Tuesday, July 11, 2006 at 09:21AM
Silver Wheaton is a new innovation in that it is a silver only company and does not own or operate any mines.
Its total revenue is derived from silver sales, which it acquires from gold and base metal mining companies as a by-product of their operations. This is the only company that we are aware of that operates in this manner. Its position is unique in the market place. By placing contracts with other miners for their silver at favourable rates and selling on to the general market they have created a terrific niche for themselves. Silver Wheaton plans to sell some 15 million ounces of silver in 2006 at cash costs of $3.90 per ounce. With silver currently north of $10.0 they are in a remarkable position for generating profits.
So, where does the silver come from? Well, they have contracts with mines in Mexico, Sweden and Peru. In Mexico silver comes from the Luismin Mines, in Sweden from the Zinkgruvan Mine and in Peru from the Yauliyacu Mine.
As we prefer mining stocks that do not forward sell their metal in an attempt to lock in current silver prices, Silver Wheaton fits our investment criteria. Silver Wheaton is totally unhedged and is therefore totally exposed to the price movement of silver. In our opinion the Bull Market in silver has a long way to go before the new record highs are reached so this stock is on our shopping list. We do currently hold a small amount of this stock but we failed to buy it after the sell off when it was under $8.0, sometimes you need balls of steel but on this occasion we lacked the courage to dive in and buy. That said, it is impossible to get in exactly at the bottom on every play however, to stay on the side lines could to be miss this opportunity altogether.
Silver Wheaton has a Market Capitalisation of $1.5 Billion, a P/E ratio of 49 and closed yesterday at $9.41.
From the chart we can see that the stock has bounced on its 200 day moving average and recovered very well indeed from the recent sell off. We will enter the market again at these levels and hold regardless of any further downward movement in the stocks price. By Christmas this year we expect Silver Wheaton to have been discovered by the media and be trading well above these levels. By April next year we will be looking for a doubling in the price of this stock.
Silver Wheaton Corp. (TSX: SLW, AMEX: SLW) has also recently been listed on the New York Stock Exchange (NYSE: SLW).
08 July 2006