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
.