Silver Wheaton (SLW) is one of the largest metal streaming companies in the world. Its growth profile is driven by a portfolio of top-notch assets like silver stream on Goldcorp's (GG) mine in Mexico and Barrick's (ABX) Pascua Lama Project in the Chile and Argentina border. Silver Wheaton produces approximately 23 million ounces of silver per year and sells more than 20 million ounces. The company has entered into several agreements which enable it to purchase all or a part of silver production from high quality mines at a low fixed cost. Its market capitalization is approximately $11 billion and its share value is around $31.
I think Silver Wheaton acts almost like a venture capital fund for purchasing stakes in silver mines from all over the world. It has the maximum market capitalization per employee, which demonstrates the influence of its royalty model. Silver Wheaton has diversified effectively by purchasing stakes in mines from different countries including US, Canada, Argentina, Peru, Greece, Portugal, Sweden and Mexico.
I am behind precious metals like silver for plenty of reasons. Over the last two centuries, the average gold/silver ratio has been 31:32. Today, it is has risen to 69. Silver Wheaton has more silver reserves and resources than any other silver company in the world. With the strength of the royalty model and the ability to generate positive cash flow, I think Silver Wheaton stock is undervalued at its current price of around $31. The company issues a dividend of more than 1% at its current prices.
The net earnings and operating cash flow of the company were increased by 31% as compared to 2011. The increased selling price of silver is the main reason for this increase.
I think Silver Wheaton's new dividend policy made investors happy. The policy relates quarterly dividend disbursements with 20% of the previous quarter's operating cash flows. This produces a dividend payout of $0.09 per share. The dividend is three times more than the dividend distributed in the previous quarter.
Silver Wheaton offers a better price/ earnings ratio as compared to its competitors like Coeur d'Alene Mines (CDE). Coeur d 'Alene Mines is a US based company that produces silver. It owns a non-operating interest in a silver base metal mine in Australia and owns strategic minority shareholdings in a few silver development companies in North and South America. The price to earnings ratio of Silver Wheaton is 20.10, whereas Coeur d' Alene Mines Corporation offers 21.27.
Silver Wheaton has been growing steadily, which is evident with its increased revenue, earnings and operating cash flows over the past four years.
Growth Prospects
There is a significant increase in Silver Wheaton's share value in recent weeks. I noticed a spike in silver spot prices last week. The demand for silver in developing economies like India and China causes investors to heap back into precious metals like silver and gold.
Silver Wheaton has been one of the top performing silver stocks for the past 4 years. I think it can earn huge profits from investing in mining operations. Being a venture capital firm is really beneficial for the company and investors. Silver Wheaton stock went from $22 to more than $40 in the beginning of 2012. I guess an appreciation in stock value can be expected in the next three months.
I like Silver Wheaton's policy of linking cash flows to dividends. This gives the company a chance to distribute more money to the shareholders in the form of dividends.
Silver Wheaton gets silver from 16 mines around the world. At the end of 2011, it had proven and probable reserves of 798 million ounces of silver and 0.22 ounces of gold. There was a reduction in silver reserves due to the depletion of silver production and declines in silver resource in Goldcorp's Penasquito mine.
In February 2012, Goldcorp disclosed that the reduction of silver reserves in the mine was due to increased cut-off grades and that extra high-grade mineralization will be targeted. Other mines that supply silver to Silver Wheaton also have plans to improve mine planning and expand long term production levels. The CEO of Silver Wheaton specified that the company will continue to have nearly twice the amount of silver reserves. Silver Wheaton has plans to buy stakes in three more mines over the next couple of years. I suggest investing in Silver Wheaton, as this will definitely not hurt your portfolio.
Goldcorp's Penasquito mine will achieve its full production capacity of 130,000 tons per day soon. This will drive Silver Wheaton's production growth this year significantly. The company will increase its attributable production by 6%, which is equivalent to around 27 million ounces of silver.
Silver Wheaton has an innovative business model in terms of fixed cash costs. The average cash cost in 2012 will be around $4 per ounce of silver. The company aims at giving priority to the acquisition of value enhancing silver and a precious metal stream.
The exceptional cash flow growth has allowed the company to initiate a unique dividend policy. The dividend grew threefold by the end of the year and positions the company to invest in new acquisition projects quickly.
Silver Wheaton aims to achieve a target of 70% production increase by 2015 which will equal 43 million ounces of silver. Though this company is still very young in the silver stream industry, it has consistently proved to be a worthy investment. I observe the company's recent changes in HR with interest. Haytham Hodaly, a senior vice president, has been appointed as mining analyst to assist with the negotiation of new silver streams.
Silver Wheaton is the pioneer of the royalty model in the silver industry. The power of the royalty model combined with the ability to earn substantially, the outstanding combination of cash, credit and operating cash flows and silver reserves and resources give me a strong assurance that its stock is in a great position to increase dividends, whenever the price of silver rises. With increasing silver price and newly established dividend policy, Silver Wheaton remains a major focal point of silver investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
