Tom Szabo

The Silver Wheaton Valuation Method, Part 1: Valuing Impact Silver

Nobody is arguing SLW does not have leverage, they are arguing this particular valuation analysis does not work. It isn't just mine life, since NPV pretty much discounts a long life to zero. Rather, the premium SLW is willing to pay is based on the probability that initial production goals will be achieved in a timely manner and then production is expanded early in the life of the mine.

The Silver Wheaton Valuation Method, Part 1: Valuing Impact Silver

I don't think this valuation method works. SLW paid for a stream, not annual production. The price took into account existing resources, potential for new resources, and the mine's ability to reach and maintain certain production rates. These are project-specific factors that cannot be applied to other companies. Note that SLW just paid $80 million for 75% of Farallon's "at least 1 million ounces of silver per year" at Campo Morado. That translates to $106/annual oz. produced. At Augusta's Rosemont project, it is $122/annual oz. produced. That's a 100% range. More importantly, it is wrong to use fully diluted market cap for these types of calculations without considering the "share buyback equivalent". I shouldn't have to explain this to you, but this basically means that you don't treat warrants with an exercise price of $10 per share the same way you would treat $1 warrants. It so happens this isn't much of an issue for Impact Silver, but clearly if we use the $122/oz. number then the company will be seen as moderately undervalued. In conclusion, this valuation method is extremely rough at best and about as useless as in situ metal valuation at worst.