WPM

Business Context and Reporting Period

Company: Silver Wheaton Corp. (formerly Chap Mercantile Inc.)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Second Quarter ended June 30, 2005 (Six months ended June 30, 2005)
Business Model: Pure-play silver streaming company. The Company purchases silver from mining operations at a fixed low cost and sells it at market prices. It holds 100% of its revenue from silver production.
Key Operations:

• Luismin (Mexico): Contract with Goldcorp Inc. to purchase all silver produced.
• Zinkgruvan (Sweden): Contract with Lundin Mining to purchase all silver produced.

Key Financial Metrics

Material Changes vs. Prior Period

The Company reported record results for the second quarter of 2005, driven by the commencement of revenue-generating operations from two major acquisitions completed in late 2004.

• Revenue Generation: Unlike the prior year periods where the Company had no silver sales (discontinued operations), Q2 2005 generated $19.3 million in revenue from the sale of 2.7 million ounces of silver.
• Profitability: The Company transitioned from a net loss of $21,000 in Q2 2004 to a record net earnings of $6.7 million in Q2 2005.
• Liquidity: Cash and cash equivalents increased significantly from $324,000 at May 31, 2004, to $33.3 million at June 30, 2005, due to strong operating cash flows.
• Market Listing: Shares began trading on the American Stock Exchange (AMEX) in July 2005.

Guidance, Outlook, and Risks

Outlook and Guidance:

• Production Targets: Management expects to sell approximately 10.0 million ounces of silver in 2005 and 10.5 million ounces in 2006.
• Cost Structure: Expected cash cost remains at $3.90 per ounce for both years.
• Strategy: The Company is pursuing an aggressive growth strategy through further acquisitions or long-term silver purchase contracts.

CEO Eduardo Luna described the quarter as "spectacular," highlighting the Company's position as the only pure silver mining company in the market. The Company is debt-free and unhedged.

• Forward-Looking Statements: Results depend on silver prices, reserve estimates, and production timing, which involve significant uncertainty.
• Operational Control: The Company does not control the mining operations (Luismin and Zinkgruvan) from which it purchases silver; it relies on third-party operators.
• Resource Estimates: The filing uses Canadian resource definitions (Measured, Indicated, Inferred) which are not recognized by the SEC. Inferred resources have high uncertainty regarding existence and economic feasibility.
• Related Party Transactions: Goldcorp owns 64.7% of the Company and provides management services. The Company purchases silver from a Goldcorp subsidiary.

Investor Verification Checklist

• Contractual Obligations: Verify the terms of the Luismin and Zinkgruvan contracts, specifically the $3.90/oz purchase price cap and the inflation adjustment mechanism starting in 2007.
• Reserve Life: Confirm the remaining mine life estimates (over 20 years) and the conversion rates of resources to reserves for both mines.
• Related Party Dependence: Assess the risk associated with Goldcorp's 64.7% ownership and the reliance on Goldcorp's Luismin operations for the majority of revenue.
• Capital Expenditure Liability: Review the clause requiring Silver Wheaton to pay 50% of capital expenditures at Luismin exceeding 110% of projected costs.
• Share Structure: Note the existence of 157.9 million warrants (each for 0.20 shares) and 6.6 million options outstanding as of July 26, 2005.