Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Will This Silver Company Recover in 2014?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

During 2013, shares of Silver Wheaton (NYSE: SLW  )  lost more than 40% of their value, due in large part to plunging silver prices. Looking forward, will Silver Wheaton perform any better in 2014? What should investors expect from this company?

Will 2014 be any better?
Last year wasn't a good year for precious metals investors as a whole. The price of silver dropped nearly 36%. Silver ETF iShares Silver Trust   (NYSEMKT: SLV  )  lost roughly 36% of its market value, with demand for the ETF sharply diminished  in recent months. The amount of silver (in ounces) in this trust declined by more than 6% in the last quarter of 2013. 

Returning to Silver Wheaton, the main factors that will affect the company's performance going forward are the price of silver and its production levels. Let's take a closer look. 

Price of silver
The sharp drop in the price of silver dragged down Silver Wheaton's stock. The chart below shows the linear correlation between iShares Silver Trust, which follows the price of silver, and the daily percent changes of Silver Wheaton's stock.

Source: Google Finance 

As you can see, the linear correlation is, as expected, positive and very strong. In 2014, the price of silver is likely to be affected by demand in India and China and the FOMC's monetary policy. In any case, weak precious metals prices damaged Silver Wheaton's profitability during 2013. The company's operating profitability declined from 71% in 2012 to 54% in 2013. 

In 2013, the average price of silver was $23.5, while the current price of silver is roughly $20. Thus, even if the price of silver were to remain at its current level, this is likely to cut down the company's revenue, assuming all things equal, by 15% during the year.

Production on the rise
Silver Wheaton's production is likely to keep rising in 2014. The company's decision to acquire the Sudbury and Salobo mines back in the first quarter of 2013 will augment its gold production in the coming years. Salobo's mill throughput capacity is expected to double by the end of 2016, which will increase the mine's production rate. Silver Wheaton's 777 and Sudbury mines' annual production are also expected to be higher in 2014 than in 2013. These three mines have substantially increased the company's gold production.

This leads us to the next point: the company's shift toward gold. Silver Wheaton's acquisition of Sudbury and Salobo has also increased the share of gold in Silver Wheaton's total sales. Back in 2012, gold accounted for only 9% of total silver equivalent ounces produced. In 2013, this rate was 23%. In 2014, this share is likely to further rise. The shift could also adversely affect the company's profit margin, however.

The table below shows the profitability of silver and gold in the first three quarters of 2013. 

Source: Silver Wheaton

Final note
Silver Wheaton shares are likely to stay tied to the price of silver. Nonetheless, the sharp drop in shares of Silver Wheaton over the last year may have been too severe considering the company's advantages over peers, including its dividend payment and ongoing growth in sales (in ounces). If silver remains around its current level, and the company continues to augment its level of production, shares of Silver Wheaton could see a slow but meaningful recovery in 2014. 

Where should you be putting your money in 2014?
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (3)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2813034, ~/Articles/ArticleHandler.aspx, 8/30/2015 6:55:23 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Lior Cohen

Lior has been a contributor for the Fool since 2012. His main interests are in commodities, and energy and materials companies.You can follow him on Twitter to stay up to date with his industry analysis. @tradingnrg

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:02 PM
SLW $12.39 Up +0.39 +3.25%
Silver Wheaton Cor… CAPS Rating: ****
SLV $13.92 Up +0.12 +0.87%
iShares Silver Tru… CAPS Rating: ***