Silver Wheaton Corp. (SLW) is a streaming silver company. It does not own any silver mines, but purchases silver in quantities from miners at fixed prices. As a result, it lacks the risks of a traditional silver mining company. Cave-ins and miner accidents or deaths are nonexistent. Silver Wheaton faces none of the risks, yet the returns are very similar to those of the actual silver mines.
When things look shaky on the financial horizon, investors run to precious metals. Silver Wheaton benefits by the inflation of silver prices. When the price of silver slides that is when the company becomes concerned. The chance of that happening in the near future is almost nil. Investors around the world are ready and expecting another round of Quantitative Easing. This turn of events will most likely keep the price of precious commodities on the rise.
Quantitative easing, money printing and bond buying by the European Central Bank in the coming weeks most certainly will drive the silver price up. Silver is not just a commodity that people begin to grab for monetary value. It is also vital and important in a variety of industrial and medical applications.
Shares of Silver Wheaton consistently are outperforming the market. Over the last two years, the company is seeing an appreciation of over 55%. The stock price increasing 30% in the last three months beat the 10% increase in iShares Silver Trust ETF (SLV). Analysts predict that Silver Wheaton will continue to beat the iShares Silver Trust retaining 80% of the cash it generates through its operations.
Silver Wheaton's competitors do not seem to be seeing similar trends. Coeur d'Alene Mines Corporation (CDE) saw its earnings shrink by 41% this quarter. First Majestic Silver Corp. (AG) is seeing even worse results with a decline of 50% in earnings. Silver Wheaton on the flip side, reports positive earnings, with an increase of 3% in revenues.
Currently Silver Wheaton is the largest streaming metal company. It utilizes three precious metals and 15 silver purchase agreements. Upfront, Silver Wheaton pays a fee to secure the right to purchase all or a portion of the silver production for a fixed cost from a mine. 2012 production is counting on 28 million silver ounces and 42,000 ounces of gold. Silver Wheaton is projecting that production to increase to 48 million silver equivalent ounces and 100,000 ounces of gold by the year 2016.
That is not the only reason to feel bullish. Silver Wheaton's long-term debt quality ratio is only 0.02. It has a stable free cash flow of $312 million. The 5-year EPS growth rate is 46%. In two years, 2009 to 2011, net income was climbing from $118 million to $550 million. In the same period, sales were growing at a rapid rate from $239 million to $730 million. Quarterly dividends are strong, rising from $0.03 to $0.10 over only six quarters. In addition, Silver Wheaton is sitting on silver reserves of 798 million ounces. This is twice the reserves any other silver company holds.
With the national debt hitting the $16 trillion mark, gold and silver will continue to thrive. On a percentage basis, silver will most likely outperform gold. Silver Wheaton's competitors Hecla Mining Co. (HL) and Barrick Gold Corporation (ABX) have fixed production costs and operating margins that are huge. In the second quarter, Silver Wheaton's average cost of Silver per ounces was roughly $4.06.
Silver Wheaton could be a great long-term defensive strategy for building your wealth against the instability of currency fluctuations. Silver Wheaton is a strong performing stock in the commodity sector. Its diverse portfolio and lack of exposure to production costs is creating strong financial metrics and returns. Recently, Silver Wheaton is developing new streaming agreements that will continue to strengthen its portfolio in the short and long term, which will support its core values of low-cost, high-return assets.
Silver Wheaton's acquisition of a streaming agreement with Hudbay Minerals Inc (HBM) will greatly improve its near and long term projections. Upfront Silver Wheaton will infuse Hudbay with $750 million. Hudbay will initially receive $500 million with $125 million due when Hudbay's Constancia Project exceeds $500 million. Once the project exceeds $1 billion, an additional $125 million will be due.
The agreement calls for Silver Wheaton to pay the lesser of $5.90 per ounce for silver and $400 per ounce for gold or the prevailing market price. Silver Wheaton will receive 100% of the silver mining production for the life of the mine. The agreement increases its 2012 silver production from 27 million ounces to 28 million ounces of silver and 42,000 ounces for gold.
The entire mining industry is seeing favorable returns with the status of the monetary system. General Steel Holdings (GSI) recently saw an increase of 25.6%, Northern Dynasty Minerals (NAK) was up 24.4%, Jaguar Mining (JAG) rising 15.9% and Minco Gold (MGH) is up 14.2%.
Silver Wheaton's fundamentals are helping them to lead the pack. The stock is yielding around 1.2% and over the next 5 years, EPS is set to grow at 36.5%. Silver Wheaton looks well positioned to continue to give skyrocketing returns in the future. The company is outperforming its peers and there is no cloudy sky lurking on the horizon.
Silver Wheaton's business is much safer than those of traditional mining operations. Unexpected expenses do not creep into its cost structure with the streaming business model. Its diversification provides a defense against governmental resource nationalism.
Silver Wheaton is improving and performing strongly with huge growth potential. Silver may lead gold and break out from the pack. This stock may just be the silver lining to your investment cloud and the golden egg in your investment basket.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.