Why Silver Wheaton Corp. Margins Wildly Outpaces its Mining Peers

SLW Chart

Silver WheatonCorp. (NYSE: SLW) is a precious metals company that makes its money selling silver and gold. But it's vastly different from miners like Newmont Mining Corp (NYSE: NEM) or Barrick Gold Corporation (NYSE: ABX). And a key area to watch is margins.

Digging in

Gold and silver mining is a capital-intensive business, involving large machines and huge investments. In other words, there's a lot of cost in the business and that can make it hard to turn a profit when commodity prices are falling -- like they are today. For example, Newmont, one of the largest gold miners on the planet, had all-in sustaining costs of roughly $885 per ounce of gold in the third quarter. Barrick's costs were $771 per ounce.

SLW Chart

SLW data by YCharts .

The bottom-line impact of this is pretty telling. Newmont has lost money in three of the four full calendar years since precious metals peaked in 2011. Barrick lost money in one of those years. Silver Wheaton hasn't bled any red ink. Silver Wheaton simply has more room to take the hit from falling silver and gold prices because it avoids the costs of owning and operating mines. It's wide margins are the result and what's given it the earnings staying power in this long downturn.

At this point you might be asking yourself if Silver Wheaton is the perfect mining stock. It's not. There's one really important risk to consider: access to capital markets. Silver Wheaton's business model relies heavily on accessing the capital markets. If the company can't do that, for any reason, growth investments slow or even stop. That shouldn't impact the business it has in place, but it certainly changes the long-term outlook.

There's also another not so minor risk specific to Silver Wheaton today; Canada says it owes back taxes. Silver Wheaton believes it's in the clear, but if it loses this tax case it could have an immediate negative impact on results and a lingering one since it could lead to higher taxes on an ongoing basis. You'll want to watch this company-specific issue closely if you decide to buy in.

Not perfect, but ...

Silver Wheaton isn't a perfect investment by any means (no company is). But if you are looking at the precious metals space, this is one company worth a deep dive. Its business model is different from traditional miners like Barrick and Newmont and one important area it shows up is in the margins. While the entire industry is down and out, now might be a good time to examine this discrepancy.

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The article Why Silver Wheaton Corp. Margins Wildly Outpaces its Mining Peers originally appeared on

Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns shares of Silver Wheaton. (USA). Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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

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

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