Is Silver Wheaton Corp Turning into Gold Wheaton?

Silver Wheaton (NYSE: SLW), the world’s largest silver streaming company, has recently announced it joined the World Gold Council. Does this mean, the company’s gold operations take a much higher portion of its sales in the coming years? In other words, is Silver Wheaton about to turn to be Gold Wheaton?

Turing silver into gold

In the past several years, the company has increased its exposure to gold, mainly with the purchase of streaming rights from the Vale’s Salobo and Sudbury mines back at the beginning of 2013. This has lead to a shift in which gold took a more prominent role in the company’s total operations.

slkw 2013-2011

Source of data from Silver Wheaton’s website.

As indicated in the table above, in the past several years the ratio between silver to gold (as a percent of total silver equivalent ounces) dropped from 97% back in 2012 to nearly 75% in 2013.

Despite this rise in the company’s gold operations to 25%, it’s still well behind other royalty companies such as Royal Gold (NASDAQ: RGLD) and Franco-Nevada (NYSE:FNV), which have a much higher ratio of gold to other precious metals.  In 2013, for Royal Gold the yellow metal gold accounted for 80% of its total precious metals operations. For Franco-Nevada, gold accounts for roughly 68% of its total revenue in the past year.

Will Silver Wheaton’s silver-to-gold ratio continue to fall in the coming years?

Outlook for 2014-2018

Based on Silver Wheatonprojections, in 2014, its attributed gold production is likely to reach 155 thousand ounces, which accounts for nearly 74% of its total operations. Looking even further, the company expects its gold operations to rise by over 60% in the next four years, as seen in the table below.

silver 2013-2018

Source of data from Silver Wheaton’s website.

Alternatively, its attributed silver production is projected to increase by “only” 24% by 2018. Despite this higher growth rate in gold compared to silver, gold will only account for 31% of Silver Wheaton’s total attributed precious metals production. Therefore, even though its gold operations are expected to substantially rise in the coming years, it will still take a small portion of Silver Wheaton’s attributed production.

In terms of revenue, the picture isn’t much different and Silver Wheaton’s gold related revenue isn’t likely to rise much higher than 33% of its total revenue, assuming the ratio between the price of gold and silver won’t change, as presented in the table below.

slw 2013-2018 rev

Source of data from Silver Wheaton’s website.

Foolish bottom line

Silver Wheaton is likely to keep increasing its gold operations in the coming years at a higher pace than its silver operations. But the company’s silver streaming sales will still dominate and remain the lion share of its revenue in the near future.

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