Silver Wheaton Corp.: Fourth Quarter Net Earnings Quadruple to US$7.0 Million, US$0.04 per Share.VANCOUVER Vancouver, city, Canada Vancouver, city (1991 pop. 471,844), SW British Columbia, Canada, on Burrard Inlet of the Strait of Georgia, opposite Vancouver Island and just N of the Wash. border. , British Columbia British Columbia, province (2001 pop. 3,907,738), 366,255 sq mi (948,600 sq km), including 6,976 sq mi (18,068 sq km) of water surface, W Canada. Geography -- Silver Wheaton Wheaton. 1 City (1990 pop. 51,464), seat of Du Page co., NE Ill., a residential suburb of Chicago; inc. 1859. It is a religious center and the headquarters of the Theosophical Society of America. Many evangelical organizations are also based there. Corp. (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :SLW SLW Specific Leaf Weight SLW Saltillo, Coahuila, Mexico - Saltillo (Airport Code) SLW Super-Cooled Liquid Water SLW Single Line Working SLW Straight-Line Wavelength SLW Surgical Licensed Ward SLW Space-based Laser Weapon )(AMEX AMEX See: American Stock Exchange :SLW) - FOURTH QUARTER HIGHLIGHTS - Net earnings of US$7.0 million (US$0.04 per share) for the three months from the sale of 2.2 million ounces of silver (four months ended December December: see month. 31, 2004 - net earnings of US$1.8 million (US$0.02 per share) from the sale of 1.5 million ounces). - Operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. of US$7.7 million (US$0.05 per share), compared to US$8.4 million (US$0.09 per share) in 2004. - Cash and cash equivalents at December 31, 2005 of US$117.7 million and working capital of US$118.7 million (December 31, 2004 - US$20.0 million and US$18.1 million, respectively). - In December, 2005, the Company raised gross proceeds of US$86 million by way of public offering. - The Company is debt free, unhedged and seeking further acquisitions. During the year ended December 31, 2005, the Company generated net earnings of US$25.3 million (US$0.15 per share) from the sale of 9.7 million ounces of silver (four months ended December 31, 2004 - net earnings of US$1.8 million (US$0.02 per share) from the sale of 1.5 million ounces). Operating cash flows for 2005 were US$30.0 million (US$0.18 per share), compared to US$8.4 million (US$0.09 per share) for the four months ended December 31, 2004. A conference call will be held Tuesday Tuesday: see week. , February February: see month. 14, 2006 at 11:00 am (ET) to discuss these results. You may join the call by dialing toll free 1-800-769-8320 or (416) 695-5259 for calls from outside of Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of and the US. The conference call will be recorded and you can listen to a playback Playback could mean:
Silver Wheaton is the only public mining company with 100% of its revenue from silver production. Silver Wheaton is unhedged and well positioned for further growth. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This news release contains "forward-looking statements" within the meaning of the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 and applicable Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. securities legislation. Forward-looking statements include, but are not limited to, statements with respect to the future price of silver, the estimation estimation In mathematics, use of a function or formula to derive a solution or make a prediction. Unlike approximation, it has precise connotations. In statistics, for example, it connotes the careful selection and testing of a function called an estimator. of mineral reserves and resources, the realization (specification) realization - A UML semantic relationship between a classifier that specifies a contract and another classifier that guarantees to carry it out. [Handout by Mr. David Gillibrand]. of mineral reserve estimates, the timing and amount of estimated future production, costs of production, reserve determination and reserve conversion rates. Generally, these forward-looking statements can be identified by the use of forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. terminology The terminology used in the computer and telecommunications field adds tremendous confusion not only for the lay person, but for the technicians themselves. What many do not realize is that terms are made up by anybody and everybody in a nonchalant, casual manner without any regard or such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases Words and Phrases® A multivolume set of law books published by West Group containing thousands of judicial definitions of words and phrases, arranged alphabetically, from 1658 to the present. or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Silver Wheaton to be materially different from those expressed or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. by such forward-looking statements, including but not limited to: risks related to the integration of acquisitions, the absence of control over mining operations from which Silver Wheaton purchases silver and risks related to these mining operations, including risks related to international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. , actual results of current exploration activities, actual results of current reclamation Reclamation A claim for the right to return or the right to demand the return of a security that has been previously accepted as a result of bad delivery or other irregularities in the delivery and settlement process. activities, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, as well as those factors discussed in the section entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: "Description of the Business - Risk Factors" in Silver Wheaton's annual information form for the year ended December 31, 2004 incorporated by reference into Silver Wheaton's Form 40-F on file with the U.S. Securities and Exchange Commission in Washington Washington, town, England Washington, town (1991 pop. 48,856), Sunderland metropolitan district, NE England. Washington was designated one of the new towns in 1964 to alleviate overpopulation in the Tyneside-Wearside area. , D.C. Although Silver Wheaton has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Silver Wheaton does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with applicable securities laws. Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial of Results of Operations and Financial Condition The following should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the Company's consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge for the year ended December 31, 2005 and related notes thereto there·to adv. 1. To that, this, or it. 2. Archaic In addition to that; furthermore. thereto Adverb Formal 1. to that or it 2. which have been prepared in accordance with Canadian generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting . All figures are in United States dollars unless otherwise noted. This Management's Discussion and Analysis has been prepared as of February 13, 2006. 2005 HIGHLIGHTS - Net earnings of $25.3 million ($0.15 per share) from the sale of 9.7 million ounces of silver (four months ended December 31, 2004 - net earnings of $1.8 million ($0.02 per share) from the sale of 1.5 million ounces). - Operating cash flows of $30.0 million (four months ended December 31, 2004 - $8.4 million). - Cash and cash equivalents at December 31, 2005 of $117.7 million (December 31, 2004 - $20.0 million) and working capital of $118.7 million (December 31, 2004 - $18.1 million). - Acquired 15% interest in Bear Creek Bear Creek may refer to: Communities
- In July July: see month. , 2005 the Company began trading on the AMEX under the symbol SLW. - In December, 2005 the Company raised gross proceeds of $86 million by way of public offering. - The Company is debt free, unhedged and seeking further acquisitions. - In February, 2006, Silver Wheaton announced that it had agreed to amend its existing agreement with Goldcorp Goldcorp (TSX: G, NYSE: GG) is one of the world’s largest gold mining companies with the strongest production growth profile among all major gold companies. , whereby Silver Wheaton will acquire increased silver production from Goldcorp of more than 100 million ounces over 24 years, increasing annual silver sales to 15 million ounces by 2009. OVERVIEW Silver Wheaton Corp. ("Silver Wheaton" or the "Company") is a growth-oriented silver company, and is the only mining company with 100% of its revenue from silver production. The Company's goal is to be recognized as the largest, most profitable and best managed pure silver company in the world. During the four months ended December 31, 2004, Silver Wheaton acquired the rights to purchase all of the silver produced by Goldcorp's Luismin mines in Mexico Mexico, city, Mexico Mexico or Mexico City, Span. Ciudad de México (Méjico), city (1990 pop. 8,236,960; 1991 met. area est. 20,899,000), central Mexico, capital and largest city of Mexico. , and by Lundin Mining's Zinkgruvan Zinkgruvan is a small village located in Askersund Municipality in mid Sweden close to Sweden's second biggest lake, Vättern. Zinkgruvan is famous for its mining industry, hence the name Zinkgruvan, that directly translated to English means Zinc mine. mine in Sweden Sweden, Swed. Sverige, officially Kingdom of Sweden, constitutional monarchy (2005 est. pop. 9,002,000), 173,648 sq mi (449,750 sq km), N Europe, occupying the eastern part of the Scandinavian peninsula. (the "Luismin Transaction" and the "Zinkgruvan Transaction" respectively). Both mines are low-cost producers and are expected to have remaining lives of over 20 years. During August, 2005, the Company acquired approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 15% of the common shares of Bear Creek Mining Corporation (TSX VENTURE:BCM BCM Baylor College of Medicine BCM Become BCM Business Communications Manager (Nortel) BCM Broadcom Corporation BCM Business Continuity Management BCM Business Contact Manager (Microsoft) ) ("Bear Creek") for total consideration of $13.7 million (Cdn$16.4 million.) On December 22, 2005, the Company raised gross proceeds of $86.2 million (Cdn$100.0 million) from a private placement of 15,625,000 subscription receipts at a price of Cdn$6.40 per unit. The Company is actively pursuing further growth opportunities either by way of entering into long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. silver purchase contracts, or by acquiring silver exploration, development or production assets. On February 13, 2006, Silver Wheaton announced that it had agreed to amend its existing silver purchase agreement with Goldcorp, in connection with Goldcorp's plans to substantially increase its investment in exploration and development at its San Dimas Dimas can refer to:
Yearly. thereafter.
SUMMARIZED FINANCIAL RESULTS
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December 31 December 31 August 31 August 31
2005 2004 2004 2003
(12 Months) (4 Months) (12 Months) (12 Months)
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Silver sales
($000's) $ 70,895 $ 10,986 $ - $ -
Ounces (000's) 9,702 1,505 - -
Average
realized
silver price
($'s per ounce) $ 7.31 $ 7.30 $ - $ -
Total cash cost
($'s per ounce)(1) $ 3.90 $ 3.90 $ - $ -
Net earnings
(loss) ($000's) $ 25,291 $ 1,765 $ (151) $ 59
Basic and diluted
earnings (loss)
per share $ 0.15 $ 0.02 $ (0.09) $ 0.03
Cash flow from
(used in)
operations
($000's) $ 30,004 $ 8,356 $ (44) $ (15)
Cash and cash
equivalents
($000's) $ 117,741 $ 19,989 $ 320 $ 92
Total assets
($000's) $ 266,151 $ 156,988 $ 53,491 $ 543
Shareholders'
equity ($000's) $ 264,190 $ 154,431 $ 50,171 $ 446
(1) Refer to discussion on Non-GAAP measures
QUARTERLY FINANCIAL RESULTS
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2005
Q4 Q3 Q2 Q1 Total
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Silver sales ($000's) $ 17,474 $ 18,081 $ 19,263 $ 16,077 $ 70,895
Ounces (000's) 2,176 2,535 2,668 2,323 9,702
Average realized
silver price
($'s per ounce) $ 8.03 $ 7.13 $ 7.22 $ 6.92 $ 7.31
Total cash cost
($'s per ounce)(1) $ 3.90 $ 3.90 $ 3.90 $ 3.90 $ 3.90
Net earnings ($000's) $ 7,009 $ 6,378 $ 6,722 $ 5,182 $ 25,291
Basic and diluted
earnings per share $ 0.04 $ 0.04 $ 0.04 $ 0.03 $ 0.15
Cash flow from
operations ($000's) $ 7,654 $ 7,947 $ 9,253 $ 5,150 $ 30,004
(1) Refer to discussion on Non-GAAP measures
December 31 August 31 May 31 February 29
2004 2004 2004 2004
(4 Months) (3 Months) (3 Months) (3 Months)
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Silver sales
($000's) $ 10,986 $ - $ - $ -
Ounces (000's) 1,505 - - -
Average realized
silver price
($'s per ounce) $ 7.30 $ - $ - $ -
Total cash cost
($'s per ounce)(1) $ 3.90 $ - $ - $ -
Net earnings (loss)
($000's) $ 1,765 $ (16) $ (20) $ (152)
Basic and diluted
earnings (loss)
per .share $ 0.02 $ (0.01) $ (0.01) $ (0.09)
Cash flow from
(used in)
operations
($000's) $ 8,356 $ (29) $ (19) $ 8
(1) Refer to discussion on Non-GAAP measures
During the three months ended December 31, 2005, the Company realized record net earnings of $7.0 million (four months ended December 31, 2004 - $1.8 million) from the sale of 2.2 million ounces of silver (four months ended December 31, 2004 - 1.5 million).
RESULTS OF OPERATIONS AND OPERATIONAL REVIEW
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Twelve Months Ended December 31, 2005
Luismin Zinkgruvan Corporate Total
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Silver sales
($000's) $ 57,406 $ 13,489 $ - $ 70,895
Ounces (000's) 7,886 1,816 - 9,702
Average realized
silver price
($'s per ounce) $ 7.28 $ 7.43 $ - $ 7.31
Total cash cost
($'s per ounce)(1) $ 3.90 $ 3.90 $ - $ 3.90
Net earnings (loss)
($000's) $ 23,721 $ 3,335 $ (1,765) $ 25,291
(1) Refer to discussion on Non-GAAP measures
Four Months Ended December 31, 2004
Luismin Zinkgruvan Corporate Total
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Silver sales
($000's) $ 10,175 $ 811 $ - $ 10,986
Ounces (000's) 1,387 118 - 1,505
Average realized
silver price
($'s per ounce) $ 7.34 $ 6.89 $ - $ 7.30
Total cash cost
($'s per ounce)(1) $ 3.90 $ 3.90 $ - $ 3.90
Net earnings (loss)
($000's) $ 4,179 $ 140 $ (2,554) $ 1,765
(1) Refer to discussion on Non-GAAP measures
The Company has three business segments, the Luismin contract, the Zinkgruvan contract and corporate operations. Luismin On October October: see month. 15, 2004, a 100% subsidiary of the Company, Silver Wheaton (Caymans) Ltd. ("SW Caymans"), entered into an agreement to purchase all of the silver produced by Goldcorp's Luismin mining operations in Mexico. During 2005, SW Caymans purchased 7.9 million ounces (four months ended December 31, 2004 - 1.4 million ounces) of silver under the contract at a total cash cost of $3.90 per ounce ounce, in zoology ounce, in zoology: see leopard. ounce, unit of measurement ounce: see English units of measurement. , and sold it for an average price of $7.28 per ounce (four months ended December 31, 2004 - $7.34 per ounce). The Company's cash flows and net earnings under the Luismin silver contract for 2005 were $26.5 million (four months ended December 31, 2004 - $4.8 million) and $23.7 million (four months ended December 31, 2004 - $4.2 million), respectively. During 2005, an aggressive exploration and development program was carried out at Luismin's San Dimas mine. This program has been successful with deep and on-strike extensions of the central block veins and new discoveries, including the Itzel vein system and the Paula PAULA Possession of Alcohol Under the Legal Age and Nancy Nancy (näNsē`), city (1990 pop. 102,410), capital of Meurthe-et-Moselle dept., NE France, on the Meurthe River and the Marne-Rhine Canal. It is the administrative, economic, and educational center of Lorraine. veins. At December 31, 2004, the Luismin mines had proven and probable PROBABLE. That which has the appearance of truth; that which appears to be founded in reason. reserves of 40.3 million ounces of silver and inferred resources of 145.6 million ounces of silver. Luismin has historically converted resources into reserves at a rate of approximately 90%. The results of the Luismin mine operations for the years ended December 31, 2005 and 2004 are shown below:
2005
Q4 Q3 Q2 Q1
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Ore milled (tonnes) 250,600 244,000 218,700 199,000
Grade (grams/tonne)
- Gold 5.57 5.55 6.23 6.59
- Silver 298.02 331.51 310.35 334.63
Recovery (%)
- Gold 94% 94% 95% 95%
- Silver 88% 88% 91% 88%
Production (ounces)
- Gold 42,200 41,000 41,800 40,000
- Silver 1,855,700 2,005,700 1,974,400 1,894,000
Sales (ounces)
- Gold 42,200 39,100 44,000 38,300
- Silver 1,819,800 2,003,800 2,088,000 1,974,400
2004
Q4 Q3 Q2 Q1
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Ore milled (tonnes) 199,900 187,800 192,600 209,800
Grade (grams/tonne)
- Gold 5.35 5.95 5.61 5.19
- Silver 280.28 326.23 302.17 266.00
Recovery (%)
- Gold 94% 95% 95% 94%
- Silver 88% 91% 89% 90%
Production (ounces)
- Gold 32,300 34,200 33,300 32,700
- Silver 1,586,900 1,798,700 1,664,400 1,615,500
Sales (ounces)
- Gold 32,800 33,400 33,500 32,400
- Silver 1,615,100 1,792,000 1,654,500 1,612,900
Since October 15, 2004, all silver produced by Luismin has been sold to Silver Wheaton Corp at a price of $3.90 per ounce. On February 13, 2006, Silver Wheaton announced that it has agreed to amend its existing silver purchase agreement in connection with Goldcorp's plans to substantially increase its investment in exploration and development at its San Dimas mine in Mexico.As a result of the planned exploration and development at San Dimas, Silver Wheaton and Goldcorp anticipate that additional silver sales will aggregate more than 100 million ounces over the remaining 24 year term of the silver purchase agreement.It is projected that Silver Wheaton's annual silver sales will increase to approximately 11.5 million ounces for 2006, 2007 and 2008, increasing to 15 million ounces per annum thereafter. Under the existing silver purchase agreement dated October 15, 2004, Silver Wheaton is entitled to purchase all of the silver produced by Goldcorp's Mexican Mexican named after or originating in Mexico. Mexican axolotl see ambystomamexicanum. Mexican beaded lizard (Heloderma horridum operations, Luismin, for a per ounce cash payment of the lesser of US$3.90 and the prevailing market price (subject to an inflationary in·fla·tion·ar·y adj. Of, associated with, or tending to cause inflation: inflationary prices; inflationary policies. Adj. 1. adjustment commencing in 2007).Further, Luismin is required to deliver a minimum of 120 million ounces over the 25 year contract period and Silver Wheaton is obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. to pay 50% of any capital expenditures made by Luismin at its mining operations in excess of 110% of the projected capital expenditures outlined in the agreement. Goldcorp and Silver Wheaton have agreed to amend the existing agreement, increasing the minimum number of ounces of silver to be delivered over the 25 year contract period by 100 million ounces, to 220 million ounces, and waiving any capital expenditure contributions previously required to be paid by Silver Wheaton.In consideration for these amendments, Silver Wheaton will issue to Goldcorp 18 million common shares representing 9.8% of the outstanding shares of Silver Wheaton, and a US$20 million promissory note promissory note, unconditional written promise to pay a certain sum of money at a definite time to bearer or to a specified person on his order. Promissory notes are generally used as evidence of debt. , increasing Goldcorp's ownership to 62%, or 126 million common shares of Silver Wheaton.Goldcorp does not have any present intention to acquire ownership of, or control over, any additional securities of Silver Wheaton. The total consideration of US$150 million is equal to the approximate ap·prox·i·mate v. To bring together, as cut edges of tissue. adj. 1. Relating to the contact surfaces, either proximal or distal, of two adjacent teeth; proximate. 2. Close together. value of Silver Wheaton's share of the future capital expenditures estimated over the remaining life of the existing agreement. Production of silver at the Luismin mines, which in 2005 approximated 8 million ounces, is expected to average approximately 9.5 million ounces for 2006, 2007 and 2008, increasing to 13 million ounces per annum thereafter. As a result of the amendment to the silver purchase agreement, Silver Wheaton will not be required to fund its 50% share of the increased capital expenditures planned by Goldcorp and will preserve its cash resources to fund growth opportunities. Zinkgruvan On December 8, 2004, SW Caymans entered into an agreement to purchase all of the silver produced by Lundin Mining's Zinkgruvan mining operations in Sweden ("Zinkgruvan"). During 2005, SW Caymans purchased 1.7 million ounces (four months ended December 31, 2004 - 0.2 million ounces) of silver under the contract at a total cash cost of $3.90 per ounce, and sold 1.8 million ounces (four months ended December 31, 2004 - 0.1 million ounces) for an average price of $7.43 per ounce (four months ended December 31, 2004 - $6.89 per ounce). The Company's cash flows and net earnings under the Zinkgruvan silver contract for 2005 were $4.3 million (four months ended December 31, 2004 - $0.4 million) and $3.3 million (four months ended December 31, 2004 - $0.1 million), respectively. As at December 31, 2004, Zinkgruvan had proven and probable silver reserves of 28.7 million ounces, measured and indicated resources of 8.1 million ounces and inferred silver resources of 27.5 million ounces. The Zinkgruvan mine is expected to produce approximately 2 million ounces of silver annually for a minimum of 20 years, and is one of the lowest cost zinc zinc, metallic chemical element; symbol Zn; at. no. 30; at. wt. 65.38; m.p. 419.58°C;; b.p. 907°C;; sp. gr. 7.133 at 25°C;; valence +2. Zinc is a lustrous bluish-white metal. It is found in Group 12 of the periodic table. mines in the world. The mine is located in south-central Adj. 1. south-central - situated in the southern part of a centrally located area in some geographical region; "south-central London" south - situated in or facing or moving toward or coming from the south; "the south entrance" 2. Sweden and has been in production on a continuous basis since 1857.
CORPORATE
December 31 December 31 August 31 August 31
(US dollars 2005 2004 2004 2003
in thousands) (12 Months) (4 Months) (12 Months) (12 Months)
--------------------------------------------------------------------
General and
administrative $ 1,980 $ 381 $ 45 $ 17
Stock based
compensation 463 5,046 10 -
Project evaluation 91 69 - -
Interest income (705) (255) - -
Foreign exchange
gain (64) (2,687) - -
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Corporate net loss $ 1,765 $ 2,554 $ 55 $ 17
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General and administrative expenses totaled $1,980,000 during 2005 (four months ended December 31, 2004 - $381,000), including $416,000 (four months ended December 31, 2004 - $131,800) paid to Goldcorp for management and administrative services at cost. Also included in general and administrative expenses were professional service fees, including legal, accounting and audit fees, totaling $415,000 (four months ended December 31, 2004 - $100,000), salary expenses of $312,000 (four months ended December 31, 2004 - $nil), and investor relations Investor relations The process by which the corporation communicates with its investors. and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. fees of $254,000 (four months ended December 31, 2004 - $54,000). Total general and administrative expenses for the twelve months ended December 31, 2005 were higher than for the four months ended December 31, 2004, because of a full year of operations in 2005 compared to the four month period ended December 31, 2004 for which substantial operations did not commence until October 15, 2004. The non-cash stock based compensation expense has been estimated using the Black-Scholes option valuation method to determine the fair value of the share purchase options granted. Interest income during 2005 of $705,000 (four months ended December 31, 2004 - $255,000) was the result of interest on cash balances held in short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. money market instruments Money market instruments See: Cash investments . Project evaluation expenses of $91,000 (four months ended December 31, 2004 - $69,000) were incurred in pursuing additional silver acquisition opportunities. Project evaluation expenses will continue to be incurred for the foreseeable fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. future. During 2005, a foreign exchange gain of $64,000 (four months ended December 31, 2004 - $2,687,000) was realized, as a result of the Company holding a portion of its cash balances in Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents , while the Canadian dollar increased in value against the US dollar (the Company's functional currency). Non GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measures - total cash costs per ounce of silver calculation Silver Wheaton has included, throughout this document, certain non-GAAP performance measures including total cash costs of silver on a sales basis. These non-GAAP measures do not have any standardized standardized pertaining to data that have been submitted to standardization procedures. standardized morbidity rate see morbidity rate. standardized mortality rate see mortality rate. meaning nor are they necessarily comparable with similar measures presented by other companies. Cash costs are presented as they represent an industry standard method of comparing certain costs on a per unit basis. The Company believes that certain investors use this information to evaluate the Company's performance. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. During 2005, the Company's total cash costs were $3.90 per ounce of silver. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2005 the Company had cash and cash equivalents of $117.7 million (December 31, 2004 - $20.0 million) and working capital of $118.7 million (December 31, 2004 - $18.1 million). During 2005, the Company generated operating cash flows of $30.0 million (four months ended December 31, 2004 - $8.4 million). In the opinion of management, the working capital at December 31, 2005, together with cash flows from operations, are sufficient to support the Company's normal operating requirements on an ongoing basis. During the year ended December 31, 2005, the Company received proceeds of $2.0 million (four months ended December 31, 2004 - $nil) from the exercise of 710,000 (four months ended December 31, 2004 - nil) share purchase options at a weighted average exercise price of Cdn$3.27 per option. As of February 13, 2006, there were 183,761,000 outstanding common shares, 6,042,300 share purchase options and 165,620,000 share purchase warrants, which are convertible into 39,374,200 shares. Public offering On December 22, 2005, the Company raised gross proceeds of $86.2 million (Cdn$100.0 million) from a public offering of 15,625,000 subscription receipts at a price of Cdn$6.40 per unit. Each of the subscription receipts was automatically converted without payment of additional consideration into one common share, and one-half of one Series "B" warrant (TSX:SLW.WT.B) of the Company. Each Series B warrant entitles the holder to purchase one common share at a price of Cdn$10.00 per share for a period of 5 years expiring ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. December 22, 2010. Share issue costs amounted to $4.3 million. Investment in Bear Creek On August 11, 2005, the Company acquired 4,821,905 common shares of Bear Creek Mining Corporation (TSX VENTURE:BCM) on the open market at a price of Cdn$3.03 per share, for total consideration of $12.2 million (Cdn$14.6 million). In addition, on August 30, 2005, the Company acquired by way of private placement, 540,000 units of Bear Creek at a price of Cdn$3.25 per unit for total consideration of $1.5 million (Cdn$1.8 million). The units are comprised of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of Bear Creek at a price of Cdn$4.25 for a period of two years from the transaction close date. As a result, Silver Wheaton owns approximately 15% of Bear Creek's total issued and outstanding shares. Bear Creek is earning a 70% interest in the Corani silver project in Peru through continued expenditures and payments. To date, 23 trenches and over 70 drillholes have outlined significant silver mineralization Mineralization The process by which the body uses minerals to build bone structure. Mentioned in: Rickets mineralization, n the bioprecipitation of an inorganic substance. over a large surface area, with a resource estimate expected in Q1 2006. Bear Creek is continuing to advance the project with drilling, environmental and social studies, and metallurgical met·al·lur·gy n. 1. The science that deals with procedures used in extracting metals from their ores, purifying and alloying metals, and creating useful objects from metals. 2. testing programs. Contractual obligations In connection with the Luismin and Zinkgruvan Transactions, the Company has committed to purchase 100% of the silver produced by each mine for a per-ounce cash payment of the lesser of $3.90 and the then prevailing market price, subject to adjustment. This inflationary adjustment, which will begin in 2007, is intended to reflect the effects of inflation on operating costs operating costs npl → gastos mpl operacionales , and is subject to a minimum of 0.4% and a maximum of 1.65% per annum. Discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. Effective February 25, 2004, the Company sold its subsidiary, Dial, for cash proceeds of Cdn$325,000 to a group that included former directors and shareholders of the Company. Related party transactions At December 31, 2005, Goldcorp owned 58.9% of the Company's outstanding common shares. During 2005, the Company purchased 7.9 million ounces (four months ended December 31, 2004 - 1.4 million ounces) of silver from a subsidiary of Goldcorp at a price of $3.90 per ounce for total consideration of approximately $30.8 million (four months ended December 31, 2004 - $5.4 million). The Company has an agreement with Goldcorp whereby Goldcorp provides management and administrative services at cost. During the year ended December 31, 2005, total management fees paid to Goldcorp were $416,000 (four months ended December 31, 2004 - $131,800). This agreement allows for cancellation cancellation (See: cancel) CANCELLATION. Its general acceptation, is the act of crossing a writing; it is used sometimes to signify the manual operation of tearing or destroying the instrument itself. Hyde v. Hyde, 1 Eq. Cas. Abr. 409; Rob. with 30 days notice at any time. In addition, during 2005, payments made by Goldcorp on the Company's behalf totalled approximately $225,600 (four months ended December 31, 2004 - $1.5 million). At December 31, 2005, the Company did not have any outstanding amounts due to Goldcorp (December 31, 2004 - $1.0 million was owed to Goldcorp). RISKS AND UNCERTAINTIES The main risks that can affect the profitability of the Company include changes in silver prices, currency fluctuations, government regulation, silver supply, foreign operations and income taxes. Silver prices Profitability of the Company depends on silver prices. A $0.50 per ounce change in the price of silver would impact 2006 net earnings by approximately $6 million. Silver prices are affected by numerous factors such as the sale or purchase of silver by various central banks This is a list of central banks. Contents A B C D E F G H I J K L M N O P Q R S T U V W Y Z and financial institutions, interest rates, exchange rates, inflation or deflation deflation: see inflation. deflation Contraction in the volume of available money or credit that results in a general decline in prices. A less extreme condition is known as disinflation. , fluctuations in the value of the US dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of major silver producing countries throughout the world. This risk is mitigated mit·i·gate v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates v.tr. To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve. v.intr. To become milder. through the downside Downside The dollar amount by which the market or a stock has the potential to fall. Notes: You might hear someone say that the downside on stock XYZ is $10. What that means is that the stock could fall by this amount if things got bad. silver price protection provided for in the silver contracts, whereby silver is purchased at the lower of $3.90 per ounce or the market price. Currency fluctuations Exchange rate fluctuations may affect the costs that the Company incurs in its operations. Silver is sold in US dollars and a portion of the Company's costs are incurred in Canadian dollars. From time to time, the Company transacts currency hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. to reduce the risk associated with currency fluctuations. There is no assurance that its hedging strategies will be successful. Currency hedging may require margin activities. Sudden fluctuations in currencies could result in margin calls that could have an adverse effect on the Company's financial position. Government regulations The mining, processing, development and mineral exploration activities of the companies that Silver Wheaton purchases silver from are subject to various laws governing gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. prospecting, development, production, taxes, labour standards and occupational health, mine safety, toxic toxic /tox·ic/ (tok´sik) 1. poisonous. 2. manifesting the symptoms of severe poisoning. tox·ic adj. 1. Of, relating to, or caused by a toxin or other poison. substances, land use, water use, land claims of local people and other matters. No assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner which could result in production disturbances. Silver supply The Company has agreed to purchase all of the silver produced by the Luismin and Zinkgruvan mines. Other than the security interests which have been granted to Silver Wheaton, the Company has no contractual rights A contractual right is a claim, on other persons, that is acknowledged and perhaps reciprocated among the principals associated with that claim. Specialized contractual rights exist as part of a "contract" or agreement between persons to whom these rights belong. relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the operations of Luismin or Zinkgruvan nor does it have any ownership interest in the mines. Other than the penalties payable by Goldcorp and Zinkgruvan to Silver Wheaton if, at the end of the Luismin or Zinkgruvan Guarantee Period, as applicable, the total number of ounces of silver sold to Silver Wheaton is less than the applicable minimum amount, the Company will not be entitled to any compensation if Luismin or Zinkgruvan does not meet its forecasted silver production targets in any specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. period or if Luismin or Zinkgruvan shut down or discontinue dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: their mining operations in Mexico and Sweden, respectively, on a temporary or permanent basis. Foreign operations SW Caymans purchases silver from companies that operate in Mexico and Sweden, and as such the Company's operations are exposed to various levels of political, economic and other risks and uncertainties. These risks and uncertainties vary between the two countries and include, but are not limited to, terrorism terrorism, the threat or use of violence, often against the civilian population, to achieve political or social ends, to intimidate opponents, or to publicize grievances. ; hostage hostage, person held by another as a guarantee that certain actions or promises will or will not be carried out. During periods of internal turmoil, insurgents often seize hostages; recent examples include seizures of Americans and other foreigners by militants in taking; military repression repression, in psychology: see defense mechanism; psychoanalysis. repression In metabolism, a control mechanism by which a protein molecule, called a repressor, prevents the synthesis of an enzyme by binding to (and thus hindering the action of) the ; extreme fluctuations in currency exchange rates; high rates of inflation; labour unrest labour unrest (US), labor unrest n → agitation sociale labour unrest, labor unrest n → agitazioni fpl degli operai ; the risk of war or civil unrest Unrest is a sociological phenomenon, for instance:
Expropriation is the act of a government taking private property; Eminent Domain is the legal term describing the and nationalization nationalization, acquisition and operation by a country of business enterprises formerly owned and operated by private individuals or corporations. State or local authorities have traditionally taken private property for such public purposes as the construction of ; renegotiation or nullification nullification, in U.S. history, a doctrine expounded by the advocates of extreme states' rights. It held that states have the right to declare null and void any federal law that they deem unconstitutional. of existing concessions, licenses, permits and contracts; illegal mining; changes in taxation policies; restrictions on foreign exchange and repatriation Repatriation The process of converting a foreign currency into the currency of one's own country. Notes: If you are American, converting British Pounds back to U.S. dollars is an example of repatriation. ; and changing political conditions, currency controls and governmental regulations that favour Favor or favour (see spelling differences) may be
Failure for these companies to comply strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure tenure, in education tenure, in education, a guarantee of the permanence of a college or university teacher's position, awarded upon successful completion of a probationary period, usually seven years. , could result in loss, reduction or expropriation of entitlements. The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on the Company's operations or profitability. Income taxes All of the Company's silver trading activities are performed by it's it's 1. Contraction of it is. 2. Contraction of it has. See Usage Note at its. it's it is or it has it's be ~have wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. Silver Wheaton (Caymans) Ltd., which is not subject to income taxes. Changes to taxations laws in either Canada or the Cayman Islands Cayman Islands (kā`mən), British dependency (2005 est. pop. 44,300), 100 sq mi (259 sq km), comprising three islands in the West Indies. , could result in some or all of the Company's profits being subject to income tax. No assurance can be given that new taxation rules will not be enacted or that existing rules will not be applied in a manner which could result in the Company's profits being subject to income tax. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities Contingent Liability 1. The possibility of an obligation to pay certain sums dependent on future events. 2. Defined obligations by a company that must be met, but the probability of payment is minimal. Notes: 1. at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period. Note 2 of the Company's consolidated financial statements describes all of the significant accounting policies. Silver contracts Silver contracts are a significant asset of the Company, with a carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of $130.3 million at December 31, 2005. This amount represents the capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. expenditures related to the acquisition of the Luismin and Zinkgruvan silver purchase contracts. Luismin and Zinkgruvan estimate the reserves and resources relating to each contract. Silver Wheaton uses these estimates to determine the estimated number of ounces that will be acquired from each operation and the cost of these assets is separately allocated to reserves, resources and exploration potential. The value allocated to reserves is depreciated Depreciated may refer to:
Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. is recorded with a charge to operations. At December 31, 2005 no write-down was required. The Luismin Transaction resulted in the acquisition of control of Silver Wheaton by Goldcorp. As a result, the cost of the Luismin silver contract has been recorded in Silver Wheaton's books at Goldcorp's book value. Income tax As the Company's profit is derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. from its subsidiary, Silver Wheaton (Caymans) Corp., which is incorporated and operated in the Cayman Islands, the Company's profits bear no tax. Management views the subsidiary's profits as part of its permanent investment in the subsidiary, and it has determined that those profits will be reinvested in foreign jurisdictions for the foreseeable future, therefore, no taxes have been recorded. Revenue recognition Revenue from the sale of silver is recognized in the accounts when title and risk passes to the buyer, collection is reasonably assured and the price is reasonably determinable Liable to come to an end upon the happening of a certain contingency. Susceptible of being determined, found out, definitely decided upon, or settled. determinable adj. . Revenue from the sale of silver may be subject to adjustment upon final settlement of estimated metal prices, weights, and assays. Adjustments to revenue for metal prices are recorded monthly and other adjustments are recorded on final settlement. OUTLOOK The Company expects to sell approximately 11.5 million ounces of silver in each of the years, 2006, 2007 and 2008, increasing to 15.0 million ounces per annum thereafter. The Company is actively pursuing further growth opportunities, either by way of entering into long-term silver purchase contracts, or by acquiring silver exploration, development or production assets. Additional information relating to the Company, including its Annual Information Form, is available on SEDAR SEDAR System for Electronic Document Analysis and Retrieval SEDAR Southeast Data, Assessment, and Review at www.sedar.com. This Management's Discussion & Analysis contains certain forward-looking statements. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding future plans and objectives of the Company are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove accurate, and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company's expectations are disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). in Company documents filed from time to time with the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. and other regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities .
Consolidated Statements of Operations
(US dollars and shares in thousands, except per share amounts)
--------------------------------------------------------------------
Year Four Months Year Year
Ended Ended Ended Ended
December 31 December 31 August 31 August 31
Note 2005 2004 2004 2003
--------------------------------------------------------------------
Silver sales $ 70,895 $ 10,986 $ - $ -
--------------------------------------------------------------------
Cost of sales 37,839 5,870 - -
Depreciation 6,000 797 - -
--------------------------------------------------------------------
43,839 6,667 - -
--------------------------------------------------------------------
Earnings
from
operations 27,056 4,319 - -
--------------------------------------------------------------------
Expenses and
other income
General and
administrative 1,980 381 45 17
Stock based
compensation 6(c) 463 5,046 10 -
Project
evaluation 91 69 - -
Interest
income (705) (255) - -
Foreign
exchange
gain (64) (2,687) - -
--------------------------------------------------------------------
1,765 2,554 55 17
--------------------------------------------------------------------
Earnings
(loss)
before
discontinued
operations 25,291 1,765 (55) (17)
--------------------------------------------------------------------
(Loss) earnings
from
discontinued
operations 12 - - (96) 76
--------------------------------------------------------------------
Net earnings
(loss) $ 25,291 $ 1,765 $ (151) $ 59
--------------------------------------------------------------------
--------------------------------------------------------------------
Basic and
diluted
earnings
(loss)
per share
from
continuing
operations $ 0.15 $ 0.02 $ (0.03) $ (0.01)
Basic and
diluted
earnings
(loss)
per share
from
discontinued
operations $ 0.00 $ 0.00 $ (0.06) $ 0.04
Basic and
diluted
earnings
(loss)
per share $ 0.15 $ 0.02 $ (0.09) $ 0.03
Weighted
average
number
of shares
outstanding
- basic 167,538 96,606 1,723 1,720
- diluted 170,987 97,485 1,723 1,720
The accompanying notes form an integral part of these consolidated
financial statements.
Consolidated Balance Sheets
(US dollars and shares in thousands)
--------------------------------------------------------------------
December 31 December 31 August 31
Note 2005 2004 2004
--------------------------------------------------------------------
Assets
Current
Cash and cash
equivalents $ 117,741 $ 19,989 $ 320
Cash in escrow - - 53,163
Accounts receivable 2,491 163 8
Silver inventory 383 478 -
Other 44 49 -
--------------------------------------------------------------------
120,659 20,679 53,491
Long-term investments 4 15,069 - -
Silver contracts 5 130,254 136,254 -
Other 169 55 -
--------------------------------------------------------------------
$ 266,151 $156,988 $ 53,491
--------------------------------------------------------------------
--------------------------------------------------------------------
Liabilities
Current
Accounts payable $ 1,761 $ 2,496 $ 3,320
Accrued liabilities 200 61 -
--------------------------------------------------------------------
1,961 2,557 3,320
Shareholders' Equity
Share purchase options 4,953 5,046 8
Restricted share units 26 - -
Subscription receipts - - 49,855
Warrants 6(b) 38,867 28,579 -
Share capital
Common shares
Authorized: unlimited
shares, no par value;
Issued and outstanding:
183,375
(December 31, 2004
- 167,010;
August 31, 2004
- 1,740) 6 193,711 119,464 731
Retained earnings
(deficit) 26,633 1,342 (423)
--------------------------------------------------------------------
264,190 154,431 50,171
--------------------------------------------------------------------
$ 266,151 $156,988 $ 53,491
--------------------------------------------------------------------
--------------------------------------------------------------------
Commitments (Note 10) and Subsequent Events (Note 13)
Approved by the Board
Eduardo Luna, Director
Ian Telfer, Director
The accompanying notes form an integral part of these consolidated
financial statements.
Consolidated Statements of Cash Flows
(US dollars in thousands)
--------------------------------------------------------------------
Year Four Months Year Year
Ended Ended Ended Ended
December 31 December 31 August 31 August 31
Note 2005 2004 2004 2003
--------------------------------------------------------------------
Operating
Activities
Net earnings
(loss) from
continuing
operations $ 25,291 $ 1,765 $ (55) $ (17)
Items not
affecting
cash
Depreciation 6,000 797 - -
Project
evaluation
costs
written
off 54 - - -
Stock based
compensation 6(c) 463 5,046 10 -
Other 39 - - -
Change in
non-cash
working
capital 7 (1,843) 748 1 2
--------------------------------------------------------------------
Cash generated
by
(applied to)
operating
activities 30,004 8,356 (44) (15)
Financing
Activities
Shares issued 86,219 104,202 11 -
Share issue
costs (4,816) (6,145) - -
Warrants
exercised 100 - - -
Share purchase
options
exercised 1,979 - - -
--------------------------------------------------------------------
Cash generated
by financing
activities 83,482 98,057 11 -
Investing
Activities
Purchase of
long-term
investments (15,069) - - -
Silver contracts (483) (86,744) - -
Other (182) - - -
--------------------------------------------------------------------
Cash applied
to investing
activities (15,734) (86,744) - -
Cash flows
from
discontinued
operations
Sale of
discontinued
operations - - 247 -
Advances from
discontinued
operations - - 14 17
--------------------------------------------------------------------
- - 261 17
--------------------------------------------------------------------
Increase in
cash and
cash
equivalents 97,752 19,669 228 2
Cash and cash
equivalents,
beginning of
period 19,989 320 92 90
--------------------------------------------------------------------
Cash and cash
equivalents,
end of
period $ 117,741 $ 19,989 $ 320 $ 92
--------------------------------------------------------------------
--------------------------------------------------------------------
At December 31, 2005, the Company's cash and cash equivalents consisted of $8,827,000 in cash and $108,914,000 in cash equivalents. The Company paid no interest or income taxes for the year ended December 31, 2005, the four months ended December 31, 2004 and the years ended August 31, 2004 and 2003. The accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. notes form an integral part of these consolidated financial statements.
Consolidated Statements of Shareholders' Equity
(US dollars and shares in thousands)
--------------------------------------------------------------------
Common Shares Warrants
Shares Amount Warrants Amount
--------------------------------------------------------------------
At August 31, 2002 1,720 $ 718 - $ -
Net earnings - - - -
--------------------------------------------------------------------
At August 31, 2003 1,720 718 - -
Subscription receipts - - - -
Share purchase options
exercised 20 13 - -
Fair value of share purchase
options issued - - - -
Net loss - - - -
--------------------------------------------------------------------
At August 31, 2004 1,740 731 - -
Shares issued 165,200 125,481 - -
Share issue costs - (6,790) - -
Share purchase options
exercised 70 42 - -
Warrants issued - - 158,000 28,579
Fair value of share
purchase options issued - - - -
Net earnings - - - -
--------------------------------------------------------------------
At December 31, 2004 167,010 119,464 158,000 28,579
Public offering 15,625 75,902 7,813 10,317
Share issue costs - (4,319) - -
Fair value of share
purchase options issued - - - -
Fair value of restricted
share units issued - - - -
Share purchase options
exercised 710 2,535 - -
Warrants exercised 30 129 (150) (29)
Net earnings - - - -
--------------------------------------------------------------------
At December 31, 2005 183,375 $193,711 165,663 $38,867
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
Re-
Share stricted Subscrip- Retained
Purchase Share tion Earnings
Options Units Receipts (Deficit) Total
--------------------------------------------------------------------
At August 31, 2002 $ - $ - $ - $ (331) $ 387
Net earnings - - - 59 59
--------------------------------------------------------------------
At August 31, 2003 - - - (272) 446
Subscription
receipts - - 49,855 - 49,855
Share purchase
options exercised (2) - - - 11
Fair value of
share purchase
options issued 10 - - - 10
Net loss - - - (151) (151)
--------------------------------------------------------------------
At August 31, 2004 8 - 49,855 (423) 50,171
Shares issued - - (49,855) - 75,626
Share issue costs - - - - (6,790)
Share purchase
options exercised (8) - - - 34
Warrants issued - - - - 28,579
Fair value of
share purchase
options issued 5,046 - - - 5,046
Net earnings - - - 1,765 1,765
--------------------------------------------------------------------
At December 31, 2004 5,046 - - 1,342 154,431
Public offering - - - - 86,219
Share issue costs - - - - (4,319)
Fair value of
share purchase
options issued 463 - - - 463
Fair value of
restricted share
units issued - 26 - - 26
Share purchase
options exercised (556) - - - 1,979
Warrants exercised - - - - 100
Net earnings - - - 25,291 25,291
--------------------------------------------------------------------
At December 31, 2005 $ 4,953 $ 26 $ - $ 26,633 $264,190
--------------------------------------------------------------------
--------------------------------------------------------------------
The accompanying notes form an integral part of these consolidated
financial statements.
Notes to the Consolidated Financial Statements
Year Ended December 31, 2005, Four Months Ended December 31, 2004
and Years Ended August 31, 2004 and 2003
(US dollars)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS Silver Wheaton Corp. ("Silver Wheaton" or "the Company") is engaged in the silver mining business. On October 15, 2004, the Company entered into an agreement to purchase all of the silver produced by Wheaton River Minerals Ltd.'s ("Wheaton River") Luismin mining operations in Mexico for a payment equal to the lesser of US$3.90 or the prevailing market rate per ounce of delivered silver, subject to adjustment (Note 3). On April 15, 2005, Wheaton River amalgamated a·mal·ga·mate v. a·mal·ga·mat·ed, a·mal·ga·mat·ing, a·mal·ga·mates v.tr. 1. To combine into a unified or integrated whole; unite. See Synonyms at mix. 2. with Goldcorp Inc. to form Goldcorp Inc. ("Goldcorp") and the silver purchase agreement with Silver Wheaton was assumed by Goldcorp. In addition, on December 8, 2004, the Company entered into an agreement to purchase all of the silver produced by Lundin Mining Corporation's Zinkgruvan mine in Sweden for a payment equal to the lesser of US$3.90 or the prevailing market rate per ounce of delivered silver, subject to adjustment (Note 3). The Company began trading on the Toronto Stock Exchange (TSX) on October 22, 2004 and on the American Stock Exchange American Stock Exchange (AMEX) Stock exchange in the U.S. Originally known as “the Curb,” it began as an outdoor marketplace in New York City c. 1850. It moved indoors to its present location in the Wall Street area in 1921. (AMEX) on July 6, 2005, under the symbol SLW. In December, 2004, the Company's name was changed from Chap Mercantile Relating to trade or commerce; commercial; having to do with the business of buying and selling; relating to merchants. A mercantile agency is an individual or company in the business of collecting data about the financial status, ability, and credit of individuals Inc to Silver Wheaton Corp. and the outstanding shares were consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: on a 5 for 1 basis. The year end of the Company was changed from August 31 to December 31 and as a result, the comparative figures are for the four months ended December 31, 2004 and the years ended August 31, 2004 and 2003. 2. ACCOUNTING POLICIES (a) Canadian generally accepted accounting principles These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). A reconciliation of Canadian GAAP and accounting principles generally accepted in the United States ("US GAAP") is provided in Note 13. (b) Principles of consolidation The consolidated financial statements include the accounts of the Company and its 100% owned subsidiary Silver Wheaton (Caymans) Ltd. The Company's former subsidiary, Dial Locksmith Ltd ("Dial"), was consolidated to the date of disposal, February 25, 2004. (c) Silver contracts Contracts for which settlement is called for in silver are recorded at cost. The cost of these assets is separately allocated to reserves, resources and exploration potential. The value allocated to reserves is depreciated on a unit-of-sale basis over the estimated recoverable reserves at the mine corresponding to the specific contract. Evaluations of the carrying values of each contract are undertaken in each reporting period to determine if estimated undiscounted future net cash flows are less than the carrying value. Estimated undiscounted future net cash flows are calculated using estimated production, sales prices and purchase costs. If it is determined that the future net cash flows from an operation are less than the carrying value then a write-down is recorded with a charge to operations. (d) Discontinued operations The Company disposed dis·pose v. dis·posed, dis·pos·ing, dis·pos·es v.tr. 1. To place or set in a particular order; arrange. 2. of Dial effective February 25, 2004. (e) Change in functional and reporting currency Reporting Currency The currency used in published reports and financial documents. Notes: All annual and quarterly reports state the currency in which their results are listed. Effective September September: see month. 1, 2004, the functional currency of the Company was changed from the Canadian to the United States dollar. This resulted from a change in the nature of the business as all sales and the majority of expenses occur in United States dollars. Concurrent At the same time. It implies that multiple processes are taking place simultaneously. See concurrent operation. with this change in functional currency, the Company adopted the United States dollar as its reporting currency. In accordance with Canadian GAAP, the change was effected by translating assets and liabilities, at the end of prior reporting periods, at the existing United States/Canadian dollar foreign exchange spot rate, while earnings, losses and shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. were translated at historic rates. (f) Foreign currency translation Foreign currency monetary assets and liabilities Monetary assets and liabilities Assets and liabilities with contractual payoffs. are translated into United States dollars at the exchange rates prevailing at the balance sheet date. Non-monetary assets denominated in foreign currencies are translated using the rate of exchange at the transaction date. Foreign currency transactions are translated at the United States dollar rate prevailing on the transaction dates. Foreign exchange gains and losses are included in the determination of earnings. (g) Income taxes The future income tax asset and liability method of accounting for income taxes is used. As the Company's profit is derived from its subsidiary, Silver Wheaton (Caymans) Ltd., which is incorporated and operated in the Cayman Islands, the Company's profits bear no tax. Management views the subsidiary's profits as part of its permanent investment in the subsidiary, and it has determined that those profits will be reinvested in foreign jurisdictions for the foreseeable future, therefore, no taxes have been recorded. (h) Use of estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets Contingent Asset An asset in which the possibility of ownership depends solely upon future events uncontrollable by the company. Notes: An example might be a settlement from a lawsuit. See also: Asset, Balance Sheet, Contingent Liability, Liability and liabilities as at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant areas where management's judgment is applied are asset valuations, depreciation, and income taxes. Actual results could differ from those reported. (i) Stock-based compensation The fair value of all stock-based awards granted are estimated using the Black-Scholes model and are recorded in operations. The compensation cost related to stock options granted to employees and directors is recorded in the consolidated statements of operations. The Company did not issue stock options prior to the year ended August 31, 2003. (j) Financial instruments The carrying values of cash and cash equivalents, marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has , accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , accounts payable and accrued liabilities Accrued liabilities are liabilities which have occurred, but have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. approximate their fair values due to their short term nature. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risk arising from these financial instruments. (k) Long-term investments Long-term investments are carried at cost. When there is decline in market value that is other than temporary, these investments are written down to provide for the loss. (l) Revenue recognition Revenue from the sale of silver is recognized in the accounts when title and risk passes to the buyer, collection is reasonably assured and the price is reasonably determinable. Revenue from the sale of silver may be subject to adjustment upon final settlement of estimated metal prices, weights, and assays. Adjustments to revenue for metal prices are recorded monthly and other adjustments are recorded on final settlement. (m) Earnings per share Earnings per share calculations are based on the weighted average number of common shares and common share equivalents issued and outstanding during the period. Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of are calculated using the treasury method which requires the calculation of diluted earnings per share by assuming that outstanding share purchase options and warrants, with an average market price that exceeds the average exercise prices of the options and warrants for the year, are exercised and the proceeds are used to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. shares of the Company at the average market price of the common shares for the period. (n) Cash and cash equivalents Cash and cash equivalents include cash, and those short-term money market instruments that are readily convertible to cash with an original term to maturity of less than 91 days. (o) Silver inventory Silver inventory is valued at the lower of average cost and net realizable value Net realizable value (NRV) is a commonly used method of evaluating an asset's worth in the field of inventory accounting. NRV is part of GAAP rules that apply to valuing inventory, so as to not overstate or understate the value of inventory goods. . 3. ACQUISITIONS (a) Luismin silver contract On October 15, 2004, the Company entered into a twenty five year agreement to purchase all of the silver produced by Goldcorp's Luismin mining operations in Mexico, for an upfront payment of $36.7 million (Cdn$46.0 million) in cash and 108 million common shares (post-consolidation) of the Company. In addition, a per ounce cash payment of the lesser of $3.90 and the prevailing market price, subject to adjustment, is due (the "Luismin Transaction"). Under the agreement Luismin is required to deliver a minimum of 120 million ounces over the 25 year period following the contract date. If the actual amount of silver delivered is less than this minimum, a penalty of $0.50 per ounce of the shortfall Shortfall The amount by which the capital required to fulfill a financial obligation exceeds available capital. Notes: Shortfall risk is often combated with an efficient hedging strategy created by a fund, group, institution, or individual. is payable. In addition, under the agreement, Silver Wheaton will be obligated to pay 50% of any capital expenditures made by Luismin at its mining operations in excess of 110% of the projected capital expenditures outlined in the contract, however, these costs will be reimbursed during periods where actual capital expenditures fall below 90% of projected capital expenditures. If Silver Wheaton or Goldcorp acquires a direct or indirect interest in a precious metal exploration or development property situated anywhere in Mexico, which it does not currently own an interest in, and the property becomes the subject of a positive feasibility study The analysis of a problem to determine if it can be solved effectively. The operational (will it work?), economical (costs and benefits) and technical (can it be built?) aspects are part of the study. Results of the study determine whether the solution should be implemented. or consists of active mining operations within a period of three years from the date of the contract, then the owner of the interest must offer the other party the opportunity to purchase and participate in the project so the resulting project ownership would be Goldcorp 51% / Silver Wheaton 49% and Goldcorp will be entitled to become operator of the project. For a period of three years, Goldcorp, so long as it owns at least 20% of the outstanding shares of the Company, has the right to maintain its pro-rata Pro-rata Used to describe a proportionate allocation. Notes: For example, a pro-rata dividend means that every shareholder gets an equal proportion for each share they own. See also: Dividend interest in Silver Wheaton should Silver Wheaton issue any additional Silver Wheaton shares pursuant to an equity financing Equity Financing The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. or otherwise. The allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of the purchase price is summarized in the table below:
(in thousands)
Purchase Price
Cash $ 36,744
Shares 21,958
Acquisition costs 430
--------------------------------
$ 59,132
--------------------------------
--------------------------------
The Luismin Transaction resulted in the acquisition of control of Silver Wheaton by Goldcorp. As a result, the cost of the Luismin silver contract was recorded in Silver Wheaton's books at Goldcorp's book value, plus acquisition costs of $430,000. In February, 2006, Silver Wheaton agreed to amend the terms of the silver purchase agreement (Note 13). (b) Zinkgruvan silver contract On December 8, 2004, the Company entered into an agreement to purchase all of the silver produced by Lundin Mining Corporation's Zinkgruvan mine in Sweden for an upfront payment of $50 million in cash, 6 million Silver Wheaton common shares (post-consolidation) and 30 million Silver Wheaton common share purchase warrants. In addition, a per ounce cash payment of the lesser of $3.90 and the prevailing market price, subject to adjustment, is due (the "Zinkgruvan Transaction"). Under the agreement Zinkgruvan is required to deliver a minimum of 40 million ounces over the 25 year period following the contract date. If the actual amount of silver delivered is less than this minimum, a penalty of $1.00 per ounce of the shortfall is payable. In addition, under the Zinkgruvan agreement, the Company is not liable liable adj. responsible or obligated. Thus, a person or entity may be liable for damages due to negligence, liable to pay a debt, liable to perform an act for which he/she/it contracted to do, or liable to punishment for commission of a crime. for any capital asset expenditures. Each warrant grants the holder the right to purchase 0.20 of one of the Company's post-consolidation common shares. The Warrants have been recorded at their fair value, which has been determined using the Black-Scholes option pricing model option pricing model A mathematical formula for determining the price at which an option should trade. The model expresses the value of an option as a function of the value of the underlying asset, length of time until maturity, exercise price, yields on assuming no dividends are to be paid, a weighted average volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the of the Company's share price of 40%, an annual risk free interest rate of 3.0% and expected lives of three years. The Zinkgruvan mine is expected to produce approximately 2 million ounces of silver annually for a minimum of 20 years. The allocation of the purchase price is summarized in the table below:
(in thousands)
Purchase Price
Cash $ 50,000
Shares and warrants 27,866
Acquisition costs 53
--------------------------------
$ 77,919
--------------------------------
--------------------------------
4. LONG-TERM INVESTMENTS
December 31, 2005
Book Market Unrealized
(in thousands) Value Value Gains
--------------------------------------------------------------------
Bear Creek Mining Corporation $ 13,696 $ 20,105 $ 6,409
Other 1,373 1,544 171
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$ 15,069 $ 21,649 $ 6,580
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--------------------------------------------------------------------
On August 11, 2005, the Company acquired 4,821,905 common shares of Bear Creek Mining Corporation (TSX VENTURE:BCM) ("Bear Creek") on the open market at a price of Cdn$3.03 per share, for total consideration of $12.2 million (Cdn$14.6 million). In addition, on August 30, 2005, the Company acquired by way of private placement, 540,000 units of Bear Creek at a price of Cdn$3.25 per unit for total consideration of $1.5 million (Cdn$1.8 million). The units are comprised of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of Bear Creek at a price of Cdn$4.25 for a period of two years from the transaction close date. As a result, Silver Wheaton owns approximately 15% of Bear Creek's total issued and outstanding shares. The market value of Bear Creek includes the estimated value of the warrants acquired as part of the private placement, which have been valued using a binomial option pricing model Binomial Option Pricing Model A simple model used to price options that reduces possibilities of price changes, removes the possibility for arbitrage, assumes a perfectly efficient market, and shortens the duration of the option. .
5. SILVER CONTRACTS
2005
Accumulated
(in thousands) Cost Depreciation Net
--------------------------------------------------------------
Luismin $ 59,132 $ (3,517) $ 55,615
Zinkgruvan 77,919 (3,280) 74,639
--------------------------------------------------------------
$ 137,051 $ (6,797) $ 130,254
--------------------------------------------------------------
--------------------------------------------------------------
2004
Accumulated
(in thousands) Cost Depreciation Net
--------------------------------------------------------------
Luismin $ 59,132 $ (586) $ 58,546
Zinkgruvan 77,919 (211) 77,708
--------------------------------------------------------------
$ 137,051 $ (797) $ 136,254
--------------------------------------------------------------
--------------------------------------------------------------
6. SHAREHOLDERS' EQUITY (a) Shares issued A summary of the Company's issued and outstanding shares at December 31, 2005 and 2004, August 31, 2004 and 2003, and the changes for the periods ending on those dates is presented below:
Number of Price
Shares (Cdn$)
--------------------------------------------------------------------
At August 31, 2003 1,720,000
Options exercised 20,000 $0.75
--------------------------------------------------------------------
At August 31, 2004 1,740,000
Shares issued to Goldcorp in connection
with Luismin Transaction (Note 3(a)) 108,000,000 2.00
Private placement to finance
Luismin Transaction 35,000,000 2.00
Shares issued to Lundin in connection with
Zinkgruvan Transaction (Note 3(b)) 6,000,000 4.25
Private placement to finance
Zinkgruvan Transaction 16,200,000 3.75
Options exercised 70,000 0.75
--------------------------------------------------------------------
At December 31, 2004 167,010,000
Options exercised 710,000 3.27
Warrants exercised 30,000 4.00
Public offering 15,625,000 6.40
--------------------------------------------------------------------
At December 31, 2005 183,375,000
--------------------------------------------------------------------
--------------------------------------------------------------------
On August 5, 2004, in connection with the Luismin Transaction, the Company raised gross proceeds of $53.2 million (Cdn$70 million) from a private placement of 175 million subscription receipts at a price of Cdn$0.40 per unit. On October 22, 2004, each of the subscription receipts was automatically converted without payment of additional consideration into 0.2 common shares (post-consolidation), and one-half of one common share purchase warrant of the Company (TSX:SLW.WT). Five common share purchase warrants entitle en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: the holder to purchase one common share (post-consolidation) at a price of Cdn$4.00 per share for a period of five years expiring August 5, 2009. On November November: see month. 30, 2004, in connection with the Zinkgruvan Transaction, the Company raised gross proceeds of $51.0 million (Cdn$60.75 million) from a private placement of 81 million subscription receipts at a price of Cdn$0.75 per unit. Each subscription receipt was automatically converted without payment of additional consideration into 0.2 Silver Wheaton common shares (post-consolidation) and one-half of one Series "A" common share purchase warrant (TSX:SLW.WT.A) of Silver Wheaton. Five Series "A" warrants entitle the holder to purchase one Silver Wheaton common share (post-consolidation) at a price of Cdn$5.50 until November 30, 2009. On December 21, 2004 the Company's common shares were consolidated on a 5 for 1 basis, reducing the number of common shares outstanding at December 31, 2004 to 167,010,000. On December 22, 2005, the Company raised gross proceeds of $86.2 million (Cdn$100.0 million) from a private placement of 15,625,000 subscription receipts at a price of Cdn$6.40 per unit. Each subscription receipt was automatically converted without payment of additional consideration into one common share and one-half of one Series "B" common share purchase warrant (TSX:SLW.WT.B) of the Company. Each Series B warrant entitles the holder to purchase one common share at a price of Cdn$10.00 per share for a period of 5 years expiring December 22, 2010. (b) Warrants A summary of the Company's warrants at December 31, 2005 and 2004, August 31, 2004 and 2003 and the changes for the periods ending on those dates is presented below:
Weighted
Warrants Avg Exercise Exchange
Outstanding Price (Cdn$) Ratio
---------------------------------------------------------------------
At August 31, 2004 and 2003 -
---------------------------------------------------------------------
Issued in connection with
Luismin private placement 87,500,000 $ 0.80 0.2
Issued in connection with
Zinkgruvan private placement 40,500,000 1.10 0.2
Issued to Lundin in connection
with Zinkgruvan Transaction 30,000,000 0.80 0.2
---------------------------------------------------------------------
At December 31, 2004 158,000,000 0.88 0.2
Issued in connection with
public offering 7,812,500 10.00 1.0
Exercised (150,000) 0.80 0.2
---------------------------------------------------------------------
At December 31, 2005 165,662,500 $ 1.31 0.24
---------------------------------------------------------------------
---------------------------------------------------------------------
At issuance, each share purchase warrant and Series A warrant (TSX:SLW.WT and SLW.WT.A respectively) granted the holder the right to purchase one common share of the Company at the applicable exercise price. On December 21, 2004, the Company's common shares were consolidated 5 for 1. These warrants were not consolidated, resulting in each warrant granting the holder the right to purchase 0.20 of one of the Company's post-consolidation common shares. The Series B warrants were issued after the December 21, 2004 share consolidation, and therefore, each Series B warrant entitles the holder the right to purchase one of the Company's post-consolidation common shares. Warrants issued during the year ended December 31, 2005 and the four months ended December 31, 2004 have been included in shareholders' equity at their fair value of $10.3 million and$28.6 million, respectively. Fair value of the warrants issued during 2005 has been determined using the Black-Scholes option pricing model assuming no dividends are to be paid, a weighted average volatility of the Company's share price of 40%, an annual risk free interest rate of 3.0% and expected lives of five years. The following table summarizes information about the warrants outstanding at December 31, 2005:
Common Shares
to be Effective
Issued upon Price
Exercise Exercise Per
Warrants Price Exchange of Share Expiry
Outstanding (Cdn$) Ratio Warrants (Cdn$) Date
---------------------------------------------------------------------
Share
purchase
warrants 117,350,000 $ 0.80 0.20 23,470,000 $ 4.00 Aug 5,
2009
Series A
Warrants 40,500,000 1.10 0.20 8,100,000 5.50 Nov 30,
2009
Series B
Warrants 7,812,500 10.00 1.00 7,812,500 10.00 Dec 22,
2010
---------------------------------------------------------------------
165,662,500 39,382,500 $ 5.50
---------------------------------------------------------------------
---------------------------------------------------------------------
(c) Share purchase options The Company has established a share purchase option plan whereby the Company's board of directors may from time to time grant options to directors, employees or consultants. The maximum term of any option may be ten years, but generally options are granted for five years or less. The exercise price of an option is not less than the closing price on the TSX on the last trading day Last Trading Day The final day that a futures or options contract may trade or be closed out before delivery of the underlying asset must occur. Notes: If the buying and selling parties do not arrange an alternate agreement, the physical commodity must be delivered from preceding the grant date. Stock-based compensation expense during 2005 of $463,000 (four months ended December 31, 2004 - $5,046,000) was determined using an option pricing model assuming no dividends are to be paid, a weighted average volatility of the Company's share price of 40%, an annual risk free interest rate of 3.0% and expected lives of three years. On December 21, 2004 the Company's common shares were consolidated on a 5 for 1 basis, therefore, all of the option figures below are presented on a consolidated basis. At December 31, 2005 there were 4,330,000 options available for grant under the plan. A summary of the Company's options at December 31, 2005 and 2004, August 31, 2004 and 2003 and the changes for the periods ending on those dates is presented below:
Weighted
Average
Number of Exercise
Shares Price (Cdn$)
---------------------------------------------------------------------
At August 31, 2003 - -
Granted 90,000 $ 0.75
Exercised (20,000) 0.75
---------------------------------------------------------------------
At August 31, 2004 70,000 $ 0.75
Granted 6,500,000 3.26
Exercised (70,000) 0.75
---------------------------------------------------------------------
At December 31, 2004 6,500,000 3.26
Granted 630,000 5.59
Exercised (710,000) 3.27
---------------------------------------------------------------------
6,420,000 $ 3.48
---------------------------------------------------------------------
---------------------------------------------------------------------
The following table summarizes information about the options outstanding and exercisable at December 31, 2005.
Weighted
Average
Remaining
Options Contractual Options
Exercise Prices (Cdn$) Outstanding Life Exercisable
---------------------------------------------------------------------
$3.25 5,870,000 3.8 years 5,870,000
$4.10 20,000 3.9 years 20,000
$6.03 530,000 4.9 years 176,667
---------------------------------------------------------------------
6,420,000 3.9 years 6,066,667
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---------------------------------------------------------------------
7. SUPPLEMENTAL CASH FLOW INFORMATION
December 31 December 31 August 31 August 31
(in thousands) Note 2005 2004 2004 2003
---------------------------------------------------------------------
Change in non-cash
working capital
Accounts receivable $ (2,074) $ (155) $ (8) $ 1
Silver inventory 96 (478) - -
Accounts payable (9) 1,369 9 -
Accrued liabilities 139 61 - -
Other 5 (49) - 1
---------------------------------------------------------------------
$ (1,843) $ 748 $ 1 $ 2
---------------------------------------------------------------------
---------------------------------------------------------------------
Non-cash financing and
investing activities
Shares issued in the
Luismin
Transaction 3(a) $ - $ 21,958 $ - $ -
Shares issued in the
Zinkgruvan
Transaction 3(b) $ - $ 27,866 $ - $ -
8. RELATED PARTY TRANSACTIONS At December 31, 2005, Goldcorp owned 58.9% of the Company's outstanding common shares. During 2005, the Company purchased 7.9 million ounces (four months ended December 31, 2004 - 1.4 million ounces) of silver from a subsidiary of Goldcorp at a price of $3.90 per ounce for total consideration of approximately $30.8 million (four months ended December 31, 2004 - $5.4 million). The Company has an agreement with Goldcorp whereby Goldcorp provides management and administrative services at cost. During the year ended December 31, 2005, total management fees paid to Goldcorp were $416,000 (four months ended December 31, 2004 - $131,800). This agreement allows for cancellation with 30 days notice at any time. In addition, during 2005, payments made by Goldcorp on the Company's behalf totalled approximately $225,600 (four months ended December 31, 2004 - $1.5 million). At December 31, 2005, the Company did not have any outstanding amounts due to Goldcorp (December 31, 2004 - $1.0 million was owed to Goldcorp). 9. INCOME TAXES The provision for income taxes differs from the amount that would be obtained by applying the statutory income tax rate to consolidated earnings before income taxes due to the following:
December 31 December 31 August 31 August 31
(in thousands) 2005 2004 2004 2003
--------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes $ 25,291 $ 1,765 $ (55) $ (17)
Canadian federal and
provincial income
tax rates 35.6% 35.6% 35.6% 37.6%
--------------------------------------------------------------------
Income tax expense
(recovery) based on
above rates 9,004 629 (19) (6)
Tax effect of
non-deductible
expenditures 174 1,797 3 -
Lower effective tax rates
on earnings of
foreign subsidiary (9,178) (2,426) - -
--------------------------------------------------------------------
Income tax losses carried
forward not recognized
for accounting purposes - - 16 6
--------------------------------------------------------------------
Actual tax expense $ - $ - $ - $ -
--------------------------------------------------------------------
--------------------------------------------------------------------
The components of future income taxes are as follows:
December 31 December 31 August 31 August 31
(in thousands) 2005 2004 2004 2003
--------------------------------------------------------------------
Non-capital losses $ 520 $ 251 $ 30 $ 15
Deductible temporary
differences 2,849 1,245 17 20
--------------------------------------------------------------------
3,369 1,496 47 35
Valuation allowance (3,369) (1,496) (47) (35)
--------------------------------------------------------------------
$ - $ - $ - $ -
--------------------------------------------------------------------
--------------------------------------------------------------------
Prior to the Luismin transaction, the Company operated primarily in Canada and was subject to taxation at the applicable statutory rates. Subsequent to the Luismin transaction, all of the Company's income generating activities, including the sale of silver, are conducted by its 100% owned subsidiary Silver Wheaton (Caymans) Ltd. ("SW Caymans"). SW Caymans operates in the Cayman Islands and is subject to a statutory tax rate of nil%. The Company does not have any plans to repatriate repatriate To bring home assets that are currently held in a foreign country. Domestic corporations are frequently taxed on the profits that they repatriate, a factor inducing the firms to leave overseas the profits earned there. this money to Canada. As a result, no future income tax assets or liabilities have been recognized. 10. COMMITMENTS In connection with the Luismin and Zinkgruvan Transactions (Note 3), the Company has committed to purchase 100% of the silver produced by each mine for a per-ounce cash payment of the lesser of $3.90 and the then prevailing market price, subject to adjustment. The Company does not have any fixed commitments. 11. SEGMENTED INFORMATION The Company's reportable operating segments are summarized in the table below. This information has been segmented on a silver contract basis. Prior to the Luismin Transaction on October 15, 2004, the Company operated in one business segment, which was discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: . As a result, similar figures are not applicable for prior periods.
Year Ended December 31, 2005
--------------------------------------------------------------------
(in thousands) Luismin Zinkgruvan Corporate Consolidated
--------------------------------------------------------------------
Statements of Operations
Sales $ 57,406 $ 13,489 $ - $ 70,895
--------------------------------------------------------------------
Cost of sales 30,754 7,085 - 37,839
Depreciation 2,931 3,069 - 6,000
--------------------------------------------------------------------
Earnings from
operations 23,721 3,335 - 27,056
Expenses and
other income - - (1,765) (1,765)
--------------------------------------------------------------------
Net earnings (loss) $ 23,721 $ 3,335 $ (1,765) $ 25,291
--------------------------------------------------------------------
--------------------------------------------------------------------
(in thousands) Luismin Zinkgruvan Corporate Consolidated
--------------------------------------------------------------------
Total assets $ 55,614 $ 77,214 $ 133,323 $ 266,151
Total liabilities $ - $ 1,555 $ 406 $ 1,961
Four Months Ended December 31, 2004
--------------------------------------------------------------------
(in thousands) Luismin Zinkgruvan Corporate Consolidated
--------------------------------------------------------------------
Statements of Operations
Sales $ 10,175 $ 811 $ - $ 10,986
--------------------------------------------------------------------
Cost of sales 5,410 460 - 5,870
Depreciation 586 211 - 797
--------------------------------------------------------------------
Earnings from
operations 4,179 140 - 4,319
Expenses and
other income - - (2,554) (2,554)
--------------------------------------------------------------------
Net earnings (loss) $ 4,179 $ 140 $ (2,554) $ 1,765
--------------------------------------------------------------------
--------------------------------------------------------------------
(in thousands) Luismin Zinkgruvan Corporate Consolidated
--------------------------------------------------------------------
Total assets $ 58,546 $ 77,708 $ 20,734 $ 156,988
Total liabilities $ 421 $ 938 $ 1,198 $ 2,557
12. DISCONTINUED OPERATIONS Effective February 25, 2004, the Company sold its subsidiary, Dial, for cash proceeds of $247,000 to a group that included former directors and shareholders of the Company. The operations of Dial have been accounted for as a discontinued operation discontinued operation A segment of a business that has been abandoned or sold or for which plans for one or another of these actions have been approved. See also continuing operations. and, for reporting purposes, the results of operations, financial position and cash flows have been segregated from those of continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the for the current and prior periods. The Company has included in the results of discontinued operations the loss on the sale of Dial and the earnings from discontinued operations from the measurement date to the disposal date. At December 31, 2005 and 2004 and August 31, 2004 the Company did not have any assets or liabilities pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to discontinued operations. Financial results of discontinued operation: December 31 December 31 August 31 August 31 (in thousands) 2005 2004 2004 2003 -------------------------------------------------------------------- Sales $ - $ - $ 453 $ 763 -------------------------------------------------------------------- Earnings - - 62 76 Loss on disposal of Dial (net of income tax of $nil) - - (158) - -------------------------------------------------------------------- (Loss) earnings from discontinued operations $ - $ - $ (96) $ 76 -------------------------------------------------------------------- -------------------------------------------------------------------- Cash flows from discontinued operations for the year ended August 31, 2004 consist of proceeds from the sale of Dial in the amount $247,000 and advances from Dial to the Company in the amount of $14,000 (2003 - $17,000). 13. SUBSEQUENT EVENTS On February 13, 2006, Silver Wheaton announced that it has agreed to amend its existing silver purchase agreement in connection with Goldcorp's plans to substantially increase its investment in exploration and development at its San Dimas mine in Mexico.As a result of the planned exploration and development at San Dimas, Silver Wheaton and Goldcorp anticipate that additional silver sales will aggregate more than 100 million ounces over the remaining 24 year term of the silver purchase agreement.It is projected that Silver Wheaton's annual silver sales will increase to approximately 11.5 million ounces for 2006, 2007 and 2008, increasing to 15 million ounces per annum thereafter. Under the existing silver purchase agreement dated October 15, 2004, Silver Wheaton is entitled to purchase all of the silver produced by Goldcorp's Mexican operations, Luismin, for a per ounce cash payment of the lesser of US$3.90 and the prevailing market price (subject to an inflationary adjustment commencing in 2007).Further, Luismin is required to deliver a minimum of 120 million ounces over the 25 year contract period and Silver Wheaton is obligated to pay 50% of any capital expenditures made by Luismin at its mining operations in excess of 110% of the projected capital expenditures outlined in the agreement. Goldcorp and Silver Wheaton have agreed to amend the existing agreement, increasing the minimum number of ounces of silver to be delivered over the 25 year contract period by 100 million ounces, to 220 million ounces, and waiving any capital expenditure contributions previously required to be paid by Silver Wheaton.In consideration for these amendments, Silver Wheaton will issue to Goldcorp 18 million common shares representing 9.8% of the outstanding shares of Silver Wheaton, and a US$20 million promissory note, increasing Goldcorp's ownership to 62%, or 126 million common shares of Silver Wheaton.Goldcorp does not have any present intention to acquire ownership of, or control over, any additional securities of Silver Wheaton. The total consideration of US$150 million is equal to the approximate value of Silver Wheaton's share of the future capital expenditures estimated over the remaining life of the existing agreement. Production of silver at the Luismin mines, which in 2005 approximated 8 million ounces, is expected to average approximately 9.5 million ounces for 2006, 2007 and 2008, increasing to 13 million ounces per annum thereafter. As a result of the amendment to the silver purchase agreement, Silver Wheaton will not be required to fund its 50% share of the increased capital expenditures planned by Goldcorp and will preserve its cash resources to fund growth opportunities. 14. RECENTLY ANNOUNCED ACCOUNTING STANTARDS In March 2005, the Emerging Issues Committee issued EIC EIC Editor-In-Chief EIC Euro Info Centre (DIN) EIC Earned Income Credit EIC Excellence in Cities (UK) EIC Enterprise Interaction Center (Interactive Intelligence) 152, Mining Assets - Impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. and Business Combinations, which states that an entity should include Value Beyond Proven and Probable Reserves and Resources ("VBPP") in the value allocated to mining assets in a purchase price allocation to the extent that a market participant The term market participant is used in United States constitutional law to describe a U.S. State which is acting as a producer or supplier of a marketable good or service. When a state is acting in such a role, it may permissibly discriminate against non-residents. would include VBPP in determining the fair value of the asset. EIC 152 also states that an entity should include the effects of anticipated fluctuations in the future market price of minerals in determining the fair value of mining assets in a purchase price allocation in a manner that is consistent with the expectations of marketplace participants. In addition, EIC 152 states that an entity should include the cash flows associated with VBPP as well as the effects of anticipated fluctuations in the market price of minerals in estimates of future cash flows (both undiscounted and discounted) used for determining whether a mining asset is impaired See assistive technology. under CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) 3063. The Company's current accounting policy of allocating the cost of silver contracts separately to reserves, resources and exploration potential and depreciating de·pre·ci·ate v. de·pre·ci·at·ed, de·pre·ci·at·ing, de·pre·ci·ates v.tr. 1. To lessen the price or value of. 2. To think or speak of as being of little worth; belittle. the value attributed to reserves on a unit-of-sale basis over the estimated recoverable reserves for each specific contract, is in compliance with EIC 152. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This news release contains "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements include, but are not limited to, statements with respect to the future price of silver, the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, reserve determination and reserve conversion rates. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Silver Wheaton to be materially different from those expressed or implied by such forward-looking statements, including but not limited to: risks related to the integration of acquisitions, the absence of control over mining operations from which Silver Wheaton purchases silver and risks related to these mining operations, including risks related to international operations, actual results of current exploration activities, actual results of current reclamation activities, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, as well as those factors discussed in the section entitled "Description of the Business - Risk Factors" in Silver Wheaton's annual information form for the year ended December 31, 2004 incorporated by reference into Silver Wheaton's Form 40-F on file with the U.S. Securities and Exchange Commission in Washington, D.C. Although Silver Wheaton has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Silver Wheaton does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities laws. CAUTIONARY LANGUAGE REGARDING RESERVES AND RESOURCES Readers are advised that National Instrument 43-101 of the Canadian Securities Administrators Canadian Securities Administrators(CSA) is a forum for the 13 securities regulators of Canada's provinces and territories to coordinate and harmonize regulation of the Canadian capital markets. requires that each category of mineral reserves and mineral resources Noun 1. mineral resources - natural resources in the form of minerals natural resource, natural resources - resources (actual and potential) supplied by nature be reported separately. Readers should refer to the annual information form of Silver Wheaton for the year ended December 31, 2004 and other continuous disclosure documents filed by Silver Wheaton since January January: see month. 1, 2005 available at www.sedar.com, for this detailed information, which is subject to the qualifications and notes set forth therein. Cautionary Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources: This news release uses the terms "Measured", "Indicated" and "Inferred" Resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. "Inferred Mineral Resources" have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility fea·si·ble adj. 1. Capable of being accomplished or brought about; possible: a feasible plan. See Synonyms at possible. 2. . It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically ec·o·nom·i·cal adj. 1. Prudent and thrifty in management; not wasteful or extravagant. See Synonyms at sparing. 2. Intended to save money, as by efficient operation or elimination of unnecessary features; economic: or legally mineable.
CANADA - HEAD OFFICE DIRECTORS
Silver Wheaton Corp Ian Telfer
Waterfront Centre Eduardo Luna
Suite 1550 - 200 Burrard Street Wade Nesmith
Vancouver, BC V6C 3L6 Peter Gillin
Telephone: (604) 684-9648 John Brough
Fax: (604) 684-3123
Website: www.silverwheaton.com
CAYMAN ISLANDS OFFICE OFFICERS
Silver Wheaton Caymans Corp. Eduardo Luna
PO Box 1791GT Chairman and Chief
1st Floor, Cayman Corporate Centre Executive Officer
49 Hospital Road Peter Barnes
Grand Cayman, Cayman Islands Executive Vice-President &
Telephone: (345) 946-7603 Chief Financial Officer
Fax: (345) 946-7604 Randy Smallwood
Vice-President
Corporate Development
STOCK EXCHANGE LISTINGS
Toronto Stock Exchange: SLW
American Stock Exchange: SLW
TRANSFER AGENT
CIBC Mellon Trust Company
1600 - 1066 West Hastings Street
Vancouver, BC V6E 3X1
Toll-free in Canada and the United States:
(800) 387-0825
Outside of Canada and the United States:
(416) 643-5500
Email: inquiries@cibcmellon.com
AUDITORS
Deloitte & Touche LLP
Vancouver, BC
INVESTOR RELATIONS
David Awram
Manager, Investor Relations
Toll free: (800) 380-8687
Email: info@silverwheaton.com
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