Beyond the Sterling Standard in Silver

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Sterling silver sets make for attractive table settings and beloved family heirlooms. When it comes to investing, however, Fools seek a vehicle that's as pure as the finest silver.

After enjoying an incredible 46% surge in silver production from its unrivaled portfolio of producing silver stream assets in 2009, Silver Wheaton (NYSE: SLW  ) remains poised to deliver a further 35% growth spurt in 2010 to reach 23.5 million silver equivalent ounces (SEOs). Targeting more than 40 million SEOs by 2013, this is one remarkable growth story. To place the company's production volume into context, popular miner Hecla Mining (NYSE: HL  ) is targeting only 11 million ounces for 2010.

Silver Wheaton reported fourth-quarter earnings of $50.8 million, flanked by surging operational cash flow of $71 million. Despite an aggressive spate of strategic acquisitions during 2009, the company ended the year with $220 million more cash in its treasury than after the prior year.

Mixing this cash hoard with a $400 million credit facility at its disposal and a clear outlook for steadily expanding cash flow, Silver Wheaton is cooking up a recipe for unparalleled acquisitive growth in this highly prospective sector.

Goldcorp's (NYSE: GG  ) long-awaited Penasquito mine began shipping product during the quarter, and is now forecast to deliver some 3.5 million ounces of silver to Silver Wheaton during 2010 (before reaching long-term average volume of 7 million ounces annually). As I have discussed before, Penasquito is the near-term growth driver that forms the bridge to enormous production growth expected from Barrick Gold's (NYSE: ABX  ) Pascua-Lama mine by 2013. With the addition of a silver stream for a portion of production from Pan American Silver's (Nasdaq: PAAS  ) Navidad project in Argentina, Silver Wheaton now boasts a stake in three of the top five silver deposits in the world.

Emanating both from the world-class mines noted above, and from exciting development projects like Alexco Resource's (AMEX: AXU  ) Keno Hill silver district, an enormous capacity for organic reserve growth forms another of the billions of reasons for Fools to adore Silver Wheaton.

My decidedly bullish outlook for silver is scarcely a secret at this stage, and Fools tracking my coverage of this sector are likewise aware that Silver Wheaton remains my top pick in this exciting sector. Your fellow readers consider your opinions as valuable as a bullion bar, and encourage you to vote in our Motley Poll and share your views in the comments section below.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Alexco Resources, Hecla Mining, Pan American Silver, and Silver Wheaton. The Motley Fool's disclosure policy is .9999 pure.

Read/Post Comments (2) | Recommend This Article (18)

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  • Report this Comment On March 08, 2010, at 4:11 PM, jarl22 wrote:

    Perhaps SLW's 40m SEO in 2013 (compared to HL's 11M in 2010) explains why SLW's market cap is 4X HL.

    How does this silver production translate into cash flow or profit?

    Isn't SLW's cost around $3.95/ounce while HL's is $1.91 after by-product credits?

    Many more things to consider beyond just amount of production...

  • Report this Comment On March 08, 2010, at 9:19 PM, XMFSinchiruna wrote:

    Valuing a precious metal producer is about much more than mere production volumes and costs.

    Silver Wheaton's total attributable resource portfolio is more than five times the scale of Hecla Mining. Hecla lays claim to combined P&P, M&I, and Inferred reserves and resources of 325m ounces of silver. Silver Wheaton's portfolio stands above 1.7 billion ounces. Hence the apparent disconnect in valuation. SLW's greater cash flow will yield superior opportunities for acquisitive growth over a miner like HL.

    Keep in mind, as a Hecla shareholder myself, I consider Hecla a high quality, low cost producer that's an attractive addition to any precious metal basket, but with essentially fixed production costs, five times the resource base, and a unique, growth-ready business model that renders any direct comparison to Hecla tough to rationalize, Fools will appreciate that Silver Wheaton is simply a breed apart.

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