Silver Wheaton predicts mining deals once silver prices stabilize (SLW)

One of the hallmarks of a mania is an rapid increase in the number of leveraged buyouts — something we haven’t seen yet. Silver Wheaton’s (NYSE:SLW) CEO Randy Smallwood has an explanation why.

One thing we’re yet to see silver’s ongoing bull market is a flurry of corporate buyouts and acquisitions. One of the hallmarks of a mania, after all, is a rapid increase in the number of leveraged buyouts.

Silver Wheaton Corp.’s (NYSE:SLW) brand new CEO Randy Smallwood offered an explanation yesterday in an interview with the Financial Post: small caps are reluctant to sell out of fears silver prices could hit $50 in the coming months.

Think of it like Groupon turning down a $6 billion buyout offer from Google (NASDAQ:GOOG). Why sell for enormous sums when you stand to make even larger sums down the road? “We’ve been talking with a lot of potential partners, but they want to see some [silver price] stability,” Smallwood told the Post. “They don’t want to look stupid two months from now.”

Silver Wheaton’s biding its time, then, as it waits for prices to level off before swooping in and acquiring the “silver streaming” deals that turned it into a money-minting titan. With its streaming model, Silver Wheaton gives gold and base metal miners cash up front to fund the development of mines. In exchange, SLW gets the right to buy byproduct silver at cut-throat rates – right now, that rate’s about $3.90 an ounce, per the Post.

Until silver prices stabilize, there aren’t many companies eager to take a loan from SLW, but that’s quite all right, Smallwood says. Silver Wheaton has the luxury of waiting. Even without any acquisitions, the company’s attributable silver production should spike 60 percent through 2015 to 43 million ounces a year.

The whole thing reminds me of Sean Parker urging Facebook CEO Mark Zuckerberg to take things slowly in the 2010 film, The Social Network.

“A million dollars isn’t cool,” Parker says. “You know what’s cool? A Billion Dollars.” By refusing to sellout for relatively small sums, Facebook’s since morphed into a multi-billion dollar company that sprawls across most of the globe.

It’s hard to argue with Parker’s logic. The deals will come in time. The same is true for the mining industry’s unsung heroes. Why take a check today when you might get one with a few more zeros in a year?



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