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The Shining Star of the Silver Screen

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Though the golden age of film launched a slew of great careers, there can only be one Katharine Hepburn. In a sector full of stars with staying power, Silver Wheaton (NYSE: SLW  ) is one act you'll never grow tired of watching.

This low-cost producer with the unique business model achieved record production of 4 million silver-equivalent ounces (SEOs) during the second quarter, earning a respectable $18.4 million despite a 19% decline in realized silver prices from $17.35 to $14.04 year over year.

The volume of silver delivered to the company lagged attributable production by about 1 million SEOs, so sales revenue for the quarter was based upon flat volume of 2.9 million ounces, while delivery of the remaining produced ounces will boost results going forward. Variable timing of shipments will impact sales from time to time because of temporary snags like the semi-annual freezing of the Yukon River near the Minto Mine in Canada. As I've said before, within a rising long-term price environment for silver, delayed sales can conceal a silver lining.

Although I am vocally bullish on gold, my regular readers know that I have consistently considered silver a superior investment vehicle until long-term historical ratios between the two metals are restored. Now that Coeur d'Alene Mines (NYSE: CDE  ) is ramping up production at Palmarejo, and Hecla Mining (NYSE: HL  ) finally carries more cash than debt on its balance sheet, downtrodden miners with significant potential for recovery appear plentiful.

From well-established names like Pan American Silver (Nasdaq: PAAS  ) , to the sheer growth potential of Silver Standard Resources (Nasdaq: SSRI  ) , silver investors have their research cut out for them. Personally, I own them all (did I mention I was bullish on silver?), but I continue to view Silver Wheaton as a shiny standout within a promising sector.

In a nutshell, Silver Wheaton enjoys essentially fixed operating costs of around $4 per ounce, clinching a massive margin advantage over the competition. With additional silver streams coming online, especially Goldcorp's (NYSE: GG  ) world-class Penasquito mine later this year, Silver Wheaton anticipates 72% production growth over the next four years to 31 million SEOs. The company also reports "spectacular exploration success" from the Minto mine, and retains $450 million in liquidity to pursue additional silver streams.

What's not to like?
This is not a rhetorical question, fools. I take my objectivity seriously. Using the comments section below, or my CAPS pitch for Silver Wheaton, I invite you to poke holes in my glowing praise for this company. Aside from a manageable bank debt of $150 million, as a prospective investment this stock reminds me of a vintage Hepburn performance: virtually flawless.

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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 tweets. He owns shares of Coeur d'Alene Mines, Hecla Mining, Pan American Silver, Silver Standard Resources, and Silver Wheaton. The Motley Fool's disclosure policy is 0.999 pure.

Read/Post Comments (5) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 31, 2009, at 5:02 PM, TigerPack1 wrote:

    Short-term lease rates for gold and silver continue to collapse. Heavy hitters, central banks, oil barrons, hedge funds, etc. continue to dump precious metals in large blocks UNDER the stated market price for the metals.

    A real disaster may be coming for precious metals owners.

    The "fear" trade is over; the world did NOT end in the latest financial crisis! Too many smart guys are overloaded with the precious stuff and want out bad. Don't be the last one standing here, as bag-holder status really hurts.

    Commerical hedgers are extremely short and bearish on the precious metals futures. Only hyperinflation worries and late-to-the-game investors are still holding and praying for higher quotes.

    After a good 15%-25% US Dollar price decline in the precious metals, it will be safer to buy again. However, right now I am avoiding them at all costs. It is my least favorite sector.


  • Report this Comment On July 31, 2009, at 7:27 PM, andywd82 wrote:

    You are entitled to your views but I disagree. As do Jim Rodgers, John Paulson, Warren Buffett (at least with his inflation call, if not PM's), Jim Sinclair, Marc Faber... and that's just off the top of my head.

    Before you say "do your own research, don't just buy because you read they are", i can assure you that I have only felt safe in PM's and not any other sector since 2006. The crash suprised me, as I had been waiting for it for two years, and was looking forward to PM's going to the moon, and instead got crushed anyways, but all the money printing since then has made me even more sure of my position, so I bought all the way through last fall instead of selling. All the names above getting into PM's / inflation talk was an added bonus for me to feel even more confident.

    Of course they could go down 15 or 25%, and if they do I will buy yet more still. Because two years from now, I will hopefully capitalise well.

    If you are a short term trader, your comment is appropriate for you, but for investors like me and the author of this article, you comment is not appropriate.

  • Report this Comment On August 02, 2009, at 2:33 PM, paultaut wrote:

    If the "fear" trade is over, then the USD is doomed as well. If you are suggesting that the USD will sink with Gold, I have a bridge to sell you.

  • Report this Comment On August 05, 2009, at 6:27 AM, speedybure wrote:

    Nice Sinch, I was going to write a long when earnings season was over but you got that covered. Anyone who does not believe in the PM story is either clueless or just plain dumb. I mean think about it, this industry consists of mining money! Can it get any better than that. You think your bullish my holdings now are 65% pm miners, 25% oil , 5% hedges and 5% cash.

  • Report this Comment On August 05, 2009, at 6:36 AM, speedybure wrote:

    Does anyone care to put in their two cents regarding which miner SLW will purchase a stream from? I still think TECH"S mine on the Alaskan silver belt or even silver standard in order to rush things along and come as close as possible to peak production while this bull market lasts. SLW's management is brilliant and as mentioned above they can get over 400m in financing plus I think shareholders would agree to another 200m in equity financing, should it be a flagship stream.

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