Submitted by
SK
Options Trading
as part of our
contributors program
.
What a difference a couple months makes, back in July our
largest single holding, Silver Wheaton Corporation (
SLW
) was flirting with the $25.00 level and then a strong rally
propelled it as high as $40.00 before easing back a tad.
The break out of silver prices has been long awaited as the
consolidation period appeared to drag on and on, testing the
patience of many investors. If you are new to the silver space you
should be aware that volatility comes with the territory and as
such you will need a cast iron stomach as this
white knuckle
ride of a silver bull market develops. However, the central bankers
have now showed their hand in that their solution to the economic
problems that plague sovereign nations is to continue to print
money until all is resolved. This remedy does not have a happy
ending as history has proved so many times in the past. No fiat
currency has ever survived so the long game will result with the
implementation of a completely new monetary system. In the meantime
we can only hope to protect ourselves from the fallout of such
folly by channeling our resources into some form of hard assets;
gold and silver are top of our list, but each to their own.
Latest Comments from SLW
Today we were in touch with Rory Quinn, Manager, Investor
Relations, for SLW regarding the possibilities of more acquisitions
as a fair amount of time had lapsed on the deal making front prior
to the Hudbay agreement being announced. This is his response:
Silver Wheaton (SLW: NYSE & TSX) was recently recognized
as #1 (out of 100) in "Fortune's Fastest-Growing Companies"
magazine, September 24th issue.
The recent transaction with Hudbay Minerals (
HBM
), closed September 28th, 2012, contributes to an industry
leading growth profile allowing Silver Wheaton to grow from 28
million equivalent silver ounces forecast in 2012, to 48 million
equivalent silver ounces forecast in 2016. The company is as busy
as it has ever been on the business development side of the
business (reviewing projects and potential transactions), and it
has plenty of capacity to pursue other transactions now and in
the future ($1.1B cash balance as of 06/30/2012, minus $500M paid
to Hudbay and a $138M payment to Barrick. Plus a quarter's worth
of cash generation [example: $172M in Q2 2012, $168M in Q2 2011]
and a $400M undrawn credit facility).
Silver Wheaton investors benefit from exposure to silver,
yield (through its dividend policy), access to some of the best
mines in the world at a fixed cost per ounce of silver, growth
from the company doing further transactions, exposure to the
existing growth profile through 2016, and organic exploration
growth at its partners' mines. In those ways, an investment in
Silver Wheaton offers much more than an ETF does, and the implied
administrative cost of Silver Wheaton's G&A works out to
about 18 basis points (0.18%), compared to anywhere from a 30 to
56 basis points administration cost for popular silver ETF
products.
All the best Bob,
Rory
So there you have it straight from the horse's mouth, so to
speak. We would draw your attention to the words;
The company is as busy as it has ever been on the business
development side of the business
this bodes well for growth and as such we look forward to more good
news form the company in the near future.
Background to Silver Wheaton
Silver stream or silver purchase agreements allow Silver Wheaton
to purchase, in exchange for an up-front payment, the by-product
silver production of a mine that it does not own or operate. Since
approximately 70% of all silver production occurs as a by-product
of base or precious metals production, there are numerous potential
opportunities for further growth with this business model.
The operating costs that Silver Wheaton pays for future silver
production are pre-determined in the agreements, at approximately
$4 per ounce, with a small inflationary adjustment. This amount
offsets our partners' typical cost to produce an ounce of silver.
Fixed costs reduce our shareholders' downside risk while at the
same time providing the upside of leverage to increases in the
price of silver. As well, other than the initial upfront cash
payment, Silver Wheaton does not contribute to future capital
expenditures or exploration costs invested by the mine; yet we
benefit from the production and exploration growth that result from
these expenditures. This business model often translates into
significant value creation for Silver Wheaton shareholders.
Silver Wheaton was recently named Fortune magazine's fastest
growing company after it managed to grow profit by 340% in three
years.
Silver Wheaton pursues acquisitions that are accretive to
shareholders and low-risk in terms of asset quality and political
jurisdiction. To this end, the company currently has fifteen silver
purchase agreements and three precious metal purchase agreements
with thirteen mining partners around the globe. These agreements
cover seventeen operating mines and four development stage
projects, and are set out in the table below.
The chart below clearly shows just how volatile the silver
market can be, however, it is good see that SLW has rallied back
from its recent lows with some gusto.
Analyst's opinions
This is the Smart Consensus Peer Ratings 05 October 2012,
showing 4 Buys and 6 Holds.
When comparing SLW with Silver ETF's the chart below identifies
the advantages of holding SLW over a silver ETF
Trading Ideas
For a long idea we suggest accumulating this stock for the long
term as and when you can. The fortunes of SLW are predicated on the
performance of silver prices heading to higher ground. We are
quietly confident that both
gold
and
silver
prices will return to challenge and overcome their all-time highs
in the very near future. The old adage of buy the dips applies,
however, the upcoming dips may well be of the shallow variety, so
by all means try and secure a bargain but not at the expense of
missing out altogether.
Financials
Silver Wheaton Corporation has a market capitalization of
$14.17Bln, an EPS of $1.60, a 52 week low of $22.94 and a high of
$40.41, average volume of shares traded is around 5.00Mln, so the
liquidity is good, with 353.87 million shares outstanding. Current
stock price is $40.04.
Silver Wheaton Corporation trades on both the NYSE and the TSX
under the symbol of SLW.
Also look for third quarter results which will be released on
Monday, November 5, 2012, before the market opens.
Finally, we expect silver prices to finish this year strongly
propelling this stock to much higher ground and keeping it on track
to hit the $100.00 price target that we have placed upon it, within
12 months or so.
Have a good one.
Disclaimer: www.gold-prices.net or www.skoptionstrading.com
makes no guarantee or warranty on the accuracy or completeness of
the data provided. Nothing contained herein is intended or shall be
deemed to be investment advice, implied or otherwise. This letter
represents our views and replicates trades that we are making but
nothing more than that. Always consult your registered adviser to
assist you with your investments. We accept no liability for any
loss arising from the use of the data contained on this letter.
Options contain a high level or risk that may result in the loss of
part or all invested capital and therefore are suitable for
experienced and professional investors and traders only. Past
performance is not a guide nor guarantee of future success.