No Need to Be Blue; Get Some Silver

While I find the medicinal properties of colloidal silver a very interesting topic, Fools don't have to swallow silver to benefit from its long-admired physical properties. There was a media circus recently about a man whose skin turned blue from ingesting toxic levels of the stuff, but I think it's more enjoyable to get green from silver.

Silver Wheaton (NYSE: SLW  ) has a unique way of turning silver into green, offering miners up-front cash for the right to purchase silver streams at a fixed, low cost. The simple strategy has been a proven winner thus far, leading the clever investors of the Motley Fool CAPS community to praise the stock with our highest-possible five-star rating.

Having inked two silver stream agreements over the past two months, Silver Wheaton is positioning itself for still more deal making. On Tuesday, the company announced that it will issue a new series of warrants to holders of some existing warrants, as an enticement to exercise the existing instruments early. While the deal could lead to the issuance of 31 million shares, nearly 14% of the current share count, the resulting capital could buy a whole lot of silver supply.

All told, between this warrant program and a $100 million increase to the company's revolving debt facility, Silver Wheaton will soon have an extra $236 million at its acquisitive disposal. Given the high cost of bringing new mines into production, plus tight credit conditions, Silver Wheaton should be able to parlay that cash into favorable silver supply agreements.

For a more Foolish perspective, consider that silver stream agreements are themselves like warrants. Warrant holders secure the right to buy Silver Wheaton shares at $20 each over the next five years, and the company uses proceeds to secure the right to purchase silver at a low price (currently below $4 per ounce, plus small adjustments for inflation) over long periods of time.

It's no secret that I'm bullish on the prospects for silver, so whether you choose the iShares Silver Trust (AMEX: SLV  ) for bullion, a major miner like Pan American Silver (Nasdaq: PAAS  ) , or a future prospect like Silver Standard (Nasdaq: SSRI  ) , I believe all these paths could lead to green pastures. For the sheer simplicity of its business model, though, and the ability to leverage cash into large amounts of cheap silver, Silver Wheaton is my personal pick.

Further Foolishness:

452 CAPS All-Stars have rated Silver Wheaton an outperform. Create your own portfolio at Motley Fool CAPS and get on your way to becoming an All-Star investor. It's free and fun!

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Silver Wheaton, Pan American Silver, and Silver Standard Resources. The Motley Fool has a colloidal disclosure policy.

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  • Report this Comment On June 27, 2008, at 3:16 PM, XMFSinchiruna wrote:

    By the way, Silver Wheaton is also welcoming a new CFO to the company: Gary Brown. Please note it is NOT the same Gary Brown who is mentioned in this article about a fraud case at another Canada company.

    I spoke a company representative, and learned that Silver Wheaton's Gary Brown last served as CFO of TIR Systems Ltd.

    Pretty funny coincidence. I suppose that comes with the territory when you have a common name. :)

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