You really need a time line to figure out why Silver Wheaton (SLW) dropped by 7.9% yesterday, November 9.

Start here overnight: Silver Wheaton announced third quarter earnings on November 8 after the New York markets had closed. The company beat Wall Street earnings estimates by a penny but revenue at $93 million fell short of projections although revenue was up 33% from the third quarter of 2009.

9:30 a.m. in New York: The stock opened modestly up at $36.96 from the $35.07 close the day before despite the revenue miss. Stock doesn’t do much after the open. High for the day comes at $37.20.

12:16 p.m. in New York: Silver spikes to new 30-year high at $29.02. Hits another 30-year high at $29.135 at 12:53.

1:15 p.m. New York: Silver Wheaton begins as steady drop to close at $32.31, a loss of $2.76 a share or 7.9%

1:25 pm. New York: Silver and gold pulling back. Silver closes at $28.55, slightly off the high for the day.

1:30 p.m.: Chicago Mercantile Exchange (CME) confirms that it has raised margins for buyers of silver to $6,500 from $5,000—or 30%. Margins are not raised on any other metal. Exchange notes that raising margins is s normal response to increasing volatility.

3:15 p.m.: In electronic trading silver falls to $27.45 an ounce. In after-hours trading silver gives up almost all of it gains.

Too bad that this happened just days after I gave the stock and silver a thumbs up, but I don’t see that this changes the upward dynamic of the metal. And there’s certainly nothing in the company’s earnings report that makes me think the stock won’t rebound from this sell off. The next few days could bring more volatility, quite possibly to the downside, as the silver market adjusts to the new margin requirements, but I see this drop as a buying opportunity rather than a time to jump ship.

The company’s performance this quarter wasn’t flawless but it was solid. Silver “production” hit a record as Goldcorp’s (GG) Penasquito mine in Mexico reached commercial production. (Silver production at Penasquito rose 260% from production in the third quarter of 2009.) Silver Wheaton expects the mine to reach full production in early 2011. (Remember that Silver Wheaton doesn’t actually own any mines but buys future production from a portfolio of silver mining companies. For more on how that works see my post https://jubakpicks.com/2010/11/08/buy-silver-wheaton-slw/

Silver sales didn’t keep up with production as inventory built up at Penasquito and the timing of shipments from the Campo Morado and Yauliyacu mines delayed sales. Silver Wheaton expects that fourth quarter sales will make up for the shortfall. The company confirmed its guidance for 2010 production of 23.5 million ounces of silver and for production to rise to 40 million ounce by 2013.

With the company’s production costs locked in by past contracts at roughly $3.90 an ounce, Silver Wheaton saw record cash operating margins of $15.72 an ounce. Operating cash flow increased by 55%.

And finally, in its conference call, the company “mused” about the possibility of instituting a dividend. The company’s business model, the company opined, has matured to the extent that it may be possible to fund growth and pay a small dividend in the not too distant future.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this post. At the end of the September quarter the fund owned shares of Goldcorp. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/