Silver Wheaton Locks In on Silver

From Silver Spoons to silver linings, and silver medals to silver anniversaries, the insertion of "silver" before any word carries precious connotations. It's no surprise, then, that silver streams offer such a compelling long-term investment.

Given the frequency with which annoying hiccups like mine development delays and cost overruns can wreak havoc upon the unsuspecting precious-metals investor, Silver Wheaton's (NYSE: SLW  ) unconventional, fixed-cost model of securing silver streams from miners like Goldcorp (NYSE: GG  ) offers Fools a refreshing layer of protection from the ravages of operational challenges. Since even the highest-quality miners like Agnico-Eagle Mines (NYSE: AEM  ) are not immune, the strategic advantage of this business model must not be overlooked.

Returning to profitability after a $65 million hemorrhage of investment revaluation in the fourth quarter, Silver Wheaton has only grown stronger during this prolonged correction in precious metal prices. The company has paid down debt and is poised for further dealmaking with an untapped $400 revolving credit facility. Despite a 31% reduction in realized sales prices for silver compared to the first quarter of 2008, Silver Wheaton's stable all-in cost of production below $6 per ounce of silver positions the company extremely well for a silver price recovery just as production ramps up further during 2009.

Thanks to anticipated commercial production from Goldcorp's Penasquito mine, Silver Wheaton expects to "produce" (purchase, really) 15 million to 17 million ounces of silver in 2009. That's a hefty stash of bullion, but still short of the expected 2009 volumes from miners like Pan American Silver (Nasdaq: PAAS  ) and Coeur d'Alene Mines (NYSE: CDE  ) , and substantially less than the 42.3 million ounces of silver produced by megaminer BHP Billiton (NYSE: BHP  ) in 2008. By the time Silver Wheaton approaches the 30-million-ounce target by 2013, however, I predict that this still-undervalued silver stream specialist will have burst into the limelight and garnered the attention it warrants.

As silver finally found support near $9 per ounce late last year, the silver miners carved a convincing reversal that saw battered names like Coeur d'Alene Mines and Hecla Mining (NYSE: HL  ) reap huge gains and propelled my silverminer CAPS profile deep into the top ranks. Silver Wheaton has surged more than 250% since I explored its valuation on November 25, and the pending all-stock acquisition of smaller rival Silverstone Resources (with a further 133 million ounces in silver reserves) assures this Fool that we've still only witnessed the beginning of a long-term recovery. Notwithstanding the necessary caveats about silver price volatility and the slingshot effect, I reiterate my contention that Silver Wheaton is the premier vehicle for silver investment exposure.

Silver-plated Foolishness:

More than 1,500 CAPS members, including 500-plus All-Stars, have selected four-star pick Silver Wheaton to outperform the S&P 500. 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 carries a silver coin which reads: "Honest value never fails." He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Agnico-Eagle Mines, BHP Billiton, Coeur d'Alene Mines, Hecla Mining, Pan American Silver, Silverstone Resources, and Silver Wheaton. The Motley Fool's disclosure policy is 0.999 pure.


Read/Post Comments (4) | Recommend This Article (16)

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  • Report this Comment On May 14, 2009, at 12:43 AM, paultaut wrote:

    You can keep SWC. I'll go with CDE which also has Gold in its portfolio.

    Besides, Investment managers will finally be able to recommend CDE shortly. They have an impending 1 for 10 reverse stock split.

  • Report this Comment On May 14, 2009, at 2:49 AM, shoefly11 wrote:

    I got out of silver because all I can see is a GLUT for the next few years. I suspect, silver will not be so precious, the way these miners are going after it!

  • Report this Comment On May 14, 2009, at 10:07 AM, XMFSinchiruna wrote:

    paultaut,

    as you can see from the disclosure above, I am long CDE as well. :)

    shoefly,

    I disagree. I'm not sure if you're accounting for the number of base metal projects that were shelved during the worst levels of the correction last Fall, and the quantity of by-product silver lying dormant as a result.

  • Report this Comment On May 22, 2009, at 11:51 AM, Geokiri wrote:

    CDE IS A BUY AND HOLD. THEY HAVE SILVER AND GOLD HOLDINGS AND SHALL SHOW POSITIVE EARNINGS GROWTH THIS YEAR AND IN THE FUTURE. THE 1 FOR 10 REVERSE STOCK SPLIT WILL ALSO GET THEM OUT OF THE PENNY STOCK CATEGORY.

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