Major miner and precious metals broker Silver Wheaton (SLW) continues to produce over 1 million ounces of silver more than it sells. Does it offer any kind of leverage over ETF holdings or even the physical metal?
SLW won few friends by revealing that even though it has over 31% of the silver market locked up in long-term production contracts, it is still boosting production 15% this year. As it is, the company produced 6.2 million ounces of silver last quarter, but only sold (or resold) 4.9 million ounces of it.
While SLW may be building a stockpile here ahead of what might be higher prices down the road, that kind of supply/demand imbalance is still noteworthy. Granted, SLW now has 954 million ounces of silver still in the ground, so it is not like the company is rushing to flood the market by producing all of its reserves at once. But in the face of the biggest retail demand for silver in a generation, the question for many traders is why there is any imbalance at all — unless the fundamentals are somehow broken.
Meanwhile, SLW continues to pay a dividend in the hope of becoming a more attractive investment than the ETF that tracks physical silver, SLV. At this point, SLW and SLV compete directly for retail capital flows, but SLW has definitely lagged the fund.
If the dividend program continues to get richer as SLW’s leverage to silver prices climbs, this could become a very interesting race indeed.