The Basics of Silver Wheaton

By Dan Caplinger | September 18, 2012

The Motley Fool has helped ordinary people become better investors for nearly two decades. This month, we're reaching out to millions of investors to help guide them in their quest toward financial knowledge and independence.

Along those lines, I'm looking at some stocks and other investments that are often misunderstood. Today, I'd like to focus on Silver Wheaton (NYSE - SLW), a company that gives you exposure to silver in a somewhat unusual way.

Why buy Silver Wheaton?

Interest in silver has skyrocketed in the past decade, as the prices of gold and silver have gone through the roof. Investors have any number of good options among mining companies specializing in silver. For instance, Pan American Silver (Nasdaq - PAAS) is a huge producer of silver despite having endured production-related trouble lately, and both Coeur d'Alene Mines (NYSE - CDE) and Hecla Mining (NYSE - HL) also have massive operations with mining sites strategically located around the world.

But Silver Wheaton takes a slightly different approach. Rather than mining silver itself, it provides financing to silver mining companies, receiving in exchange the right to buy a fraction of the miner's eventual silver production at just a small fraction of prevailing market prices. For instance, last month, Silver Wheaton agreed to give Hudbay Minerals (NYSE - HBM) $750 million in exchange for the right to buy 100% of the silver production from Hudbay's two major mines at a price of $5.90 per ounce, in addition to similar rights on gold production.

The genius of Silver Wheaton's approach is that it avoids the risk of rising production costs, labor problems, and other hassles that mining companies have to deal with all the time. Instead, investors can just watch the profits pour back in -- and with a dividend of about $100 for every $10,000 invested, shareholders get an extra bonus. If silver prices rise or if production grows, then Silver Wheaton reaps the benefits.

Learn more

Silver Wheaton gives investors an unusual opportunity to benefit from rising prices for silver. To learn more about Silver Wheaton, use this link to the company's investor relations website.