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« Irish EU treaty vote threatens chaos | Main | Questions About Silver: Answered »

Silver Wheaton Corporation: Price Target remains at $100.00 29 Feb 2012

Silver Wheaton's forte lies in its ability to finance mining projects with upfront payments in order to secure the future supply of silver at a cost of approximately US$4 per ounce. Established in 2004, Silver Wheaton has quickly positioned itself as the largest metals streaming company in the world. The company has a number of agreements where, in exchange for an upfront payment, it has the right to purchase, at a low fixed cost, all or a portion of the silver production from 16 high-quality operating mines and three development stage projects around the globe. Without adding to its current agreements, the growth profile is substantial with a target of 25 to 26 million silver equivalent ounces for 2011, including 15,000 ounces of gold. Looking further out these projections rise considerably to approximately 43 million silver equivalent ounces, including 35,000 ounces of gold.

So we can see that the fortunes of this company are totally dependent on the price of silver, which has been out of favour lately as it staggered to a low of around $27.00/oz. However, the new year brought with it a positive change for both gold and silver prices with both performing unbelievably well in the first two months of 2012. Silver has moved up dramatically from the $27.00/oz level to close today as $36.93. From what we can glean the shorts were caught off guard as the cash returned to this tiny market sector and so they have had to cover some of their positions for fear of a real rout. The new buyers and the short covering has forced the silver price to higher ground. The effect of this upswing is reflected in the stock price of Silver Wheaton as it to was down at the $27.00 level and has moved rapidly to close at $39.90 today.

Whilst SLW was heading south and being sold off by disgruntled investors, not us by the way, it was hard to remain firm with our price target of $100.00 per share. But we did and we are still holding firm to that prediction. To put a time line on it, on the 19th October 2011 we wrote that we are looking for SLW to double in 12 months to $60.00 and hit $100.00 in 18-24 months. So by October 2012 we should be at $60.00 and by March 2013 at $100.00. We recognize that the first milestone, this October, is approaching fast, however, we are of the opinion that silver prices will challenge and overcome its previous all time high this year, dragging SLW with it.

An upcoming event to watch for this month is the release of 2011 Fourth Quarter and Full Year Results On 22nd March, 2012. This will be interesting as SLW have only beaten the analysts expectations on 2 of the last 11 quarters, as the chart above shows. In terms of Earnings Per Share, a consensus of analysts have the 'mean' for the 4th quarter at $0.43, with the low being $0.37 and the high being $0.64. A consensus of 9 analysts had predicted a third quarter EPS of $0.50 and were disappointed when the figure of $0.38 was released. However, if SLW can produce the unexpected with an EPS in the order of $0.47 plus, then this would bode well for further advances in the price of the stock.

Taking a quick look at the chart below please note the upswing of the 50dma, should it cross the 200dma, which looks likely, it would form what is generally known as a golden cross, this would be positive for SLW. However, the technical indicators suggest an overbought situation, so there may be a pullback in the short term.

Also worthy of note is that gold is heading higher and the Gold/Silver Ratio is decreasing and now stands at 48.36, which tells us that silver prices are moving faster than gold prices at the moment. Should this continue to be the case then silver bugs will be in for one wild white knuckle ride.

Silver Wheaton Corporation has a market capitalization of $14.10Bln, a 52 week low of $25.84 and a high of $47.60, average volume of shares traded is between 5.00Mln and 7.00Mln, so the liquidity is good, with 353.50 million shares outstanding.

Silver Wheaton Corporation trades on both the NYSE and the TSX under the symbol of SLW.

For disclosure purposes we do own this stock and it currently forms the largest part of our core position in the silver market, so we do have a leaning towards them which you should bear in mind.

In terms of expectations in general, be prepared for some extreme volatility to come our way, the problems are still unresolved in Europe, although they may have bought some time and the spotlight will return to the US shortly with the dollar coming under pressure once again. It is election year and that usually means that the sweeteners will be handed out in large amounts to boost the feel good factor, however, such boosters are usually short lived.

Regarding We are off to a good start this year closing two trades in January, the first gave us a profit of 71.58% and the second gave us a profit of 33.97%.

It was nice to bag a couple of winners before January ended and hopefully 2012 will continue in a successful manner. We do have a number of ideas on the drawing board which we are looking to execute shortly, but only when the risk/reward environment is firmly in our favour.

Please be aware that discussions are taking place regarding an increase in the price for this service for new members. We have looked at about 100 similar services and the average cost for them is $866.00 per year. This price increase will not affect the current subscribers whose subscription will remain unchanged.

Our performance stats have now been updated as follows:

Our model portfolio is up 446.55% since inception

An annualized return of 98.38%

Average return per trade of 36.68%

96 completed trades, 88 closed at a profit

A success rate of 91.67%

Average trade open for 50.48 days


Also many thanks to those of you who have already joined us and for the very kind words  that you sent us regarding the service so far, we hope that we can continue to put a smile on your faces.

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Reader Comments (2)

Even though SLW is our largest holding in the silver sector and we are pleased with its performance, one should not get too carried away with any one stock. SLW is lower now than it was 12 months ago, last March/April time it hit $46.00, today its at $38.28. Our strategy has been not to have too many eggs in one basket and we have diversified via the options trading route, where our annualized return in this element of our strategy is 98.38% We also need to watch the HUI, which hit 500 back in December 2009 and today it stands at 528 as we write, which suggests that mining stocks in general have not performed that well. According to our peers all this is about to change, for the better, so its a case of fingers crossed for now.

February 29, 2012 | Registered CommenterSilver Prices


What follows below is the answers to a few short questions regarding Rosemont, we hope the data is of some use to you.

Good day Brad,

We hope that this missive finds you fit and well and looking forward to the spring.

We have a few short questions for you as follows:

The 'Rosemont' project - If it fails to gain consent how badly would that affect SLW? This worst case is we do not receive any silver or gold from the Rosemont mine which would decrease our long-term production guidance by approximately 2.4Moz of silver and 15,000 ounces of gold.

Is all of the upfront funding lost if the project does not get the go ahead? Recall that Silver Wheaton does NOT advance any upfront funds until three conditions are satisfied – first all permits must be received, second all required project financing must be secured, third construction must commence. Once all three of these are satisfied we begin advancing our $230 million upfront payment.

What % of the future silver stream would SLW lose if this project fails to get off the ground? As mentioned earlier our long-term production guidance would be reduced by approximately 3 million silver equivalent ounces or 7% of our current 2015 production guidance of 43 million silver equivalent ounces.

How confident are you that they will succeed and push ahead to production? Augusta is anticipating receipt of all required permits before the end of 2012, with production commencing in 2014. We remain optimistic that this will be the case.

Have a good weekend,

Bob K

March 2, 2012 | Registered CommenterSilver Prices

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