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Silver Wheaton (NYSE/TSX: SLW)
Silver Mining is for Suckers – December 31, 2010
Overall this short little article is fine, but Matt Badiali’s simplistic valuation technique as applied to Silver Wheaton is probably best ignored. Indeed, we find it quite ironic that Matt is trying to convince investors to be smart and own Silver Wheaton rather than a sucker and own the typical exploration and development miner, all the while relying on his audience to be suckers or else they would take such amateurish analysis with a large grain of salt. In our opinion, a much more appropriate and robust method of valuing Silver Wheaton would be through through a discounted cash flow analysis of its silver streams as we have done in our recent Royalty Company report.
Mr. Badiali closes with the following:
Today, silver sells for nearly $30 per ounce, and Silver Wheaton shares are $39. Our fair-value calculation says at the current silver price, Silver Wheaton should be closer to $57. That means we can buy shares well below fair value right now.
Good luck to anyone who’s relying on that advice. In our opinion Silver Wheaton is fully valued. We’d be buying if the price were right, but at present the risk/reward equation does not look favorable through our spectacles. [Zurbo]
International Minerals (TSX: IMZ)
IMZ Signs Definitive Agreement with Hochschild to Fast Track Production at Inmaculada Property, Peru – December 28, 2010
This doesn’t change the fact that IMZ’s valuation is still heavily reliant upon its earlier stage development projects in Ecuador, but we found this part of the joint venture agreement with Hochschild particularly interesting:
If Hochschild fails to achieve the process capacity at Inmaculada by December 2013 (subject to any force majeure delays), then Hochschild must make quarterly prepayments to IMZ during the period of any delay based on the parties’ joint estimate of IMZ’s 40% share of cash flows that would have been generated if production had started on schedule.
International Minerals did have had to give up 30% of the project for clauses like the above, and at current metal prices we estimate that the cost of this joint venture to IMZ was about $150 million. Not cheap, but it significantly lowers the development risk of the project and generally we think it’s a fair deal. [Zurbo]
Disclaimer: We may own shares in several of the companies mentioned in this analysis (Metal Augmentor subscribers know which ones), but no compensation has been received from any of the companies mentioned. This is not investment advice; should you seek investment advice we recommend you discuss the company with a licensed investment advisor or broker.