Why I'm Stuck Like Glue to Silver Wheaton

Like Brooke Shields with her denim, I won't let anything come between me and my shares of Silver Wheaton (NYSE: SLW  ) .

As the stock struck a fresh 52-week low Tuesday amid a truly astounding bout of weakness for the miners of silver and gold, I remain steadfast with my investment focus on the long-term bullish outlook for silver prices and Silver Wheaton's truly phenomenal outlooks for both earnings growth and strategic growth through new stream acquisitions.

The silver-stream holder's net earnings grew 20% to $147.2 million ($0.41 per share) for the first quarter of 2012. Production volume expanded 8% to 6.7 million silver equivalent ounces (SEOs), and the company reiterated full-year guidance for 27 million SEOs on its way to 43 million SEOs by 2015. Based upon the latest updates from key stream partners Barrick Gold (NYSE: ABX  ) and Goldcorp (NYSE: GG  ) , the pieces are coming together nicely in support of Silver Wheaton's outlandish growth spurt. With the miners facing acute cost pressures, furthermore, Silver Wheaton's essentially fixed cost structure has never looked more attractive.

Aside from that powerful growth outlook, let's have a look at the assets that come along for the ride with Silver Wheaton's bargain market capitalization of $8.2 billion. For starters, take note of the cash balance that's approaching $1 billion and growing fast. After accounting for the company's minuscule debt, net cash comes in at $926 million.

Of course, Silver Wheaton's principle assets are the tremendous reserves and resources underlying the company's stream agreements. Even at the presently diminished silver prices of around $27.50 per ounce, combined attributable reserves plus measured and indicated resources total 1.25 billion ounces of silver with a corresponding market value of $34.4 billion. And in an often-overlooked aspect of Silver Wheaton's strength, the outlook for organic reserve growth from promising assets like Primero Mining's (NYSE: PPP  ) San Dimas mine add fuel to the fire for Silver Wheaton's steadily expanding asset base.

With projected annual cash flow of roughly $600 million at current silver prices, and the cushion of an undrawn $400 million credit facility, the company's flush liquidity position will empower the next round of highly accretive stream acquisitions to come. With the scent of another global liquidity crisis wafting through the macroeconomic air, and given the profound state of under-investment in resource equities at large, I believe conditions have turned strongly in favor of Silver Wheaton as it looks to secure the next generation of stream agreements.

I will remain glued to my bullish CAPScall for Silver Wheaton, initiated back in 2006, through the remainder of this countertrend correction in the resource equity space. It may not be a very popular position to espouse amid this moment of relative weakness, but I am still convinced that Silver Wheaton will forge a very powerful long-term advance. Just as I did during 2008, when I pleaded with investors to consider shares of Silver Wheaton at $2.51 per share, I am here to offer the long-term view during a period of pronounced relative weakness.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Goldcorp, Primero Mining, and Silver Wheaton. The Motley Fool owns shares of Primero Mining. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (17) | Recommend This Article (31)

Comments from our Foolish Readers

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  • Report this Comment On May 16, 2012, at 2:20 PM, SN3165 wrote:

    But Sinch, Silver is at $27 I guess this means SLW is no longer profitable?

    :-)

  • Report this Comment On May 16, 2012, at 7:18 PM, xetn wrote:

    From their 5/14/12 1st quarter statement:

    Costs and Expenses

    Average cash costs in the first quarter of 2012 were US$4.081 per silver equivalent ounce, compared with US$4.071 during the comparable period of 2011. This resulted in cash operating margins1 of US$28.51 per silver equivalent ounce, a slight increase compared to the first quarter of 2011.

    That means at current prices, they are "only" earning $20 plus per oz. During the 1st quarter, they sold 6.1 million oz.

  • Report this Comment On May 16, 2012, at 7:35 PM, zanemorris wrote:

    It seems like folks are moving out of Euros in to dollars for security and this is also pushing down the price of silver in dollars. The result is depressed SLW. I am long on SLW but there is no US inflation on the horizon, slow economic growth (low silver demand), and money printing is all under the table.

  • Report this Comment On May 16, 2012, at 8:00 PM, TheDumbMoney2 wrote:

    I confess you make a compelling case for SLW at this valuation level.

    Serious question: at what level of silver prices does SLW turn unprofitable? It's similar to the McF question for natty producers, what is their all-costs-in break-even for silver?

  • Report this Comment On May 16, 2012, at 10:14 PM, Bigplayray19 wrote:

    Christopher, I've been hammered lately with SLW but have added as it dropped. I think I have 450 shares now in my ira. The reasons have not changed why I decided on buying SLW. The government will print its way out of the deficit, second, a dividend which the ceo will raise he says, third silver is part industrial metal. I think we will have one more shakeout this summer and may buy more. By the way SLW cost is around $4 something an oz, so it it profitable at this level.

  • Report this Comment On May 16, 2012, at 10:59 PM, skypilot2005 wrote:

    On May 16, 2012, at 8:00 PM, TheDumbMoney2 wrote:

    "I confess you make a compelling case for SLW at this valuation level.

    Serious question: at what level of silver prices does SLW turn unprofitable? It's similar to the McF question for natty producers, what is their all-costs-in break-even for silver?"

    http://finance.yahoo.com/news/silver-wheaton-reports-strong-...

    5/14/12

    • Cash operating margin1 increased slightly compared with Q1 2011, to US$28.51 per silver equivalent ounce, amongst the highest in the sector.

    • Average cash costs of US$4.081 per silver equivalent ounce (US$4.02 per ounce of silver and US$303 per ounce of gold), relatively unchanged from Q1 2011.

    Sky

    Sinchi:

    FYI, I pulled the “trigger” on Petaquilla today . P/E 1.63 EPS: .39 My value detector alarm wouldn’t shut off until I did.

  • Report this Comment On May 16, 2012, at 11:01 PM, skypilot2005 wrote:

    BTW

    LONG SLW

    SKY

  • Report this Comment On May 17, 2012, at 6:54 AM, Yourdeadmeat69 wrote:

    You're stuck in SLW because you invested in anything over $25. The govt has backed JPM high frequency trading, putting phantom trades on the precious metals spot markets for a couple of years--that and the Europe debacle making the US dollar the cream of the crap paper currencies, has devastated precious metals and venture capitalist SLW.

    Now with the jawboning of the FOMC about QE3 having zero effect on markets yesterday, the best you can hope for is a dead cat bounce on the Facebook initial offering Friday--and THEN what?

    Europe got defrauded by believing our no doc mortgage loan derivatives had anything but hot air behind them. Neither US political party emerges from that fiasco unscathed, from Clinton revocation of Glas Steigel, to George Bush's infatuation with ignoring economic time bombs while bombing camel jockeys out of existence--not the Saudi perps of 9/11 upon which petrodollar valuation relies, but the poor idiots in Afcamelstain and Icrack.

    Remember 9/2008 taking everything down, including silver and gold? Welcome to the other side of the W, five years later, and market's 50% retracement, four years overdue.

    Any questions?

  • Report this Comment On May 17, 2012, at 7:22 AM, skypilot2005 wrote:

    On May 17, 2012, at 6:54 AM, Yourdeadmeat69 wrote:

    "the Europe debacle making the US dollar the cream of the crap paper currencies,"

    I.M.O., this is the major reason for the P. M. recent drop. Good luck to anyone LONG on the dollar long term.

    Sky

  • Report this Comment On May 17, 2012, at 10:37 AM, XMFSinchiruna wrote:

    HUMTDUMT,

    Please see my breakdown of comprehensive all-in costs in the comments section beneath this article:

    http://www.fool.com/investing/general/2012/03/23/43-million-...

    Even after factoring-in acquisition costs for the silver streams, the comprehensive all-in cost structure stands beneath $11.50 per ounce. Forthcoming stream acquisitions will no-doubt come at a higher cost, but with only very modest effect on this consolidated cost structure.

  • Report this Comment On May 18, 2012, at 5:54 PM, skypilot2005 wrote:

    http://finance.yahoo.com/news/europe-thinks-unthinkable-gree...

    Europe thinks the unthinkable on Greece

    5/18/12

    Could it be Yourdeadmeat69 has a crystal ball?

    Hmmmm

    Sky

    LONG and accumulating P. M. Miners with an emphasis on “Streamers”.

    I passed on Facebook, today. Not enough barriers to entry. Lot of similarities to AOL years ago.

    I. M. O.

    The only way I'll buy it is if Charlie Munger does.....

    :)

  • Report this Comment On May 18, 2012, at 10:15 PM, skypilot2005 wrote:

    http://finance.yahoo.com/news/wall-st-week-ahead-market-2235...

    Wall St Week Ahead: The market is oversold, but major signs say "sell"

    5/18/12

    Sky

  • Report this Comment On May 19, 2012, at 8:49 AM, skypilot2005 wrote:

    http://finance.yahoo.com/news/atna-reports-first-quarter-201...

    Atna Reports First Quarter 2012 Pre-tax Earnings of $2.9 Million

    http://finance.yahoo.com/news/brigus-gold-reports-strong-q1-...

    • Gold sales improved by 60% to 16,033 ounces compared to 10,003 in Q1-11.

    • Operating margin increased 191% to $753 per ounce in Q1-12 from $259 per ounce in the prior year.

    • Cash flow from operations, before working capital adjustments, was $9.9 million during Q1-12, compared to $0.7 million in Q1-11.

    • Cash costs decreased to $858 per ounce, a 22% reduction from Q1-11 and 11% lower than Q1-12 guidance of $962.

    **

    http://finance.yahoo.com/news/fire-river-gold-corp-progress-...

    Fire River Gold Corp. Update on the Progress of the Nixon Fork Gold Mine

    5/1612

    Outlook:

    “Commissioning the mill and ramping up the operation to full production expectations is ongoing. The 2012 production target is 29,000 ounces of gold mined, with targets of 40,000 ounces in 2013 and 50,000 ounces in 2014. It is anticipated that a declaration of full commercial production, defined by 30 days of consecutive operations at 100 metric tonnes per day throughput (two-thirds of our budgeted throughput) with +90% gold recovery is projected to be made within the next three months.

    Despite the few delays, our operating costs have conformed fairly closely to our 2012 Budget of $29.6 M for the calendar year. Accordingly, meeting our production target should result in a near-term operating cost of approximately $950 per ounce and a projected improvement to $750 per ounce in 2013 and $600 per ounce in 2014. Our ability to discover additional resources outside of our current estimate supports our assertion that once the project has realized its full economic potential, it will be possible to sustain operations well beyond the limits of the current mineral inventory.”

    OTCQX: FVGCF

    **

    GGPXF.PK

    http://www.reuters.com/finance/stocks/companyOfficers?symbol...

    http://www.thejakartapost.com/news/2012/05/14/after-delay-g-...

    After delay, G-Resources set to begin gold production in July

    The Jakarta Post, Jakarta | Mon, 05/14/2012

    Hong Kong-based mining company G-Resources Group Limited expects to begin commercial production at the company’s gold and silver mine in Martabe, North Sumatra, in July after a delay in March

    “We have benefited from Sibolga Port, which is located about an hour from our site. Given that facility, we can achieve lower production costs of $280 per ounce of gold,” said Hardono, adding that G-Resources was currently establishing a warehouse by the port.

    In October 2011, the group, through its subsidiary PT Agincourt Resources that operates the mine, signed an agreement with state mining company PT Antam to process its gold and silver at Logam Mulia, Antam’s business unit.

    Under the agreement, Agincourt will send its mixture of gold and silver in the form of bullion to Antam’s processing plant to be refined into gold and silver with a high purity level. The finished products will be sold on the international market.

    The Martabe mine covers a total area of 1,639 square kilometers and has potential resources of 6.5 million ounces of gold and 66 million ounces of silver, the company estimated.

    http://www.g-resources.com/wp-content/themes/twentyten/pdf/p...

    Corporate Presentation

    May 2012

    http://www.g-resources.com/wp-content/themes/twentyten/pdf/p...

    “Overall project construction is more than 90% complete and first gold

    production remains on schedule for July.”

    May 2012

    http://www.irasia.com/listco/hk/gresources/announcement/a921...

    Progress

    5/10/12

    http://www.irasia.com/listco/hk/gresources/announcement/a921...

    G-RESOURCES – MARTABE PROJECT QUARTERLY UPDATE

    5/10/12

    Sky

  • Report this Comment On May 19, 2012, at 8:54 AM, skypilot2005 wrote:

    FYI

    LONG all companies I've posted above.

    Sky

  • Report this Comment On May 21, 2012, at 2:20 PM, MrPecuniam wrote:

    Someone asked till what the silver price break even point is. I believe i read a few years ago when I got in at around $16 / share that it was around $7/ ounce. This is to include the upfront payment SLW needed to make to the mining companies as well as to cover other administrative costs.

  • Report this Comment On May 22, 2012, at 1:20 PM, XMFSinchiruna wrote:

    MrPecuniam,

    There are different ways to frame the cost discussion, but when you take absolutely everything into account, including those stream acquisitions, you end up with a number closer to $11.50 per ounce.

  • Report this Comment On May 22, 2012, at 6:58 PM, terfloth wrote:

    slw === dont you know about their lurking canadian tax problem- working out of cayman - true or false = that is why i like others - i guess -sold days ago at whatever i could get

    bht

    = if this is against the rules or not true - pls delete it

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