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« Silver Standard Resources Inc: Increases Silver Resource | Main | Coeur d’Alene Mines Corp: Price drop »

Silver Wheaton Corporation

If Silver Wheaton Corporation reaches its sales target of 20,000,000 ounces by 2009 and silver prices hit $20, what will the shares be worth?

This company is planning to sell 15 million ounces of silver this year at the prevailing spot price having bought it for $3.90 an ounce. If we use the current silver price of $12.0 then they are earning $8.0 per ounce multiplied by 15 million, which equals $120,000,000. The current Market capitalisation is around $2 billion, which equates to around 20 times current earnings.

Now this is ambitious but not outside the realms of possibility. Suppose Silver Wheaton achieves its target sales of 20.0 million ounces by 2009 and the silver price hits $20.0? Wow! Impossible some will shout! Not to us though, we think it is more than just possible.

Earning will be $16.0 per ounce multiplied by 20 million ounces, which equals $320 million. If the earnings multiple remains at about 20 then the Market Capitalisation would be around $6.4 billion. Divide this Market capitalisation by the number of outstanding shares, say 220 million then we have a share price of $32.0.

Now consider Silver Wheaton’s vast overheads, in 2005 they had a massive staff of 4 people and I understand that has increased to about 6 people. Overheads, what overheads?

Now consider their tax liability. They are registered in the Cayman Islands, so no tax revenue for Uncle Sam.

This is still a buy for us, SLW on the NYSE, currently trading at $9.71.
See previous report and update on SLW, just click on the link.

14 August 2006

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