May 13, 2013 / 8:53 PM / in 5 years

UPDATE 1-Silver Wheaton profit falls, shares down

(Adds CEO interview, updates share price)

TORONTO, May 13 (Reuters) - Shares of Silver Wheaton Corp fell more than 3.5 percent on Monday after quarterly earnings came in slightly below expectations and the company changed its dividend policy to tie the payout to performance over a whole year.

Silver Wheaton reported a 9 percent drop in first-quarter profit late on Friday, as silver equivalent sales lagged production and precious metal prices softened.

The Vancouver-based company, which helps finance mining projects in exchange for the right to buy future silver production at a set price, produced 8 million equivalent ounces, but sold just 6.9 million ounces due to delays in delivery.

While production climbed 19.5 percent in the first quarter, the average realized silver price fell 9 percent to $29.72 per ounce. Costs were 8 percent higher at $4.39 per ounce.

It expects sales to balance out through the second quarter.

Silver Wheaton also revised its dividend policy in an effort to smooth volatility. The dividend will now be based on the average cash generated by operating activities in the previous four quarters, rather than in just the single previous quarter.

Gold and silver prices dropped sharply in April, creating uncertainty in the precious metal market and that is weighing on the company’s ability to make new streaming deals, said Chief Executive Randy Smallwood.

“This is an extremely volatile market right now,” he told Reuters. “Everyone has been nervous about making decisions at any point in this market, because the potential for dramatic change is so high.”

Silver Wheaton’s stock closed down 3.5 percent at C$23.72 on the Toronto Stock Exchange on Monday. The shares have fallen about 33 percent so far this year, weighed down in part by the drop in silver and gold prices.

PASCUA-LAMA WEIGHS

Also weighing on the stock is a partial construction halt at the Pascua-Lama project on the border of Chile and Argentine.

Owned by Barrick Gold Corp, the massive gold-silver mine is key cog in Silver Wheaton’s plans to boost its annual output to 53 million ounces in 2017, a 58 percent increase over the some 33.5 million ounces it expects to produce this year.

Silver Wheaton’s share of silver production from Pascua-Lama is expected to average about 9 million ounces a year, with first output currently expected in late 2014.

But a Chilean court temporarily halted construction on the $8.5 billion project last month to weigh claims that the development is damaging glaciers and harming water supplies.

Barrick continues to do construction work on the Argentine side and is working to address the environmental concerns in Chile. It remains unclear if the halt will impact the timeline or budget for the project.

“We think they’re making the right changes down there,” said Smallwood, adding that he is “confident” they will have the mine up and running well before the end of 2015.

Silver Wheaton’s net income was $133.4 million, or 37 cents a share, in the quarter ended March 31. That compared with $147.2 million, or 41 cents a share, in the year-ago period.

Earnings came in just below the average analyst expectation of 38 cents a share, according to Thomson Reuters I/B/E/S.

Revenue rose 3 percent to $205.8 million, as production increased 19 percent and sales rose 13 percent. (Reporting by Julie Gordon; editing by Janet Guttsman, Matthew Lewis and Bob Burgdorfer)

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