The bullish case for Silver Wheaton
1) Low-risk business model. Hands down, Silver Wheaton has my favorite business model in the precious metals industry. Known as a “silver steaming” company, SLW helps other companies fund the development of future mines in exchange for fixed-cost silver when those mines becomes operational. That’s how SLW currently has fixed costs for silver production of $4.36 per ounce.
2) Record production. Other companies may be shuttering mines, but Silver Wheaton continues to hit all-time record production numbers. In Q2 2015, the company produced 11 million silver equivalent ounces and sold more than 10 million ounces of silver for the first time in the company’s history.
“The record production and sales were driven by strong results from all of our flagship assets the Salobo, San Dimas and Penasquito mines as well as the first substantive production from Constancia, which achieved commercial production earlier this year,” said Randy Smallwood, SLW’s president and CEO, during last quarter’s conference call. Those numbers will continue to grow as we’ll see below.
3) Leveraged growth. Silver Wheaton is growing its silver production at a time when silver prices could start edging up. Any rise in silver prices leverages profits that the company books. For 2015, SLW expects production to grow by 23 percent over the previous year. That would put them at 43.5 million silver equivalent ounces. The company expects that growth to continue steadily through 2019 when they should produce 51 million silver equivalent ounces. The higher the price of silver, the higher the company’s profits. Take a look at the table below to see how much a jump in the price of silver could impact Silver Wheaton’s profits (assuming their costs stay at $4.36 per ounce):
|Price of silver||SLW profit on 50 million ounces of silver|
Since Silver Wheaton’s cost basis for its silver will not rise, the company can book virtually any gain in the price of silver as profits.
Check out more coverage on SLW here.