Silver Wheaton (NYSE:SLW) is the world's largest silver
streaming company and competes with silver manufacturers
like Silver Standard Resources (
), Pan American Silver (NASDAQ:PAAS), Bear Creek Mining
) and Endeavor Silver (
). It purchases silver from mining companies that produce silver as
a by-product, typically gold and copper mining companies.
While we are structurally bullish on Silver Wheaton - as
evidenced by our
$43 price estimate
that is over 30% ahead of the market - we look at a downside
scenario which could deflate our optimism.
Silver Wheaton at a Glance
The company currently has fourteen silver purchase agreements
and two purchase agreements for precious metals like gold.
Moreover, the company also has the right to purchase all or a
portion of the silver production attributable. This gives it an
edge over the conventional mining companies as it does not incur
any kind of operational losses in volatile market conditions.
Moreover, since the company does not own any of the mines, it does
not incur any operational and capital costs associated with the
Below we take a look at a potential downside scenario for the
10% Downside Scenario - $41
Trefis price estimate for Silver Wheaton
Silver Shipments and contracts - Goldcorp
Goldcorp's Peñasquito mine will complete its first full capacity
production in 2011. Silver Wheaton will receive silver from this
mine for the complete life of the mine. We estimate that the mine
will on an average supply Silver Wheaton 7 million ounces annually
for the next 22 years.
We calculated these numbers using the production capacity and
the reserves and resources at the Peñasquito mine. In a
scenario where Goldcorp is unable to increase the current
production levels during the Trefis forecast period, it could lead
to a significant downside to the Trefis price estimate.
If production remains flat to 2011 levels, this would knock
about 5% off of our price estimate. If production levels matched
2010 low's this would imply a price estimate of nearly 15%
See our full analysis for Silver Wheaton