flows in the prior quarter. Under the new dividend policy, the quarterly dividend per common share is equal to 20% of the cash generated by operating activities in the previous quarter divided by the Company’s outstanding common shares at the time the dividend is approved, all rounded to the nearest cent.  Based on operating cash flows generated by the Company during the three months ended December 31, 2011, a dividend of $0.09 per common share has been approved for shareholders of record on April 4, 2012.
 
·  
On December 20, 2011, the Company announced the appointment of Mr. Haytham Hodaly as Senior Vice President, Corporate Development, effective January 1, 2012.

·  
Barrick Gold Corporation’s (“Barrick”) world-class gold-silver Pascua-Lama project remains on track to commence production in mid-2013, with approximately 55% of the previously announced pre-production capital budget of $4.7 to $5.0 billion committed.  At the end of the fourth quarter, earthworks in Chile and Argentina were approximately 95% and 65% complete, respectively. Once in production, Pascua-Lama is forecast to be one of the largest and lowest cost gold mines in the world with an expected mine life in excess of 25 years. In its first full five years of operation, Silver Wheaton’s attributable silver production is expected to average nine million ounces annually.


Overview

Silver Wheaton Corp. is a mining company which generates its revenue primarily from the sale of silver.  The Company is listed on the New York Stock Exchange and the Toronto Stock Exchange and trades under the symbol SLW.  In addition, the Company has share purchase warrants that are listed on the Toronto Stock Exchange and trade under the symbol SLW.WT.U.

To date, the Company has entered into 14 long-term silver purchase agreements and two long-term precious metal purchase agreements, relating to 19 different mining assets, whereby Silver Wheaton acquires silver and gold production from the counterparties for a per ounce cash payment at or below the prevailing market price.  Attributable silver and gold as referred to in this MD&A and financial statements is the silver and gold production to which Silver Wheaton is entitled pursuant to the various purchase agreements.  During the year ended December 31, 2011, the per ounce price paid by the Company for silver and gold under the agreements averaged $3.99 and $300, respectively.  The primary drivers of the Company’s financial results are the volume of silver production at the various mines and the price of silver realized by Silver Wheaton upon sale.


Outlook

Silver Wheaton is the largest silver streaming company in the world. Based upon its current agreements, forecast 2012 attributable production is approximately 27 million silver equivalent ounces, including 16,500 ounces of gold. By 2016, annual attributable production is anticipated to increase significantly to approximately 43 million silver equivalent ounces, including 35,000 ounces of gold. This growth is driven by the Company’s portfolio of world-class assets, including silver streams on Goldcorp Inc.’s Peñasquito mine and Barrick’s Pascua-Lama project.

At December 31, 2011, the Company had approximately $840 million of cash on hand and $400 million of available credit under its revolving bank debt facility.  This cash and available credit, together with strong operating cash flows, positions the Company well to execute on its growth strategy of acquiring additional accretive silver and precious metal stream interests.


 
 
 
SILVER WHEATON 2011 ANNUAL REPORT [2]
 
 

 
Silver and Gold Interests

The following table summarizes the silver and gold interests currently owned by the Company:

Silver and Gold
Interests
Owner
Location of
Mine
Upfront Consideration 1
Attributable Production to be Purchased
Term of
Agreement
Date of
Contract
Silver
Gold
San Dimas
Primero 2
Mexico
$
     189,799
3
100% 2
-
Life of Mine
15-Oct-04
Zinkgruvan
Lundin
Sweden
$
       77,866
 
100%
-
Life of Mine
8-Dec-04
Yauliyacu
Glencore
Peru
$
     285,000
 
100% 4
-
20 years
23-Mar-06
Peñasquito
Goldcorp
Mexico
$
     485,000
 
25%
-
Life of Mine
24-Jul-07
Minto
Capstone
Canada
$
       55,296
5
100%
100% 6
Life of Mine
1-Dec-08
Cozamin
Capstone
Mexico
$
       41,959
5
100%
-
10 years
4-Apr-07
Barrick
   
$
     625,000
7
       
Pascua-Lama
Barrick
Chile/Argentina
     
25%
-
Life of Mine
8-Sep-09
Lagunas Norte
Barrick
Peru
     
100%
-
4 years 8
8-Sep-09
Pierina
Barrick
Peru
     
100%
-
4 years 8
8-Sep-09
Veladero
Barrick
Argentina
     
100% 9
-
4 years 8
8-Sep-09
Other
   
$
  544,303          
Los Filos
Goldcorp
Mexico
$
      4,463
3
100%
-
25 years
15-Oct-04
Stratoni
Eldorado Gold 10
Greece
$
    57,500
 
100%
-
Life of Mine
23-Apr-07
Neves-Corvo
Lundin
Portugal
$
    35,350
5
100%
-
50 years
5-Jun-07
Aljustrel
I'M SGPS
Portugal
$
      2,451
5
100%
-
50 years
5-Jun-07
Mineral Park
Mercator
United States
$
    42,000
 
100%
-
Life of Mine
17-Mar-08
Campo Morado
Nyrstar NV
Mexico
$
    79,250
 
75%
-
Life of Mine
13-May-08
Keno Hill
Alexco
Canada
$
    50,000
 
25%
-
Life of Mine
2-Oct-08
Rosemont
Augusta
United States
$
  230,000
11
100%
100%
Life of Mine
11-Feb-10
Loma de La Plata
Pan American
Argentina
$
    43,289
12
12.5%
-
Life of Mine
n/a 13
 
1)  
Expressed in United States dollars, rounded to the nearest thousand; excludes closing costs and capitalized interest, where applicable.
2)  
Until August 6, 2014, Primero will deliver to Silver Wheaton a per annum amount equal to the first 3.5 million ounces of payable silver produced at San Dimas and 50% of any excess, plus Silver Wheaton will receive an additional 1.5 million ounces of silver per annum to be delivered by Goldcorp.  After August 6, 2014, Primero will deliver a per annum amount to  Silver Wheaton equal to the first 6 million ounces of payable silver produced at San Dimas and 50% of any excess.
3)  
As more fully described in the San Dimas section on page 3 of this MD&A, on August 6, 2010, Goldcorp completed the sale of the San Dimas mine, which was part of the Luismin mining operations (“Luismin”), to Primero.  The original cost of Luismin was allocated to San Dimas and Los Filos based on the estimated fair values of these silver interests as at August 6, 2010.
4)  
To a maximum of 4.75 million ounces per annum.  In the event that silver produced at Yauliyacu in any year totals less than 4.75 million ounces, the amount sold to Silver Wheaton in subsequent years will be increased to  make up for the shortfall, so long as production allows.
5)  
Primarily comprised of the value allocated to the silver and gold interest upon the Company’s acquisition of Silverstone Resources Corp., which was closed on May 21, 2009 (the “Silverstone Acquisition”).
6)  
The Company is entitled to acquire 100% of the first 30,000 ounces of gold produced per annum and 50% thereafter.
7)  
As more fully described in Note 11 to the financial statements, Silver Wheaton will make total upfront cash payments of $625 million payable in installments, of which $487.5 million has been paid to date. The remaining $137.5 million is payable on the third anniversary of the transaction.  The financial liability relating to these future payments has been discounted using an annual discount rate of 6.9%, which represents management’s best estimate of the market rate of interest at which the Company could borrow money under similar terms and conditions at the time the agreement was entered into.
8)  
Barrick will deliver to Silver Wheaton silver production from the currently producing mines until December 31, 2013.  In addition, during 2014 and 2015, Silver Wheaton will be entitled to all or a portion of the silver production from these mines to the extent of any production shortfall relative to the production guarantee levels at Pascua-Lama, until Barrick satisfies the completion guarantee.
9)  
Silver Wheaton's attributable silver production is subject to a maximum of 8% of the silver contained in the ore mined at Veladero during the period.
10)  
95% owned by Eldorado Gold Corporation.
11)  
Payable on an installment basis to partially fund construction of the Rosemont mine once certain milestones are achieved, including the receipt of key permits and securing the necessary financing to complete construction of the mine.
12)  
Comprised of $10.9 million allocated to the silver interest upon the Silverstone Acquisition in addition to $32.4 million, the payment of which is contingent upon the satisfaction of certain conditions, including Pan American receiving all necessary permits to proceed with the mine construction.
13)  
Definitive terms of the agreement are in the process of being finalized.

 
San Dimas

On October 15, 2004, the Company entered into an agreement with Goldcorp Inc. (“Goldcorp”) to acquire an amount equal to 100% of the silver produced by Goldcorp’s Luismin mining operations in Mexico (owned at the date of the transaction) for a period of 25 years.  The Luismin mining operations consisted primarily of the San Dimas and the Los Filos mines.
 
SILVER WHEATON 2011 ANNUAL REPORT [3]
 
 

 
 
On August 6, 2010, Goldcorp completed the sale of the San Dimas mine to Primero Mining Corp. (“Primero”).  In conjunction with the sale, Silver Wheaton amended its silver purchase agreement relating to the mine.  The term of the agreement, as it relates to San Dimas, was extended to the life of mine.  During the first four years following the closing of the transaction, Primero will deliver to Silver Wheaton a per annum amount equal to the first 3.5 million ounces of payable silver produced at San Dimas and 50% of any excess, plus Silver Wheaton will receive an additional 1.5 million ounces of silver per annum to be delivered by Goldcorp.  Beginning in the fifth year after closing, Primero will deliver a per annum amount to Silver Wheaton equal to the first 6 million ounces of payable silver produced at San Dimas and 50% of any excess.  Goldcorp will continue to guarantee the delivery by Primero of all silver produced and owing to the Company until 2029.  Primero has provided Silver Wheaton with a right of first refusal on any metal stream or similar transaction it enters into.  During the year ended December 31, 2011, San Dimas produced approximately 1.1 million ounces of payable silver in excess of the 3.5 million ounce threshold, of which Silver Wheaton received 50%.

As of December 31, 2011, the Company has received approximately 45 million ounces of silver related to San Dimas under the agreement, generating cumulative operating cash flows of $520 million.  As at December 31, 2010, the San Dimas mine had proven and probable reserves of 62.9 million ounces of silver and inferred resources of 178.7 million ounces of silver (as described in the Attributable Reserves and Resources section of this MD&A).

As per Primero’s press release on January 17, 2012, Primero is undertaking a review of the reserve and resource estimation methods currently, and historically, used at San Dimas in order to determine whether other estimation methods might be used to improve predictability of operating results and, therefore, assist long term planning.  While the results of this review are not currently known, the adoption of any new estimation methods may result in Silver Wheaton reporting different and potentially lower total mineral reserve and total mineral resource numbers.  Primero also states in their press release that it is not expected that any potential change in estimates will change the level of confidence Primero has in the ultimate mineral potential of San Dimas and that the review of estimation methodology is being driven by a desire to determine if greater operating predictability and improved mine planning can be achieved.

Zinkgruvan

On December 8, 2004, the Company entered into an agreement with Lundin Mining Corporation (“Lundin”) to acquire 100% of the silver produced by Lundin’s Zinkgruvan mining operations in Sweden for the life of mine.

As of December 31, 2011, the Company has received 12 million ounces of silver related to the Zinkgruvan mine under the agreement, generating cumulative operating cash flows of $152 million.  As at June 30, 2011, Zinkgruvan had proven and probable silver reserves of 34.8 million ounces, measured and indicated silver resources of 17.4 million ounces and inferred silver resources of 13.3 million ounces (as described in the Attributable Reserves and Resources section of this MD&A).

Yauliyacu

On March 23, 2006, the Company entered into an agreement with Glencore International AG (“Glencore”) to acquire an amount equal to 100% of the silver produced from Glencore’s Yauliyacu mining operations in Peru, up to a maximum of 4.75 million ounces per year, for a period of 20 years.  In the event that silver produced at Yauliyacu in any year totals less than 4.75 million ounces, the amount sold to Silver Wheaton in subsequent years will be increased to make up for the shortfall, to the extent production allows.  The cumulative shortfall as at March 23, 2011, representing the five year anniversary, was 9.8 million ounces.  During the term of the agreement, Silver Wheaton has a right of first refusal on any future sales of silver streams from the Yauliyacu mine and a right of first offer on future sales of silver streams from any other mine owned by Glencore at the time of the initial transaction.

Since mid 2009, concentrate shipments from the Yauliyacu mine have been affected by the shut-down of the Doe Run Peru La Oroya smelter, the largest buyer of the bulk concentrate produced at the mine.  Since that time, alternative smelting arrangements have been made by Glencore for a portion of the stockpiled bulk concentrates at Yauliyacu, leading to an inconsistent delivery schedule and delaying the eventual complete reduction of this bulk concentrate. In the second quarter of 2011, Glencore began producing separate, and more marketable, copper and lead concentrates, replacing the bulk concentrate. The consistency and quantity of these new concentrates has now stabilized, with more consistent silver deliveries to Silver Wheaton from the copper concentrates expected in future quarters.  Discussions between Glencore and prospective offtakers for the new lead concentrates are ongoing, and until such offtake agreements are established, sales of lead concentrates will continue to have an inconsistent delivery schedule.   As at December 31, 2011, approximately 1.7 million ounces of cumulative payable silver equivalent ounces have been produced at Yauliyacu but not yet delivered to the Company. Approximately 0.3 million ounces is attributable to the bulk concentrate, while 1.4 million ounces is attributable to the new copper and lead concentrates.
 
 
SILVER WHEATON 2011 ANNUAL REPORT [4]
 
 

 
 
 
As of December 31, 2011, the Company has received 15 million ounces of silver related to the Yauliyacu mine under the agreement, generating cumulative operating cash flows of $186 million.  As at June 30, 2011, Yauliyacu had proven and probable silver reserves of 12.4 million ounces, measured and indicated silver resources of 40.3 million ounces and inferred silver resources of 72.7 million ounces (as described in the Attributable Reserves and Resources section of this MD&A).

Peñasquito

On July 24, 2007, the Company entered into an agreement with Goldcorp to acquire an amount equal to 25% of the silver produced from Goldcorp’s Peñasquito mining operations in Mexico for the life of mine.

As stated in Goldcorp’s press release dated February 15, 2012, throughput from the two 50,000 tonne-per-day capacity semi-autogenous grinding lines averaged 93,700 tonnes per day during the fourth quarter and 107,000 tonnes per day in December. Key projects including the high pressure grinding roll supplemental feed system and the tailings dam height increase, were completed in January 2012, and the mine is on track to achieve target throughput levels by the end of the first quarter of 2012. Peñasquito will become Silver Wheaton’s largest contributor of silver production in 2012, with forecast attributable silver production of approximately 7 million ounces.

As of December 31, 2011, the Company has received 8 million ounces of silver related to the Peñasquito mine under the agreement, generating cumulative operating cash flows of $188 million.  As at December 31, 2011, the Company’s 25% share of the Peñasquito proven and probable silver reserves was 240.1 million ounces, measured and indicated silver resources was 66.4 million ounces and inferred silver resources was 11.1 million ounces (as described in the Attributable Reserves and Resources section of this MD&A).

Minto

On May 21, 2009, the Company completed the acquisition of Silverstone Resources Corp. (the “Silverstone Acquisition”).  As part of the Silverstone Acquisition, the Company acquired a precious metal purchase agreement with Capstone Mining Corp. (“Capstone”) to acquire 100% of the silver and gold produced (subject to certain thresholds) from Capstone’s Minto mine in Canada for the life of mine.  The Company is entitled to acquire 100% of all the silver produced and 100% of the first 30,000 ounces of gold produced per annum and 50% thereafter.   The silver production, sales and related costs associated with this agreement are reflected in this MD&A and financial statements as part of Other mines.

As of December 31, 2011, the Company has received in excess of 0.4 million ounces of silver and 61,000 ounces of gold related to the Minto mine under the agreement, generating cumulative operating cash flows of $69 million.  As at December 31, 2010, Minto had proven and probable reserves of 2.1 million ounces of silver and 250,000 ounces of gold, measured and indicated resources of 2.4 million ounces of silver and 230,000 ounces of gold and inferred resources of 0.5 million ounces of silver and 50,000 ounces of gold (as described in the Attributable Reserves and Resources section of this MD&A).

Cozamin

As part of the Silverstone Acquisition, the Company acquired a silver purchase agreement with Capstone to acquire 100% of the silver produced from Capstone’s Cozamin mine in Mexico for a period of 10 years, commencing on April 4, 2007.
 
As per Capstone’s January 17, 2012 disclosure, the Cozamin mine achieved record throughput levels in the fourth quarter of over 3,300 tonnes per day. Milled ore grade in the quarter also increased with full production attained from the higher grade Avoca area.  As a result, the mine achieved record silver production for both the three months and year ended December 31, 2011.

As of December 31, 2011, the Company has received approximately 4 million ounces of silver related to the Cozamin mine under the agreement, generating cumulative operating cash flows of $76 million.  As at December 31, 2009, Cozamin had proven and probable silver reserves of 17.4 million ounces, measured and indicated silver resources of 3.3 million ounces and inferred silver resources of 5.7 million ounces (as described in the Attributable Reserves and Resources section of this MD&A).
 
 
 
SILVER WHEATON 2011 ANNUAL REPORT [5]
 
 

 
 
 
Barrick

On September 8, 2009, the Company entered into an agreement with Barrick Gold Corporation (“Barrick”) to acquire an amount equal to 25% of the life of mine silver production from its Pascua-Lama project, as well as 100% of the silver production from its Lagunas Norte, Pierina and Veladero1 mines (the “Barrick mines”) until the end of 2013.   Silver Wheaton will make total upfront cash payments of $625 million, of which $487.5 million has been paid to date. The remaining $137.5 million is due on the third anniversary of the transaction.

Barrick has provided Silver Wheaton with a completion guarantee, requiring Barrick to complete Pascua-Lama to at least 75% of design capacity by December 31, 2015.  During 2014 and 2015, Silver Wheaton will be entitled to the silver production from the currently producing mines to the extent of any production shortfall at Pascua-Lama, until Barrick satisfies the completion guarantee. If the requirements of the completion guarantee have not been satisfied by December 31, 2015, the agreement may be terminated by Silver Wheaton. In such an event, Silver Wheaton will be entitled to the return of the upfront cash consideration of $625 million less a credit for silver delivered up to the date of that event.
 
As stated by Barrick in its 2011 year end MD&A, the Pascua-Lama project remains on track to commence production in mid-2013, with over 55% of the previously announced pre-production capital budget of $4.7 to $5.0 billion committed.  At the end of the fourth quarter, earthworks in Chile and Argentina were approximately 95% and 65% complete, respectively. Once in production, Pascua-Lama is forecast to be one of the largest and lowest cost gold mines in the world with an expected mine life in excess of 25 years. In its first full five years of operation, Silver Wheaton’s attributable silver production is expected to average nine million ounces annually.

In November 2010, Argentina passed a federal glacier protection law that bans new mining exploration and exploitation activities on glaciers and in the “peri-glacial” environment, and subjects ongoing mining activities to an environmental audit.  If such an audit identifies significant impacts on glaciers and the peri-glacial environment, the relevant authority is empowered to take action, which, according to the legislation, could include the suspension or relocation of activity.  Barrick states in its 2011 year end MD&A that it complies with provincial glacier protection legislation previously adopted by the Province of San Juan.  In November 2010, as a result of legal actions brought against the National State by local unions, San Juan based mining and construction chambers and certain Barrick subsidiaries (and subsequently the Province of San Juan), the Federal Court in the Province of San Juan granted injunctions based on the unconstitutionality of the federal legislation, suspending the application of the federal legislation in the Province of San Juan and in particular as against Veladero and Pascua-Lama.  The actions have been moved to the National Supreme Court of Justice of Argentina to determine the constitutionality of the legislation.  As stated by Barrick in its 2011 year end MD&A, the National Supreme Court of Justice of Argentina issued a decision that this case falls within its jurisdiction.  The National State filed a remedy seeking revocation of the November 2010 injunction granted by the Federal Court in the Province of San Juan, which Barrick answered in June 2011.

As of December 31, 2011, the Company has received in excess of 6 million ounces of silver related to the Barrick mines under the agreement, generating cumulative operating cash flows of $142 million.  As at December 31, 2011, the Company’s 25% share of the Pascua-Lama proven and probable silver reserves was 169.1 million ounces, measured and indicated silver resources was 46.3 million ounces and inferred silver resources was 4.0 million ounces (as described in the Attributable Reserves and Resources section of this MD&A). In addition, the Company’s estimated share of the silver resources contained in the Lagunas Norte, Pierina, and Veladero mines is 40.2 million ounces of proven and probable silver reserves.

Other

Other silver and gold interests consist of the following:

i.  
As part of the agreement with Goldcorp to acquire silver from the Luismin mining operations, on October 15, 2004, the Company entered into an agreement with Goldcorp to acquire 100% of the silver production from its Los Filos mine in Mexico for a period of 25 years, commencing October 15, 2004.  In addition, pursuant to Goldcorp’s sale of the San Dimas mine, Goldcorp is obligated to deliver to Silver Wheaton 1.5 million ounces of silver per year until August 6, 2014, which is reflected in this MD&A and financial statements as part of the silver production and sales relating to San Dimas;
 
 

1  
Silver Wheaton's attributable silver production is subject to a maximum of 8% of the silver contained in the ore mined at Veladero during the period.
 
SILVER WHEATON 2011 ANNUAL REPORT [6]
 
 

 
 
 
 
ii.  
On April 23, 2007, the Company entered into an agreement with Hellas Gold S.A., a subsidiary of European Goldfields Limited ("European Goldfields"), to acquire 100% of the life of mine silver production from its 95% owned Stratoni mine in Greece.  On February 24, 2012, European Goldfields announced that it had completed the plan of arrangement with Eldorado Gold Corporation ("Eldorado") whereby Eldorado acquired all of the issued and outstanding shares of European Goldfields.  This transaction will have no significant effect on Silver Wheaton's Stratoni silver purchase agreement;
 
iii.  
As part of the Silverstone Acquisition, the Company acquired an agreement with Lundin to acquire 100% of the silver production from its Neves-Corvo mine in Portugal for a period of 50 years, commencing June 5, 2007;
 
iv.  
As part of the Silverstone Acquisition, the Company acquired an agreement with I’M SGPS to acquire 100% of the silver production from its Aljustrel mine in Portugal for a period of 50 years, commencing June 5, 2007;
 
v.  
On March 17, 2008, the Company entered into an agreement with Mercator Minerals Ltd. (“Mercator”) to acquire an amount equal to 100% of the life of mine silver production from its Mineral Park mine in the United States.  As per Mercator’s January 16, 2012 press release, the fourth quarter of 2011 represented the first full quarter of production since the completion of the Phase II mill expansion to 50,000 tons per day at its Mineral Park mine. As a result, the mine achieved record production for both the three months and year ended December 31, 2011;
 
vi.  
On May 13, 2008, the Company entered into an agreement with Farallon Mining Ltd., which was acquired by Nyrstar NV on January 5, 2011, to acquire an amount equal to 75% of the life of mine silver production from its Campo Morado mine in Mexico;
 
vii.  
On October 2, 2008, the Company entered into an agreement with Alexco Resource Corp. (“Alexco”) to acquire an amount equal to 25% of the life of mine silver production from its Keno Hill silver district in Canada, including the currently producing Bellekeno mine.  As per Alexco’s January 23, 2012 disclosure, the Bellekeno mine completed its first full year of operations, having declared commercial production in January of 2011. The mine demonstrated steadily increasing silver production over the course of the year, culminating in record fourth quarter production as the mine approached initial design throughput levels of 250 tonnes per day;
 
viii.  
On February 11, 2010, the Company entered into an agreement with Augusta Resource Corporation (“Augusta”) to acquire an amount equal to 100% of the life of mine silver and gold production from the Rosemont Copper project in the United States; and
 
ix.  
As part of the Silverstone Acquisition, the Company acquired an agreement with Aquiline Resources Inc., which was acquired by Pan American Silver Corp. (“Pan American”) on December 22, 2009, to acquire an amount equal to 12.5% of the life of mine silver production from the Loma de La Plata zone of the Navidad project in Argentina, the definitive terms of which are in the process of being finalized.
 
As of December 31, 2011, the Company has received in excess of 11 million ounces of silver under these agreements, generating cumulative operating cash flows of $204 million.

As at December 31, 2011, unless otherwise noted1, Other silver and gold interests had proven and probable silver reserves of 257.6 million ounces, measured and indicated silver resources of 277.4 million ounces and inferred silver resources of 191.9 million ounces (as described in the Attributable Reserves and Resources section of this MD&A).




1  
Mineral reserves and mineral resources are reported as of December 31, 2011, other than as disclosed in footnote 6 to the Attributable Reserves and Resources tables on page 34 of this MD&A.
 
 
 
 
SILVER WHEATON 2011 ANNUAL REPORT [7]
 
 

 
  
 
Long-Term Investments

The Company will from time to time invest in securities of publicly listed mining companies for strategic purposes.  The Company held the following investments as at December 31, 2011:


 
December 31
December 31
January 1
(in thousands)
2011
2010
2010
 
Common shares held
 
$
149,039
 
$
278,748
 
$
72,502
Warrants held
   
2,582
   
5,700
   
1,245
 
 
 
$
151,621
 
$
284,448
 
$
73,747
 
 
Common Shares Held
 


 
Dec 31
2011
Three Months Ended
Dec 31
2011
Year Ended
Dec 31
2011
Year Ended
Dec 31
2011
(in thousands)
Fair Value
 
Fair Value Adjustment Gains
(Losses) Included in OCI
Realized Gain on Disposal
 
Bear Creek
$
46,171
$
(4,389)
$
(80,524)
$
-
Revett
 
23,793
 
4,092
 
(1,043)
 
-
Sabina
 
44,177
 
11,067
 
(21,817)
 
-
Other
 
34,898
 
(78)
 
(15,730)
 
4,532
 
 
$
149,039
$
10,692
$
(119,114)
$
4,532


 
 
Dec 31
2010
Three Months Ended
Dec 31
2010
Year Ended
Dec 31
2010
 Year Ended
Dec 31
2010
Jan 1
2010
(in thousands)
Fair Value
 
Fair Value Adjustment Gains
Included in OCI
Realized Loss on Disposal
Fair Value
 
Bear Creek
$ 126,695 $ 47,179 $ 69,578  $ - $ 38,232 
Revett
 
24,836
 
12,599
 
16,682
   -
 
5,815
Sabina
 
65,993
 
13,242
 
39,827
   -  
9,241
Other
 
61,224
 
21,107
 
20,256
  (171)  
19,214
 
 
 
$
278,748
$
94,127
$
146,343
$ (171)
$
72,502

 
 
 
SILVER WHEATON 2011 ANNUAL REPORT [8]
 
 

 
 
 
 
Warrants Held

 
Dec 31
2011
Three Months Ended
Dec 31
2011
Year Ended
Dec 31
2011
Year Ended
Dec 31
2011
(in thousands)
Fair Value
 
Fair Value Adjustment Gains
(Losses) Included in Net Earnings
Realized Loss on Disposal
 
Revett
$
741
$
188
$
(55)
$
-
Other
 
1,841
 
74
 
(3,063)
 
(16)
 
 
$
2,582
$
262
$
(3,118)
$
(16)
 
 
 

 
 
Dec 31
2010
Three Months Ended
Dec 31
2010
Year Ended
Dec 31
2010
Jan 1
2010
(in thousands)
Fair Value
 
Fair Value Adjustment Gains
(Losses) Included in Net Earnings
Fair Value
 
Revett
$
796
$
568
$
948
$
282
Sabina
 
-
 
(1,085)
 
6,368
 
75
Other
 
4,904
 
3,142
 
3,403
 
888
 
 
$
5,700
$
2,625
$
10,719
$
1,245


The Company’s long-term investments in common shares held are not “held for trading”.  Instead, they are held for long-term strategic purposes. Upon the application of IFRS 9, Financial Instruments, the Company has chosen to designate these long-term investments in common shares held as financial assets with fair value adjustments being recorded as a component of other comprehensive income as it believes that this provides a more meaningful presentation for long-term strategic investments, rather than reflecting changes in fair value as a component of net earnings.

While long-term investments in warrants held are also held for long-term strategic purposes, they meet the definition of a derivative and therefore are classified as financial assets with fair value adjustments being recorded as a component of net earnings under the classification Other Expense (Income).  Warrants that are not listed on a stock exchange have been valued using a Black-Scholes option pricing model.

Bear Creek

At December 31, 2011, Silver Wheaton owned approximately 13.3 million (2010 – 13.3 million) common shares of Bear Creek Mining Corporation (“Bear Creek”), representing approximately 14% (2010 – 14%) of the outstanding shares of Bear Creek.  At December 31, 2011, the fair value of the Company’s investment in Bear Creek was $46.2 million (2010 - $126.7 million).

During the year ended December 31, 2011, the value of the Company’s investment in Bear Creek declined by approximately $80.5 million.  The value of this investment was adversely affected by an action by the Peruvian government relating to Bear Creek’s title over the mineral concessions covering the Santa Ana project.  While the Santa Ana project remains an important asset for Bear Creek, Silver Wheaton’s strategic focus related to its investment in Bear Creek is the Corani project, which is proceeding towards permitting and construction.
 
 
 
 
SILVER WHEATON 2011 ANNUAL REPORT [9]
 
 

 

 
 
During the year ended December 31, 2010, the Company acquired, by way of private placement, 3.0 million common shares of Bear Creek at a price of Cdn$6.40 per share, for total consideration of Cdn$19.1 million.

Revett

At December 31, 2011, Silver Wheaton owned 5.0 million (2010 – 5.0 million) common shares and common share purchase warrants exercisable to acquire an additional 0.2 million (2010 – 0.2 million) common shares of Revett Minerals Inc. (“Revett”), representing approximately 16% (2010 – 16%) of the outstanding shares of Revett.  At December 31, 2011, the fair value of the Company’s investment in Revett was $24.5 million (2010 - $25.6 million).

During the year ended December 31, 2010, the Company acquired 7.3 million common shares and 1.2 million common share purchase warrants of Revett for $1.9 million.  On November 17, 2010, Revett announced a share consolidation (reverse stock split) of common shares on a one for five basis, effective November 19, 2010.

Sabina

At December 31, 2011, Silver Wheaton owned 11.7 million (2010 – 11.7 million) common shares of Sabina Gold & Silver Corp. (“Sabina”), representing approximately 7% (2010 – 7%) of the outstanding shares of Sabina.  At December 31, 2011, the fair value of the Company’s investment in Sabina was $44.2 million (2010 - $66.0 million).
 
During the year ended December 31, 2010, the Company exercised 3.9 million common share purchase warrants of Sabina with an exercise price of Cdn$2.75 per warrant for total consideration of Cdn$10.7 million ($10.5 million), resulting in the acquisition of 3.9 million common shares of Sabina.

Other

At December 31, 2011, Silver Wheaton owned common shares and common share purchase warrants of several publicly traded mineral exploration, development and mining companies.  As Silver Wheaton’s investment represents less than 10% of the outstanding shares of each of the respective companies and is not considered material to Silver Wheaton’s overall financial position, these investments have been reflected in this MD&A and financial statements as part of Other long-term investments.

During the year ended December 31, 2011, the Company acquired, by way of private placement, 10 million common shares of Wildcat Silver Corporation for total consideration of Cdn$13.0 million ($13.7 million).  In addition, Silver Wheaton sold its investment of 1.8 million common shares of Ventana Gold Corp. (“Ventana”) for proceeds of Cdn$23.5 million ($24.3 million) after the successful acquisition of Ventana by AUX Canada, resulting in a realized gain of $4.5 million.

During the year ended December 31, 2010 the Company acquired, by way of private placement, 1.8 million common shares of Ventana for total consideration of Cdn$20.7 million ($19.8 million).

At December 31, 2011, the fair value of the Other long-term investments was $36.7 million (2010 - $66.1 million).


 
 
 
SILVER WHEATON 2011 ANNUAL REPORT [10]
 
 

 
 
 
 
Summarized Financial Results

 
Year Ended December 31
 
2011
IFRS 1
2010
IFRS 1
2009
GAAP 1
 
Silver equivalent production 2
                 
Attributable silver ounces produced (000’s)
   
24,557
   
21,984
   
16,263
Attributable gold ounces produced
   
18,436
   
28,795
   
18,021
Attributable silver equivalent ounces produced (000’s) 2
   
25,374
   
23,758
   
17,395
Silver equivalent sales 2
                 
Silver ounces sold (000’s)
   
20,247
   
18,878
   
14,744
Gold ounces sold
   
18,256
   
25,884
   
17,132
Silver equivalent ounces sold (000’s) 2
   
21,069
   
20,483
   
15,823
Average realized price ($'s per ounce)
                 
Average realized silver price
 
$
34.60
 
$
20.75
 
$
15.02
Average realized gold price
 
$
1,609
 
$
1,224
 
$
1,042
Average realized silver equivalent price 2
 
$
34.65
 
$
20.67
 
$
15.13
Average cash cost ($'s per ounce) 3
                 
Average silver cash cost
 
$
3.99
 
$
3.97
 
$
3.97
Average gold cash cost
 
$
300
 
$
300
 
$
300
Average silver equivalent cash cost 2
 
$
4.09
 
$
4.04
 
$
4.03
 
Total revenue ($000's)
 
$
729,997
 
$
423,353
 
$
239,293
 
Net earnings
 
$
550,028
 
$
153,381
 
$
117,924
Add back - loss on fair value adjustment of Canadian dollar share purchase warrants issued
   
                  -
   
133,210
   
                  -
 
Adjusted net earnings 4 ($000's)
 
$
550,028
 
$
286,591
 
$
117,924
 
Earnings per share
                 
Basic
 
$
1.56
 
$
0.45
 
$
0.39
Diluted
 
$
1.55
 
$
0.44
 
$
0.38
 
Adjusted earnings per share 4
                 
Basic
 
$
1.56
 
$
0.83
 
$
0.39
Diluted
 
$
1.55
 
$
0.83
 
$
0.38
 
Cash flow from operations ($000's)
 
$
626,427
 
$
319,726
 
$
165,932
 
Dividends
                 
Dividends paid
 
$
63,612
 
$
                  -
 
$
                  -
Dividends paid per share
 
$
0.18
 
$
0.00
 
$
0.00
 
Total assets ($000's)
 
$
2,872,335
 
$
2,635,383
 
$
2,237,224
 
Total non-current financial liabilities ($000’s)
 
$
50,060
 
$
200,966
 
$
343,976
 
Shareholders' equity ($000's)
 
$
2,654,217
 
$
2,261,949
 
$
1,723,925

1)  
2011 and 2010 figures presented in accordance with IFRS.  2009 figures presented in accordance with Canadian Generally Accepted Accounting Principles (“Cdn GAAP” or “GAAP”).  Certain comparative figures have been reclassified to conform to the presentation adopted in 2011.
2)  
Gold ounces produced and sold are converted to a silver equivalent basis on the ratio of the average silver price received to the average gold price received during the period from the assets that produce both gold and silver.
3)  
Refer to discussion on non-IFRS measure (iii) on page 20 of this MD&A.
4)  
Refer to discussion on non-IFRS measure (i) on page 19 of this MD&A.
 
 
 
SILVER WHEATON 2011 ANNUAL REPORT [11]
 
 

 

 
 
Summary of Ounces Produced and Sold


 
2011
2010
 
(in thousands)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
 
Silver ounces produced 1
               
San Dimas 2
       1,578
       1,251
       1,150
       1,606
       1,586
       1,255
       1,110
       1,206
Zinkgruvan
          390
          379
          414
          508
          428
          508
          478
          387
Yauliyacu
          583
          608
          674
          683
          651
          633
          692
          737
Peñasquito
       1,633
       1,162
       1,282
       1,207
       1,260
       1,109
          866
          557
Cozamin
          433
          395
          414
          325
          335
          381
          286
          401
Barrick 3
          723
          794
          741
          722
          458
          682
          697
          780
Other 4
       1,389
       1,272
       1,153
       1,088
       1,245
       1,069
       1,240
          947
 
       6,729
       5,861
       5,828
       6,139
       5,963
       5,637
       5,369
       5,015
Silver equivalent ounces of gold produced 5
               
Minto
          202
          257
          261
            97
          205
          402
          522
          645
 
Silver equivalent ounces produced
       6,931
       6,118
       6,089
       6,236
       6,168
       6,039
       5,891
       5,660
 
Silver ounces sold
               
San Dimas 2
       1,488
       1,232
       1,149
       1,748
       1,438
       1,274
       1,076
       1,206
Zinkgruvan
          425
          319
          401
          321
          421
          635
          313
          498
Yauliyacu
          655
            11
          471
          120
          470
            87
          517
          581
Peñasquito
          851
       1,382
          961
          941
       1,169
          692
          656
          424
Cozamin
          374
          335
          281
          271
          411
          306
          412
          281
Barrick 3
          755
          747
          726
          680
          482
          533
          727
          783
Other 4
       1,230
          770
          862
          741
       1,139
          750
          943
          654
 
       5,778
       4,796
       4,851
       4,822
       5,530
       4,277
       4,644
       4,427
Silver equivalent ounces of gold sold 5
               
Minto
          196
          316
          227
            83
          127
          411
          496
          571
 
Silver equivalent ounces sold
       5,974
       5,112
       5,078
       4,905
       5,657
       4,688
       5,140
       4,998
 
Gold / silver ratio 5
         51.9
         50.4
         40.1
         33.0
         49.7
         57.7
         65.4
         66.3
 
Cumulative payable silver equivalent ounces produced but not yet delivered 6
       4,127
       3,805
       3,537
       3,018
       2,275
       2,174
       1,403
       1,437

1)  
Ounces produced represent the quantity of silver and gold contained in concentrate or doré prior to smelting or refining deductions.  Certain production figures are based on management estimates.
2)  
Beginning in the third quarter of 2010, the ounces produced and sold include ounces received from Goldcorp in connection with Goldcorp’s four year commitment  to deliver to Silver Wheaton 1.5 million ounces of silver per annum resulting from their sale of San Dimas to Primero.
3)  
Comprised of the Lagunas Norte, Pierina and Veladero silver interests.
4)  
Comprised of the Los Filos, Mineral Park, Neves-Corvo, Stratoni, Keno Hill, Minto, Aljustrel and Campo Morado silver interests in addition to the previously owned La Negra and San Martin silver interests.
5)  
Gold ounces produced and sold are converted to a silver equivalent basis on the ratio of the average silver price received to the average gold price received during the period from the assets that produce both gold and silver.
6)  
Based on management estimates.
 
 
 
SILVER WHEATON 2011 ANNUAL REPORT [12]
 
 

 
 
 
 
Quarterly Financial Review

 
2011
2010
 
 
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
 
Total silver ounces sold (000's)
   
          5,778
   
          4,796
   
           4,851
   
         4,822
   
         5,530
   
            4,277
   
         4,644
   
         4,427
Average realized silver price 1
 
$
32.09
 
$
36.44
 
$
38.38
 
$
32.00
 
$
26.41
 
$
19.51
 
$
18.46
 
$
17.27
Silver sales (000's)
 
$
185,401
 
$
174,733
 
$
186,191
 
$
154,304
 
$
146,030
 
$
83,409
 
$
85,759
 
$
76,462
Total gold ounces sold
   
          3,777
   
          6,280
   
          5,674
   
         2,524
   
         2,562
   
             7,127
   
         7,584
   
           8,611
Average realized gold price 1
 
$
1,712
 
$
1,666
 
$
1,509
 
$
1,537
 
$
1,384
 
$
1,323
 
$
1,219
 
$
1,100
Gold sales (000's)
 
$
6,466
 
$
10,462
 
$
8,561
 
$
3,879
 
$
3,547
 
$
9,425
 
$
9,245
 
$
9,476
Total silver equivalent ounces sold (000's) 2
   
          5,974
   
            5,112
   
          5,078
   
         4,905
   
         5,657
   
            4,688
   
          5,140
   
         4,998
Average realized silver equivalent price 1
 
$
32.12
 
$
36.23
 
$
38.35
 
$
32.24
 
$
26.44
 
$
19.81
 
$
18.48
 
$
17.20
Total sales (000's)
 
$
191,867
 
$
185,195
 
$
194,752
 
$
158,183
 
$
149,577
 
$
92,834
 
$
95,004
 
$
85,938
Average cash cost, silver 1, 3
 
$
4.01
 
$
3.99
 
$
3.98
 
$
3.98
 
$
3.97
 
$
3.98
 
$
3.97
 
$
3.97
Average cash cost, gold 1, 3
 
$
301
 
$
300
 
$
300
 
$
300
 
$
300
 
$
300
 
$
300
 
$
300
Average cash cost, silver equivalent 1, 2, 3
 
$
4.06
 
$
4.12
 
$
4.14
 
$
4.07
 
$
4.02
 
$
4.09
 
$
4.03
 
$
4.04
Net earnings (000's)
                                               
As reported under Cdn GAAP
   
-
   
-
   
-
   
-
 
$
122,973
 
$
69,233
 
$
53,257
 
$
44,630
Adjustments under IFRS
                                               
(Loss) gain on fair value adjustment of warrants issued
   
-
   
-
   
-
   
-
   
(56,832)
   
(45,276)
   
(37,408)
   
6,306
Reallocation of realized gain on disposal of long-term investments
   
-
   
-
   
-
   
-
   
-
   
-
   
(150)
   
-
Income tax expense
   
-
   
-
   
-
   
-
   
(2,242)
   
(287)
   
(446)
   
(377)
As reported under IFRS
 
$
144,747
 
$
135,040
 
$
148,065
 
$
122,176
 
$
63,899
 
$
23,670
 
$
15,253
 
$
50,559
Earnings per share
                                               
Basic
                                               
As reported under GAAP
   
-
   
-
   
-
   
-
 
$
0.35
 
$
0.20
 
$
0.16
 
$
0.13
IFRS adjustments
   
-
   
-
   
-
   
-
   
(0.17)
   
(0.13)
   
(0.12)
   
0.02
As reported under IFRS
 
$
0.41
 
$
0.38
 
$
0.42
 
$
0.35
 
$
0.18
 
$
0.07
 
$
0.04
 
$
0.15
Diluted
                                               
As reported under GAAP
   
-
   
-
   
-
   
-
 
$
0.35
 
$
0.20
 
$
0.15
 
$
0.13
IFRS adjustments
   
-
   
-
   
-
   
-
   
(0.17)
   
(0.13)
   
(0.11)
   
-
As reported under IFRS
 
$
0.41
 
$
0.38
 
$
0.42
 
$
0.34
 
$
0.18
 
$
0.07
 
$
0.04
 
$
0.13
Cash flow from operations (000's)
 
$
163,714
 
$
167,236
 
$
168,281
 
$
127,196
 
$
124,675
 
$
70,473
 
$
66,978
 
$
57,600
Cash flow from operations per share 4
                                               
Basic
 
$
0.46
 
$
0.47
 
$
0.48
 
$
0.36
 
$
0.36
 
$
0.20
 
$
0.20
 
$
0.17
Diluted
 
$
0.46
 
$
0.47
 
$
0.47
 
$
0.36
 
$
0.36
 
$
0.20
 
$
0.19
 
$
0.17
Dividends
                                               
Dividends paid
 
$
31,814
 
$
10,603
 
$
10,599
 
$
10,595
 
$
0.00
 
$
0.00
 
$
0.00
 
$
0.00
Dividends paid per share
 
$
0.09
 
$
0.03
 
$
0.03
 
$
0.03
 
$
0.00
 
$
0.00
 
$
0.00
 
$
0.00
Total assets (000's)
 
$
2,872,335
 
$
2,760,675
 
$
2,807,346
 
$
2,757,065
 
$
2,635,383
 
$
2,363,943
 
$
2,379,790
 
$
2,286,425
Total liabilities (000's)
 
$
218,118
 
$
229,676
 
$
359,544
 
$
363,131
 
$
373,434
 
$
507,077
 
$
613,115
 
$
554,222
Total shareholders' equity (000's)
 
$
2,654,217
 
$
2,530,999
 
$
2,447,802
 
$
2,393,934
 
$
2,261,949
 
$
1,856,866
 
$
1,766,675
 
$
1,732,203

1)  
Expressed as United States dollars per ounce.
2)  
Gold ounces sold are converted to a silver equivalent basis on the ratio of the average silver price received to the average gold price received during the period from the assets that produce both gold and silver.
3)  
Refer to discussion on non-IFRS measure (iii) on page 20 of this MD&A.
4)  
Refer to discussion on non-IFRS measure (ii) on pages 19 and 20 of this MD&A.

Changes in sales, net earnings and cash flow from operations from quarter to quarter are affected primarily by fluctuations in production at the mines, the timing of shipments, changes in the price of silver, as well as acquisitions of silver purchase agreements and the commencement of operations of mines under construction.
 
 
 
SILVER WHEATON 2011 ANNUAL REPORT [13]
 
 

 
 
 


Results of Operations and Operational Review

The Company currently has nine business segments: the silver produced by the San Dimas, Zinkgruvan, Yauliyacu, Peñasquito, Cozamin, Barrick and Other mines, the gold produced by the Minto mine and corporate operations.


Three Months Ended December 31, 2011
 
Ounces produced 2
Ounces
sold
Sales
 
Average
realized
price ($'s
per ounce)
Average
cash cost
($'s per
ounce) 3
Average
depletion
($'s per
ounce)
Net
earnings
Cash flow
from
(used in)
operations
Total assets
 
Silver
                               
San Dimas 4
1,578
1,488
$
44,641
$
30.00
$
4.09
$
0.71
$
37,494
$
38,551
$
167,527
Zinkgruvan
390
425
 
13,537
 
31.87
 
4.10
 
1.69
 
11,077
 
14,061
 
57,639
Yauliyacu
583
655
 
22,270
 
34.00
 
4.02
 
5.02
 
16,350
 
19,637
 
230,012
Peñasquito
1,633
851
 
27,374
 
32.17
 
3.96
 
2.41
 
21,954
 
24,004
 
504,973
Cozamin
433
374
 
12,786
 
34.18
 
4.08
 
4.62
 
9,531
 
10,260
 
25,115
Barrick 5
723
755
 
24,673
 
32.67
 
3.90
 
3.60
 
19,008
 
21,728
 
601,085
Other 6
1,389
1,230
 
40,120
 
32.63
 
3.94
 
4.22
 
30,089
 
36,301
 
251,716
 
6,729
5,778
$
185,401
$
32.09
$
4.01
$
2.90
$
145,503
$
164,542
$
1,838,067
Gold
                               
Minto
3,891
3,777
 
6,466
 
1,712
 
301
 
169
 
4,689
 
6,314
 
33,659
 
Silver Equivalent 7
6,931
5,974
$
191,867
$
32.12
$
4.06
$
2.91
$
150,192
$
170,856
$
1,871,726
Corporate
                               
General and administrative
                 
$
(6,115)
       
Other
                     
670
       
Total corporate
                   
$
(5,445)
$
(7,142)
$
1,000,609
 
 
6,931
5,974
$
191,867
$
32.12
$
4.06
$
2.91
$
144,747
$
163,714
$
2,872,335

1)  
All figures in thousands except gold ounces produced and sold and per ounce amounts.
2)  
Ounces produced represent the quantity of silver and gold contained in concentrate or doré prior to smelting or refining deductions.  Certain production figures are based on management estimates.
3)  
Refer to discussion on non-IFRS measure (iii) on page 20 of this MD&A.
4)  
Results for San Dimas include 375,000 ounces received from Goldcorp in connection with Goldcorp’s four year commitment to deliver to Silver Wheaton 1.5 million ounces of silver per annum resulting from their sale of San Dimas to Primero.
5)  
Comprised of the Lagunas Norte, Pierina and Veladero silver interests.
6)  
Comprised of the Los Filos, Mineral Park, Neves-Corvo, Stratoni, Keno Hill, Minto, Campo Morado and Aljustrel silver interests.
7)  
Gold ounces produced and sold are converted to a silver equivalent basis on the ratio of the average silver price received to the average gold price received during the period from the assets that produce both gold and silver.


 
 
 
SILVER WHEATON 2011 ANNUAL REPORT [14]
 
 

 
Three Months Ended December 31, 2010
 
Ounces produced 2
Ounces
sold
Sales
 
Average
realized
price ($'s
per ounce)
Average
cash cost
($'s per
ounce) 3
Average
depletion
($'s per
ounce)
Net
earnings
Cash flow
from
(used in)
operations
Total assets
 
Silver
                               
San Dimas 4
1,586
1,438
$
39,283
$
27.33
$
4.05
$
0.78
$
32,351
$
34,567
$
171,524
Zinkgruvan
428
421
 
12,483
 
29.64
 
4.05
 
1.69
 
10,062
 
10,600
 
60,122
Yauliyacu
651
470
 
10,627
 
22.61
 
3.98
 
3.47
 
7,124
 
8,756
 
236,320
Peñasquito
1,260
1,169
 
31,166
 
26.66
 
3.90
 
2.54
 
23,634
 
26,607
 
514,930
Cozamin
335
411
 
10,953
 
26.67
 
4.04
 
4.62
 
7,396
 
8,729
 
30,949
Barrick 5
458
482
 
11,369
 
23.58
 
3.90
 
3.61
 
7,749
 
10,890
 
595,307
Other 6
1,245
1,139
 
30,149
 
26.47
 
3.92
 
4.81
 
20,207
 
24,452
 
266,978
 
5,963
5,530
$
146,030
$
26.41
$
3.97
$
2.81
$
108,523
$
124,601
$
1,876,130
Gold
                               
Minto
4,130
2,562
 
3,547
 
1,384
 
300
 
237
 
2,172
 
3,816
 
36,747
 
Silver Equivalent 7
6,168
5,657
$
149,577
$
26.44
$
4.02
$
2.86
$
110,695
$
128,417
$
1,912,877
Corporate
                               
General and administrative
                 
$
(6,409)
       
Loss on fair value adjustment of Canadian dollar share purchase warrants issued
 
(56,832)
       
Other
                     
16,445
       
Total corporate
                   
$
(46,796)
$
(3,742)
$
722,506
 
 
6,168
5,657
$
149,577
$
26.44
$
4.02
$
2.86
$
63,899
$
124,675
$
2,635,383

1)  
All figures in thousands except gold ounces produced and sold and per ounce amounts.
2)  
Ounces produced represent the quantity of silver and gold contained in concentrate or doré prior to smelting or refining deductions.  Certain production figures are based on management estimates.
3)  
Refer to discussion on non-IFRS measure (iii) on page 20 of this MD&A.
4)  
Results for San Dimas include 375,000 ounces received from Goldcorp in connection with Goldcorp’s four year commitment to deliver to Silver Wheaton 1.5 million ounces of silver per annum resulting from their sale of San Dimas to Primero.
5)  
Comprised of the Lagunas Norte, Pierina and Veladero silver interests.
6)  
Comprised of the Los Filos, Mineral Park, Neves-Corvo, Stratoni, Minto and Campo Morado silver interests in addition to the previously owned La Negra and San Martin silver interests.
7)  
Gold ounces produced and sold are converted to a silver equivalent basis on the ratio of the average silver price received to the average gold price received during the period from the assets that produce both gold and silver.


For the three months ended December 31, 2011, net earnings and cash flow from operations were $144.7 million and $163.7 million, respectively, compared with $63.9 million and $124.7 million for the comparable period in 2010, with the variance in net earnings being primarily attributable to the following factors:
 
·  
$6.2 million increase as a result of a 6% increase in the number of silver equivalent ounces sold, primarily related to:
 
i.  
$2.8 million increase as a result of a 39% increase in silver deliveries from Yauliyacu primarily due to the shipment of previously produced bulk concentrate, the processing of which was delayed due to the shutdown of the Doe Run smelter; and
 
ii.  
$4.4 million increase as a result of a 57% increase in silver deliveries from the Barrick mines, primarily due to higher grades and throughput; and
 
iii.  
$5.7 million increase as a result of the timing of shipments of stockpiled concentrate, primarily relating to Minto and Mineral Park; partially offset by
 
iv.  
$6.4 million decrease as a result of a 27% decrease in silver deliveries from Peñasquito as a result of the timing of shipments of stockpiled concentrate; and
 
·  
$32.8 million increase as a result of a 22% increase in the average realized selling price of silver; and
 
·  
$41.4 million increase as a result of a decrease in corporate costs, as explained in the Corporate Costs section of this MD&A ($3.4 million increase from a cash flow perspective).
SILVER WHEATON 2011 ANNUAL REPORT [15]
 
 

 


Year Ended December 31, 2011
 
Ounces produced 2
Ounces
sold
Sales
 
Average
realized
price ($'s
per ounce)
Average
cash cost
($'s per
ounce) 3
Average
depletion
($'s per
ounce)
Net
earnings
Cash flow
from
(used in)
operations
Total assets
 
Silver
                               
San Dimas 4
5,585
5,617
$
188,377
$
33.54
$
4.06
$
0.71
$
161,554
$
164,453
$
167,527
Zinkgruvan
1,691
1,466
 
52,974
 
36.14
 
4.08
 
1.69
 
44,503
 
49,377
 
57,639
Yauliyacu
2,548
1,257
 
43,911
 
34.93
 
4.02
 
5.02
 
32,555
 
38,863
 
230,012
Peñasquito
5,284
4,135
 
143,069
 
34.61
 
3.93
 
2.41
 
116,855
 
126,812
 
504,973
Cozamin
1,567
1,261
 
43,990
 
34.85
 
4.07
 
4.62
 
33,018
 
40,586
 
25,115
Barrick 5
2,980
2,908
 
102,454
 
35.23
 
3.90
 
3.58
 
80,692
 
89,554
 
601,085
Other 6
4,902
3,603
 
125,854
 
34.93
 
3.94
 
4.27
 
96,298
 
112,414
 
251,716
 
24,557
20,247
$
700,629
$
34.60
$
3.99
$
2.69
$
565,475
$
622,059
$
1,838,067
Gold
                               
Minto
18,436
18,256
 
29,368
 
1,609
 
300
 
169
 
20,799
 
24,240
 
33,659
 
Silver Equivalent 7
25,374
21,069
$
729,997
$
34.65
$
4.09
$
2.73
$
586,274
$
646,299
$
1,871,726
Corporate
                               
General and administrative
                 
$
(25,180)
       
Other
                     
(11,066)
       
Total corporate
                   
$
(36,246)
$
(19,872)
$
1,000,609
 
 
25,374
21,069
$
729,997
$
34.65
$
4.09
$
2.73
$
550,028
$
626,427
$
2,872,335
 
1)  
All figures in thousands except gold ounces produced and sold and per ounce amounts.
2)  
Ounces produced represent the quantity of silver and gold contained in concentrate or doré prior to smelting or refining deductions.  Certain production figures are based on management estimates.
3)  
Refer to discussion on non-IFRS measure (iii) on page 20 of this MD&A.
4)  
Results for San Dimas include 1.5 million ounces received from Goldcorp in connection with Goldcorp’s four year commitment to deliver to Silver Wheaton 1.5 million ounces of silver per annum resulting from their sale of San Dimas to Primero.
5)  
Comprised of the Lagunas Norte, Pierina and Veladero silver interests.
6)  
Comprised of the Los Filos, Mineral Park, Neves-Corvo, Stratoni, Keno Hill, Minto, Campo Morado and Aljustrel silver interests.
7)  
Gold ounces produced and sold are converted to a silver equivalent basis on the ratio of the average silver price received to the average gold price received during the period from the assets that produce both gold and silver.

 
 
 
SILVER WHEATON 2011 ANNUAL REPORT [16]
 
 

 
Year Ended December 31, 2010
 
Ounces produced 2
Ounces
sold
Sales
 
Average
realized
price ($'s
per ounce)
Average
cash cost
($'s per
ounce) 3
Average
depletion
($'s per
ounce)
Net
earnings
Cash flow
from
(used in)
operations
Total assets
 
Silver
                               
San Dimas 4
5,157
4,994
$
105,747
$
21.18
$
4.04
$
0.78
$
81,659
$
86,666
$
171,524
Zinkgruvan
1,801
1,867
 
39,447
 
21.12
 
4.04
 
1.71
 
28,697
 
30,178
 
60,122
Yauliyacu
2,713
1,655
 
31,998
 
19.33
 
3.98
 
3.47
 
19,669
 
25,418
 
236,320
Peñasquito
3,792
2,941
 
63,632
 
21.64
 
3.90
 
2.54
 
44,683
 
52,163
 
514,930
Cozamin
1,403
1,410
 
29,180
 
20.71
 
4.03
 
4.62
 
16,987
 
23,252
 
30,949
Barrick 5
2,617
2,525
 
48,311
 
19.13
 
3.90
 
3.55
 
29,498
 
36,787
 
595,307
Other 6
4,501
3,486
 
73,345
 
21.04
 
3.92
 
4.49
 
44,010
 
58,182
 
266,978
 
21,984
18,878
$
391,660
$
20.75
$
3.97
$
2.73
$
265,203
$
312,646
$
1,876,130
Gold
                               
Minto
28,795
25,884
 
31,693
 
1,224
 
300
 
236
 
17,830
 
23,174
 
36,747
 
Silver Equivalent 7
23,758
20,483
$
423,353
$
20.67
$
4.04
$
2.81
$
283,033
$
335,820
$
1,912,877
Corporate
                               
General and administrative
                 
$
(24,669)
       
Loss on fair value adjustment of Canadian dollar share purchase warrants issued
 
(133,210)
       
Other
                     
28,227
       
Total corporate
                   
$
(129,652)
$
(16,094)
$
722,506
 
 
23,758
20,483
$
423,353
$
20.67
$
4.04
$
2.81
$
153,381
$
319,726
$
2,635,383
 
1)  
All figures in thousands except gold ounces produced and sold and per ounce amounts.
2)  
Ounces produced represent the quantity of silver and gold contained in concentrate or doré prior to smelting or refining deductions.  Certain production figures are based on management estimates.
3)  
Refer to discussion on non-IFRS measure (iii) on page 20 of this MD&A.
4)  
Results for San Dimas include 625,000 ounces received from Goldcorp in connection with Goldcorp’s four year commitment to deliver to Silver Wheaton 1.5 million ounces of silver per annum resulting from their sale of San Dimas to Primero.
5)  
Comprised of the Lagunas Norte, Pierina and Veladero silver interests.
6)  
Comprised of the Los Filos, Mineral Park, Neves-Corvo, Stratoni, Minto and Campo Morado silver interests in addition to the previously owned La Negra and San Martin silver interests.
7)  
Gold ounces produced and sold are converted to a silver equivalent basis on the ratio of the average silver price received to the average gold price received during the period from the assets that produce both gold and silver.
 
 
For the year ended December 31, 2011, net earnings and cash flow from operations were $550.0 million and $626.4 million, respectively, compared with $153.4 million and $319.7 million for the comparable period in 2010, with the variance in net earnings being attributable to the following factors:
 
·  
$21.6 million increase as a result of a 7% increase in the number of silver ounces sold, primarily due to:
 
i.  
$10.2 million increase as a result of a 13% increase in silver deliveries relating to San Dimas reflecting the delivery of 1.5 million ounces due from Goldcorp in connection with Goldcorp’s four year commitment to deliver to Silver Wheaton 1.5 million ounces of silver per annum resulting from their sale of San Dimas to Primero, as compared to 0.6 million ounces during the comparable period of the previous year; and
 
ii.  
$4.5 million increase as a result of a 15% increase in silver deliveries from the Barrick mines, primarily due to higher grades and throughput; and
 
iii.  
$18.1 million increase as a result of a 41% increase in silver deliveries from Peñasquito reflecting the continued ramping up of milling operations; partially offset by
 
iv.  
$10.9 million decrease as a result of the timing of shipments of stockpiled concentrate, primarily relating to Yauliyacu and Zinkgruvan, with Yauliyacu reflecting the delay in processing bulk concentrate as a result of the closing of the Doe Run smelter;
 
·  
$5.3 million decrease as a result of a 30% decrease in the number of gold ounces sold due to lower grade stockpiled ore processed after cessation of mining from the Stage 4 Main Pit at the Minto mine; and
 
·  
$280.5 million increase as a result of a 67% increase in the average realized selling price of silver; and
 
·  
$7.0 million increase as a result of a 31% increase in the average realized selling price of gold; and
 
·  
$93.4 million increase as a result of a decrease in corporate costs, as explained in the Corporate Costs section of this MD&A ($3.8 million increase from a cash flow perspective).
 
SILVER WHEATON 2011 ANNUAL REPORT [17]
 
 

 

 
 
Corporate Costs


 
Three Months Ended
December 31
Year Ended
December 31
(in thousands)
2011
2010
2011
2010
 
General and administrative
$
4,556
$
5,108
$
18,851
$
16,937
Equity settled stock based compensation (a non-cash item)
 
1,559
 
1,301
 
6,329
 
7,732
 
Total general and administrative
$
6,115
$
6,409
$
25,180
$
24,669
Loss on fair value adjustment of Canadian dollar share purchase warrants issued
 
 -
 
56,832
 
 -
 
133,210
Foreign exchange gain
 
65
 
(1,579)
 
(453)
 
(2,266)
Other expense (income)
 
(345)
 
(8,393)
 
3,182
 
(16,089)
Income tax expense (recovery)
 
(390)
 
(6,473)
 
8,337
 
(9,872)
 
Total corporate costs
$
5,445
$
46,796
$
36,246
$
129,652


For the three months ended December 31, 2011, corporate costs decreased by $41.4 million over the comparable period in the previous year, primarily due to a $56.8 million non-cash, fair value loss recorded during the three months ended December 31, 2010 on the Company’s previously issued and outstanding share purchase warrants which had an exercise price denominated in Canadian dollars.  As more fully described in Note 12 to the financial statements, these warrants are classified as a financial liability with any fair value adjustments being reflected as a component of net earnings.  This decrease in costs was partially offset by (i) a $1.6 million foreign exchange gain recorded during the three months ended December 31, 2010; (ii) an $8.0 million increase in Other Expense (Income), primarily attributable to a $2.6 million non-cash, fair value gain recorded during the three months ended December 31, 2010 on the Company’s investment in share purchase warrants held in addition to a $5.9 million gain recognized during the three months ended December 31, 2010 resulting from the disposition of the La Negra silver purchase agreement and; (iii) an income tax recovery of $6.5 million, which includes a non-cash deferred income tax recovery of $6.6 million recorded during the three months ended December 31, 2010, relating primarily to the recognition of previously unrecognized deferred income tax assets.

For the year ended December 31, 2011, corporate costs decreased by $93.4 million over the comparable period in the previous year, primarily due to (i) a $1.4 million decrease in equity settled stock based compensation (a non-cash item); and; (ii) a $133.2 million non-cash, fair value loss recorded during the year ended December 31, 2010 on the Company’s previously issued and outstanding share purchase warrants which had an exercise price denominated in Canadian dollars.  As more fully described in Note 12 to the financial statements, these warrants are classified as a financial liability with any fair value adjustments being reflected as a component of net earnings.  This decrease in costs was partially offset by (i) a $1.9 million increase in general and administrative costs primarily due to increased corporate activity; (ii) a $2.3 million foreign exchange gain recorded during the year ended December 31, 2010; (iii) a $19.3 million increase in Other Expense (Income), primarily attributable to a $10.7 million non-cash, fair value gain recorded during the year ended December 31, 2010 on the Company’s investment in share purchase warrants held in addition to a $5.9 million gain recognized during the year ended December 31, 2010 resulting from the disposition of the La Negra silver purchase agreement and; (iv) an income tax expense of $8.3 million, which includes a non-cash deferred income tax expense of $7.6 million recorded during the year ended December 31, 2011, attributable primarily to income from Canadian operations and the reversal of previously recognized deferred income tax assets relating to the decline in fair value of long-term investments in common shares held as compared to an income tax recovery of $9.9 million in the comparable period of the previous year, which includes a non-cash deferred income tax recovery of $10.2 million relating primarily to the recognition of previously unrecognized deferred income tax assets.
 

 
 
SILVER WHEATON 2011 ANNUAL REPORT [18]
 
 

 
 
 
 
The Company incurred interest costs of $16.2 million during the year ended December 31, 2011, of which $15.2 million represents accreted interest on the future payments due in relation to the Barrick silver interest, with the remainder being attributable to interest on bank debt.  All of the interest costs incurred during 2011 have been capitalized in relation to the Barrick silver interest.  During the year ended December 31, 2010, the Company incurred interest costs of $24.5 million, of which $23.1 million represents accreted interest on the future payments due in relation to the Barrick silver interest, with the remainder being attributable to interest on bank debt.  All of the interest
costs incurred during the year ended December 31, 2010 were capitalized in relation to the Peñasquito, Keno Hill and Barrick silver interests.


Non-IFRS Measures

Silver Wheaton has included, throughout this document, certain non-IFRS performance measures, including (i) adjusted net earnings and adjusted net earnings per share; (ii) operating cash flow per share (basic and diluted); (iii) average cash costs of silver and gold on a per ounce basis and; (iv) cash operating margin.

i.  
Adjusted net earnings and adjusted net earnings per share is calculated by removing the effects of the non-cash, fair value adjustment on the Company’s previously issued and outstanding share purchase warrants which had an exercise price denominated in Canadian dollars from net earnings of the Company.  As more fully described in Note 12 to the financial statements, these warrants are classified as a financial liability with any fair value adjustments being reflected as a component of net earnings.  The Company believes that, in addition to conventional measures prepared in accordance with IFRS, the Company and certain investors use this information to evaluate the Company’s performance.

The following table provides a reconciliation of adjusted net earnings and adjusted net earnings per share (basic and diluted).

   
Three Months Ended
December 31
Year Ended
December 31
(in thousands, except for per share amounts)
 
2011
 
2010
 
2011
 
2010
 
Net earnings
 
$
144,747
 
$
63,899
 
$
550,028
 
$
153,381
Add back - loss on fair value adjustment of Canadian dollar share purchase warrants issued
   
-
   
56,832
   
-
   
133,210
 
Adjusted net earnings
 
$
144,747
 
$
120,731
 
$
550,028
 
$
286,591
 
Divided by:
                       
Basic weighted average number of shares outstanding
   
353,497
   
347,611
   
353,249
   
344,288
Diluted weighted average number of shares outstanding
   
355,797
   
350,618
   
355,904
   
346,508
 
Equals:
                       
Adjusted earnings per share - basic
 
$
0.41
 
$
0.35
 
$