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« Nassim Taleb on Wall Street Protest, Banking | Main | How to silence a Nobel Prize winning economist: Ask him about the economy. »

Silver Wheaton Corporation: Target Price Remains at $100.00

Silver Wheaton Corporation (SLW) is trading around the $31.16 level which is well off its high of $47.60 achieved back in April 2011. The reversal in fortunes can be attributed largely to the dramatic sell off in silver prices emanating from rule changes which had the effect of margin calls on the investment community. There was also the sudden departure of the CEO, Peter Barnes who was replaced with the internal promotion of Randy Smallwood, the President and one of the founders of Silver Wheaton, who was appointed Chief Executive Officer, effective April 11, 2011.

There is a myriad of variables to be considered when trying to assess the future prospects of any stock and SLW is no different. However, it is not to be confused with a silver mining company, as we are sometimes asked, as it is a silver streaming company. This company derives more than 95% of its revenue from the sale of silver. The company has entered into fourteen silver purchase agreements and two precious metals agreements with nine operating partners, including Barrick Gold Corporation (ABX) and Goldcorp Incorporated (GG). The number of employees stands at 24 whereas Goldcorp employ about 3,140 people. 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.

The operating costs are fixed, with no ongoing capital expenditures or exploration costs. The exchange rate risk is eliminated as silver is sold for US dollars. Many of the mines are currently low-cost operations with a projected long-life and finally it does hedge the market by forward selling its silver. All in all it is a low risk business model which is fairly well protected from the vagaries of mining, that silver producers are exposed to.

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.

SLW has now started to a pay a dividend, although at $0.03 a quarter it does not set the world on fire, it is a start and should lead to bigger payouts going forward, which in turn should be appealing to investors.

Silver Wheaton Corporation will release third quarter financial results on Wednesday, November 9, 2011, prior to the market opening, so it will be interesting to see just how they have fared over this tumultuous period of trading. A consensus of 4 analysts covering SLW for the 3rd quarter 2012 suggests a per share value of USD 0.60. SLW reported 2nd quarter 2011 earnings of USD 0.42 per share on 8/8/11. A consensus of the 9 analysts covering this company had it at USD 0.46 so SLW fell short by USD -0.04. A number which is generally lower than expected is not received at all well by the financial markets and a sell off sometimes follows poor results.

However, the main consideration is that of the underlying asset, silver. In the short term there are a number of balls in the air, including the European Union summit to be held on the 23rd October, when nearly all will be revealed regarding bailouts and bank recapitalization etc. There is also the next meeting of the FOMC in November, the last one scheduled for this year, which may offer a little more in the way of quantitative easing. Until we get a clearer picture of of what actions, if any, our political leaders intend to take we cannot say what lies ahead for silver prices. However, if they stay true to form and decide to print their way out of this crisis, then silver will head north dragging Silver Wheaton with it, ready or not.

Finally a quick look at the chart where you can see that we made our last purchase of SLW, with some trepidation, on 9th August 2010 for $19.76 and unfortunately we haven't been able to find a suitable entry point since. It has been a rather bumpy ride so far, however, the $30.00 level is offering a little support, so SLW may be able to establish a base here that it can build on.

Our price target for Silver Wheaton Corporation has been $100.00 for some time now and we see no reason to change it.

Silver Wheaton Corporation has a market capitalization of $11.09Bln, a 52 week low of $25.35 and a high of $47.60, average volume of shares traded is between 3.89Mln and 7.00Mln and it has an EPS of $1.01. Silver Wheaton 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.

Regarding We currently have a number of open trades at the moment however, we do not update the charts until the trade is closed and the cash is back in our account. 

Our model portfolio is up 407.38% since inception

An annualized return of 113.83%

Average return per trade of 42.43%

86 closed trades, 83 closed at a profit

Average trade open for 45.85 days

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Reader Comments (2)

So what is your timeline for it to reach $100 ?

October 19, 2011 | Unregistered Commentersilver bug

We are looking for SLW to double in 12 months to $60.00 and hit $100.00 in 18-24 months.

October 19, 2011 | Registered CommenterSilver Prices

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