Elevated Silver Prices Give Wheaton's Silver Large Upside


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The average silver price (per ounce) realized by Silver Wheaton (NYSE:SLW) from its streaming contract with Capstone Mining Corp. rose from $16.20 in 2009 to $32.30 currently. We expect the average price to keep rising given the growing industrial demand for silver as well as on fears of inflation. Silver Wheaton mainly competes with silver manufacturers like Silver Standard Resources ( SSRI ), Pan American Silver (NASDAQ:PAAS), Bear Creek Mining Corporation ( BCM ) and Endeavor Silver ( EXK ).

We currently have a Trefis price estimate of $50 for Silver Wheaton's stock , about 45% above the current market price.

As part of the Silverstone acquisition in 2009, Silver Wheaton acquired a precious metal purchase agreement with Capstone Mining Corp. to acquire 100% of the silver and gold produced from Capstone's Minto mine in Canada for the life of the mine and Capstone's Cozamin mine in Mexico for a period of 10 years. This increases the company's dependence on silver.

Fears of Inflation

The continued easy monetary policy adopted in response to the economic crisis has led many to believe that this could result in high inflation as growth takes hold. Increasingly we hear calls of stagflation for developing economies and even western developed countries. Stagflation is inflation and no to low economic growth.

As macro and policy concerns remain, investors look to investing in physical assets and commodities including gold and silver as governments cannot print more gold or silver!

Rising Industrial Demand for Silver

The increase in the production of electronic devices has led to an increased demand for silver. Silver, being a very good conductor of electricity, is used in many electronic devices. Increasing demand for the photo-voltaic cells (solar-cells) has boosted the demand for silver as it is one of the main constituents of the photo-voltaic cell. In addition, the use of silver in medical treatment and medicines is also increasing demand for silver.

While we estimate Silver Wheaton's average price for silver (per ounce) will rise closer to $50 by the end of our forecast period, Trefis members predict it to reach higher at $57. The member estimates imply a marginal impact on SLW stock since the company's silver interest in Capstone constitutes about 8% of the stock value.

Our complete analysis for Silver Wheaton's stock is here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: BCM , EXK , NEM , SSRI

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