Silver Wheaton (SLW) undervalued by nearly 30 percent?

I like to think of Silver Wheaton as the Apple of the mining industry. Both companies make mounds of money skimming profits off the labor of others.

I like to think of Silver Wheaton Corp. (NYSE:SLW) as the Apple Inc. (NASDAQ:AAPL) of the mining industry. Both companies make mounds of money skimming profits off the labor of others.

Apple takes a cut of music, app and book sales on its various devices. Silver Wheaton makes money via a process known as silver streaming. In a word, they loan giant mounds of cash to companies developing new mines, then they get that money back in the form of cheap silver when the borrowers gets their mines operational. Often, these arrangements can stretch more than a decade into the future.

So long as silver prices stay high, then, Silver Wheaton’s profits do, too. In fact, one site thinks Silver Wheaton’s shares are undervalued by nearly 30 percent. Trefis values SLW at $40.57 a share.

“(Silver Wheaton’s business model) gives it an edge over the conventional mining companies as it does not incur any kind of operational losses in volatile market conditions,” Trefis wrote recently in a post on Forbes. “Since the company does not own any of the mines, it does not incur any operational and capital costs associated with the production. Moreover, it is not as much exposed to political risks as conventional miners are.”

All told, Silver Wheaton has 14 active silver purchase agreements and two purchase agreements for other precious metals including gold. Silver Wheaton’s most important stream comes from Goldcorp Inc. (NYSE:GG), which had its first full year of silver production at the Peñasquito mine in Mexico in 2011.

The Peñasquito mine alone accounts for nearly 25 percent of Trefis’ price target on Silver Wheaton. “It is estimated that the mine will supply Silver Wheaton an average of 7 million ounces annually for the next 22 years,” Trefis writes. That’s a lot of silver, and Silver Wheaton’s cash costs for that metal will be just $3.93 per ounce (per the company’s year-end production numbers).

Overall, Silver Wheaton’s cash costs for silver in 2011 stood at $4.09. That same year, silver prices averaged $35.12 an ounce.

2012 is proving to be less predictable. And that extreme volatility could drive investors toward solid, more-established companies like Silver Wheaton. Because Silver Wheaton’s business model distributes risk across more than a dozen companies in jurisdictions around the world, investors can rest assured that SLW will be able to weather even extreme silver price shocks.

For icing on the cake, Silver Wheaton shares are yielding 1.26 percent. A limited downside and lots of upside make the current weakness in the mining sector look like a buying opportunity in Silver Wheaton.

Like this post? Check out our brand new book The Top 500 Gold and Silver Mining Stocks to uncover more great junior miners that analysts may have missed.

Related

Up 180%? 10 best gold and silver stocks returns year-to-date

From Wilcat Silver Corp. to Midway Gold Corp., here’s a look at the Top 10 best gold and silver stocks with the biggest returns this year.

Picking winning gold and silver stocks is notoriously difficult. Not only are mining stocks influenced by volatile precious metals prices, they’re also subject to natural disasters, political risk, worker strikes, misinformation and poor assay results. If you can find the right companies with the right management (see my post How to pick gold stocks that outperform the market), the gains can be extraordinary.

Here’s a list I put together of the top 10 biggest gainers in the gold and silver market year to date. I pulled only from the 100 largest gold and silver stocks by market cap:

Stock YTD Gain
NEWSTRIKE CAPITAL INC. (PINK:NWSKF) 181.24%
Midway Gold Corp. (AMEX:MDW) 177.48%
NGEX RESOURCES INC. (PINK:NGQRF) 144.63%
Richmont Mines Inc. (AMEX:RIC) 129.55%
WILDCAT SILVER CORP (PINK:WLDVF) 114.23%
SCORPIO MINING CORP (PINK:SMNPF) 97.62%
PRETIUM RESOURCES INC ORD (PINK:PXZRF) 63.02%
Samex Mining Corp. (OTC:SMXMF) 51.39%
Vista Gold Corp. (AMEX:VGZ) 48.54%
Minefinders Corp. Ltd. (AMEX:MFN) 44.75%

The year-to-date gains listed above are particularly impressive considering the steep losses gold and silver stocks suffered yesterday. Several of the stocks on the list lost nearly 20 percent in a brutal day of trading. Here are my guesses as to why these stocks have out-performed their peers this year:

NEWSTRIKE CAPITAL INC. (PINK:NWSKF): Newstrike’s Ana Paula project in Mexico continues to show impressive drill results. Most recently, the company announced 119.60-meter interval grading 3.76 g/t gold. That’s after results of 230.95-meter interval grading 7.5 g/t gold in April. The Ana Paula project has good pedigree. It was purchased from Goldcorp Inc. (NYSE:GG) last year. Goldcorp still has a robust mine there in Los Filos, and Torex Gold Resources Inc.’s (TSX:TXG) Morelos project is nearby. All three are part of the Guerrero Gold Belt.

Midway Gold Corp. (AMEX:MDW): Company insiders have been big buyers over the past six months snagging 100,000 net shares (per DailyFinance). Analysts have a price target of $3.71 on the stock as drill results from Nevada roll in. Midway’s gained a lot of investor interest thanks to a joint venture with Barrick Gold Corporation (NYSE:ABX).

NGEX RESOURCES INC. (PINK:NGQRF): The company’s Josemaria copper-gold deposit in Argentina has 460 million tonnes of gold (0.30 g/t gold) in the ground. NGEx’s also drilling for potash in Eritrea with results expected next month.

Richmont Mines Inc. (AMEX:RIC): Richmont’s Wasamac gold deposit just seems to keep mushrooming. Most recently, the company intercepted 7.28 g/t gold over 31.40m. The company has interests in 14 projects in Ontario and Quebec.

WILDCAT SILVER CORP (PINK:WLDVF): One of a handful of precious metals stocks that’s focused exclusively on silver, Wildcat Silver Corp. has an 80 percent interest in the Hermosa silver project in Santa Cruz, Arizona. The project has an indicated resource of 36 million ounces of silver and an inferred resource of 85 million ounces. Recent drilling results showed an impressive 230.9 g/t silver.

SCORPIO MINING CORP (PINK:SMNPF): Headquartered in Canada, Scorpio’s mines in Mexico are already in production. Fifty-five percent of the company’s revenue comes from silver – with the rest a mix of zinc, copper and lead. In addition to their operational Nuestra Señora mine, Scorpio has its eyes on more than 40 other exploration targets.

PRETIUM RESOURCES INC ORD (PINK:PXZRF): Much of the excitement around Pretium surrounds the company’s Snowfield deposit. Pretium could join up with mining major Seabridge Gold, Inc. (AMEX:SA) to further explore the project. On top of Snowfield, there’s the “Bonanza-grade” results the company recently announced at its Brucejack Project (5,740 g/t gold and 2,750 g/t silver).

Samex Mining Corp. (OTC:SMXMF): Samex is an early-stage exploration company that’s drilling in the Los Zorros District in Chile. Four out of 46 holes drilled at the Milagro project yielded 4.26 to 5.56 g/t gold.

Vista Gold Corp. (AMEX:VGZ): Impressive results from the company’s Mt.Todd Gold project pushed shares up nearly 20 percent in a day last week. Measured mineral resources were bumped up 23 percent to 353,000 ounces of gold. Indicated resources climbed 14 percent to 506,000 ounces of gold.

Minefinders Corp. Ltd. (AMEX:MFN): Minefinders’ massive Dolores gold and silver mine in northern Mexico is in production and has proven reserves of 1.2+ million ounces of gold and 68+ million ounces of silver. The company’s also evaluating the viability of a mine at its La Bolsa property.

Related

How to pick gold stocks that outperform the market

One of my favorite methods for discovering unheralded gold mining stocks is browsing through the holdings of large gold investment funds to see what stocks they’re gobbling up.

1) Don’t bet the farm on a junior mining stock. When you first start learning about investing in gold mining stocks, you’ll hear these phrases tossed around a lot: junior, mid-tiers and majors. The major gold and silver producers are the Exxon Mobils of the industry. Companies like Barrick Gold Corporation (NYSE:ABX), Goldcorp (NYSE:GG) and Newmont Mining Corporation (NYSE:NEM), for instance, all have market caps north of $30 billion. They’ve got numerous projects already producing gold and dozens of other projects and partnerships in the works. If gold prices collapse, they should weather the storm better than smaller, more speculative stocks.

Below the majors, you’ve got mid-tier companies that have brought at least one mine online or are very close to pouring gold with gobs of cash reserves in the bank and proven reserves in the ground. A promising mine in a politically stable country is as good as money in the bank for a lot of mid-tier miners as they’re solid buyout targets for the majors.

Below the mid-tiers, you’ve got juniors. They’re the small, thinly-funded, living-on-prayer-type companies (typically with market caps less than $2 billion) that buy up interests in large tracts of land, then start the long process of assaying the land for provable reserves. Know that when you’re investing in juniors, you could lose money just as easily as you could make it. The results of pre-feasibility studies can make or break a company – and you want to make sure you’re not broken along with a risky stock. Mix your gold stock holdings between majors, mid-tiers and juniors.

2) Make sure the execs have top-notch resumes. If you’re going to pour your cash into an unproven gold stock, take the time to find out who’s running the company. Almost all mining stocks have web sites touting the experience of the company’s employees and directors. Ideally, those managers, board members and geologists should have long track records with experience at major or mid-tier mining companies. There should be more than a handful of employees on the payroll, too. Some sites recommend only investing in companies with at least 10 employees.

3) Pay attention to the numbers. Kenneth J. Gerbino at Gold-Speculator offers some guidelines when it comes to evaluating just how great that new mining discovery is. A mine with less than 2 million reserve ounces, he argues, is likely not worth the investment it will cost to mine it (although, keep in mind, Gerbino wrote those numbers in 2009 when gold was much cheaper). When it comes to mines, bigger is better. Ten million tonnes at an open pit gold mine sounds large, but it’s not. Three-hundred million tonnes is large. Each of those tonnes should yield at least 1 gram of gold (or, better yet, 2 grams).

4) Location is everything. Look for gold mining stocks that are located near old or existing gold mines to lower your risk and increase the probability that your pick will hit pay dirt. It’s not without reason that much of the mining activity in the world happens in just a few locations. Special geological conditions are required for the formation of gold, and those conditions occurred in a relatively small number of places around the world. China, South Africa and Australia currently produce more gold than anywhere else in the world (although the U.S. and Russia aren’t far behind).

5) Follow the mutual funds. One of my favorite methods for discovering unheralded gold mining stocks is browsing through the holdings of large gold investment funds. See which stocks large gold funds like Tocqueville’s Gold Fund, Oppenheimer’s Gold & Special Minerals Fund, Midas Funds and others are holding. If they initiate a large new position in a relatively unknown gold mining stocks, chances are, you can hop on for the ride.

Related

WHY THE TREND WILL CONTINUE


10 reasons why we’ll see gold over $2,000 an ounce


THE ANTI-DOLLAR


How to invest in the Swiss franc


THE WHITEST OF METALS


When will we see silver prices at $50 oz. again? Sooner than you might think…


BIG PROFITS FROM DOWN UNDER


Top 5 best Australian gold mining stocks


FIGHT BACK


How to resist the new world order


THE AMAZON OF CHINA


3 reasons to invest in the 360Buy.com IPO (Jingdong Mall)


15 gold price predictions for 2011

A number of influential traders and executives have publicly weighed in with gold price forecasts for 2011. Here’s a recap of the more memorable predictions from 15 trading professionals and individuals.

A number of influential traders and executives have publicly weighed in with gold price forecasts for 2011. Here’s a recap of the more memorable predictions:

Chuck Jeannes: Goldcorp Inc.’s (NYSE:GG) CEO sees gold at $1,500 an ounce as “easily achievable,” and he could see the price eventually rising as high as $2,300 if and when inflation sets in (The Street)

Dennis Wheeler: Coeur d’Alene Mines Corporation’s (NYSE:CDE) CEO “would not be surprised” if gold prices rose to $1,500-$1,600 an ounce in 2011 (Reuters)

Sean Boyd: Agnico-Eagle Mines Limited’s (NYSE:AEM) CEO argues gold at $1,600 an ounce in the next 12 months would “not be a stretch” (Reuters). “Gold will ultimately go above $2,000 and I think it’s going to go in steps so I could see $1,600 this year,” he tells The Street.

Mark Cutifani: The CEO of AngloGold Ashanti Limited (NYSE:AU) see gold range-bound between $1,300 and $1,500 an ounce in 2011 (The Street)

Rick Rule: The founder of Global Resource Investments, which was acquired by Sprott Inc. (TSE:SII), expects “some event-driven spike in metals prices.” “I have no earthly idea where gold will close, but to be a good sport and play the game, I’ll say $1,750,” he says (SeekingAlpha)

Aaron Regent: CEO of Barrick Gold Corporation (NYSE:ABX) tells The Street he believes the “forward curve would suggest a gold price in the $1,500 range” (The Street)

Ian McAvity: The founder of the Central Fund of Canada (CEF), Central Gold Trust (GTU), and Silver Bullion Trust (SBT.U) expects a “monetary panic” in the dollar or euro to push gold to $2,000-$2,400 per ounce this year or in 2012 (SeekingAlpha)

Mark Bristow: The CEO at Randgold Resources Ltd. (NASDAQ:GOLD) expected gold to rise as high as $1,500 an ounce (The Street)

Morgan Stanley (NYSE:MS): The investment bank has set a gold price target of $1,512 an ounce for gold in 2011 (The Street)

Ross Norman: The co-founder of TheBullionDesk.com is looking for gold to trade between $1,350 and new all-time highs of $1,850 per ounce (SeekingAlpha)

The Street reader survey: Of the almost 6,000 people who have taken The Street’s gold poll, 47 percent believe gold prices will finish between $1,500 and $1,800 an ounce in 2011 (The Street)

James Turk: The founder and chairman of online precious metals vendor GoldMoney.com sees gold sprinting much higher “probably in the first half” of this year to $2,000 per ounce (SeekingAlpha)

Charles Oliver: The senior portfolio manager of the Sprott Gold and Precious Minerals Fund, Oliver sees currencies around the world continuing to plummet in 2011. He expects that will push gold up to $1,700+ by the end of the year (SeekingAlpha)

Adrian Ash: A researcher at BullionVault sees individual savers moving into gold bullion this year as negative real interest rates erode buying power. That could push gold 20 percent higher this year to $1,695 an ounce (SeekingAlpha)

Richard O’Brien: The president and CEO of Newmont Mining Corporation (NYSE:NEM) sees gold eventually rising to $1,750 an ounce by 2012 thanks to the protection the metal provides against inflation. In 2011, he sees gold trading between $1,350 and $1,500 an ounce (Reuters)

Related

PRECIOUS ETFS


Top 10 best gold and silver ETF funds


MINTING MONEY


How to find good stocks for day trading


SILVER SHEEN


Three triggers that could push silver over $50 ounce


SEEING RED


How to Invest in Copper


WHAT’S THE POINT?


Why invest in silver?

GOLDEN OPPORTUNITY


Top 3 reasons to invest in gold in 2011

Three reasons to invest in Xstrata PLC (PINK:XSRAF)

Xstrata (PINK:XSRAF) shares trade at a 10 percent discount to the company’s coal and copper assets alone. If that isn’t enough, here are three more reasons to consider adding Xstrata to your portfolio.

The world’s largest producer of thermal coal and a world-class copper miner, Xstrata’s (PINK:XSRAF) earnings spiked 86 percent during fiscal year 2010. Metals analyst John Tumazos of John Tumazos Very Independent Research tells Barron’s the company’s significantly under-valued compared to its peers. Indeed, shares trade at a 10 percent discount to Xstrata’s coal and copper assets alone. If that isn’t enough, here are three more reasons to consider adding Xstrata to your portfolio:

1) Leader of the pack. Xstrata has “the greatest growth upside” of any of the large-cap miners, according to analysts at Credit Suisse. Copper and coal volumes are expected to surge at an average of 50 percent over the next five years Barron’s reports. That’s good news as prices for both commodities have surged toward record levels this year. Xstrata’s also got significant nickel, zinc and alloy deposits including primary vanadium and platinum group metals. As a bonus, the company provides technology services for large-cap miners including Anglo Platinum Limited (PINK:AGPPY) and Goldcorp Inc. (NYSE:GG).

2) Rain, rain go away. Flooding in Australia has temporarily halted output at the company’s Ulan mine, which has an annual output capacity of 4 million tonnes of thermal coal, according to The Australian. The flooding has also affected coal output at BHP Billiton, Rio Tinto, Peabody Energy and Anglo American, stoking coal prices around the world. Xstrata’s strong balance sheet should help the company get the mine back online quickly, and Xstrata claims the shutdown will have little effect on profits.

3) Dividends are good. Xstrata recently returned its dividend to pre-crisis levels with a year-end payout of 20 cents. It was a move that was significantly higher than expected, Paul Galloway, analyst at Sanford Bernstein, tells the Financial Post. If copper and coal prices keep climbing, expect even better dividends in the years to come.

Related

COPPER BUGS


How to Invest in Copper


GLOWING NUMBERS


Uranium price forecast for 2011 and 2012


SEEING RED


World copper consumption supply and demand in 2011


DROPPING DOLLARS


Signs double digit inflation is coming to U.S.


GOLD BUGS


Triggers that could push gold to $5,000 per ounce

SECRET METALS

How to invest in rare earths stocks

Osisko Mining nears completion on Canada’s largest gold mine (OSK)

Osisko Mining Corp. (TSE:OSK) is preparing to bring Canada’s largest gold mine, the Malartic gold deposit, into production in Q2 2011.

Changes are afoot at Osisko Mining Corp. (TSE:OSK) as the company prepares to bring Canada’s largest gold mine, the Malartic gold deposit, into production in Q2 2011. Earlier this week, Goldcorp Inc. (Public, NYSE:GG) sold its 10.1 percent stake in Osisko for $530 million.

The move alleviates speculation that Goldcorp intended to acquire Osisko, and TD Newcrest analyst Daniel Earle sees that as a bullish sign. “Over the long term, we expect Osisko shares could benefit from the elimination of the perceived overhang created by Goldcorp’s sizable stake in the company,” he wrote in a note to clients.

Earle also believes Osisko’s well-positioned to meet its goal of bringing the Malartic deposit online next quarter despite some “execution risk.” The mine is expected to produce more than 600,000 ounces of gold a year over a 12.2-year mine life with operating costs of just $319 per ounce.

In other news, Osisko announced yesterday that six of its exploration properties are set to be acquired by Colorado Resources Ltd. (CVE:CXO) pending approval by Kinross Gold Corporation (NYSE:KGC). Osisko will also contribute $500,000 in an equity financing to help fund exploration of the properties in exchange for 200,000 shares in Colorado.

“This transaction between Colorado, Osisko and Kinross allows Colorado to continue the great work started by Brett and Kinross,” Colorado Resources’ President Adam Travis said. “We welcome Osisko as a shareholder in Colorado and look forward to advancing the British Columbia projects with Kinross and strengthening our partnership with them.”

Shares in Colorado Resources have risen 78 percent since they started trading on Nov. 5, 2010. Shares in Osisko have see-sawed in recent months, with shares up 1 percent over the past six months. Expect a pop if and when the Malartic deposit goes into production.

Related

RARE WHAT?


How to invest in rare earths stocks


DR. COPPER


Copper supply in 2011 expected to fall short by 500K tons


DROPPING DOLLARS


Signs double digit inflation is coming to U.S.


RARE FINDS


Top 3 most popular rare earths stock symbols and investments


IPO CALENDAR


The unofficial tech IPO calendar for 2011

RARE STOCK


Three reasons to invest in Avalon Rare Metals Inc. (AMEX:AVL)

Tocqueville Gold Fund (TGLDX) moves higher on Morningstar’s list of top-performing mutual funds

The Tocqueville Gold Fund has edged out the PIMCO Real Estate Real Return Strategy A (PETAX) mutual fund for the No. 2 spot on Morningstar’s top mutual fund performers YTD. That puts it behind only the Dynamic Gold and Precious Metals I (DWGOX) mutual fund, another gold-focused fund that’s returned some 50 percent YTD.

The Tocqueville Gold Fund has edged out the PIMCO Real Estate Real Return Strategy A (PETAX) mutual fund for the No. 2 spot on Morningstar’s top mutual fund performers YTD. That puts it behind only the Dynamic Gold and Precious Metals I (DWGOX) mutual fund – another gold-focused fund that’s returned some 50 percent YTD. The Tocqueville Gold Fund has returned just shy of 36 percent YTD, and here’s a look at its Top 10 biggest holdings as of Aug. 31, 2010:

Holding % of Total Assets Ticker
Physical Gold 7.2% n/a
Osisko Mining Corporation 6.2% TSE:OSK
Randgold Resources Limited – ADR. 4.5% NASDAQ:GOLD
Ivanhoe Mines Ltd. 4.4% NYSE:IVN
Eldorado Gold Corp (pvt) 4.1% NYSE:EGO
Andean Resources 4.0% TSE:AND
IAMGOLD Corporation 3.8% NYSE:IAG
Silver Wheaton Corp (pvt) 3.6% NYSE:SLW
Newmont Mining Corporation 3.5% NYSE:NEM
Goldcorp, Inc. 2.9% NYSE:GG

Compare their holdings with Dynamic Gold and Precious Metals I (DWGOX) mutual fund, and you’ll see Tocqueville Gold Fund’s more conservative – although there are quite a few overlaps. Namely, both funds count the following stocks in their Top 10 holdings:

  • Osisko Mining Corporation (TSE:OSK)
  • Eldorado Gold Corp (NYSE:EGO)
  • Andean Resources (TSE:AND)

Related Posts

Top five mutual funds returns in 2010