Expect More Deals From Silver Wheaton Corp This Year

Low gold and silver prices offer new deal opportunities for Silver Wheaton.

May 16, 2014 at 11:35AM

While depressed silver and gold prices put pressure on commodities companies' profits, they present business opportunities for some. Streaming companies like Silver Wheaton (NYSE:SLW) could take advantage of low asset prices to secure new contracts. This is exactly the company's plan, as was outlined during the recent earnings call.

Good time to secure new streaming deals
Silver Wheaton stated that its team was busy pursuing value-enhancing acquisitions. After a rise early in the year, silver and gold prices returned to previous levels. This makes equity and debt financing more difficult for miners. For most miners, equity financing at current share prices will lead to very significant dilution for shareholders. On the other hand, debt became more expensive with the decline of silver and gold prices.

In this environment, streaming becomes an attractive option, as a miners receive a solid upfront payment in exchange for a share of future production. This makes the current year a good time for Silver Wheaton to secure new streams.

The only thing that can restrain Silver Wheaton from making new deals is the amount of available financial resources. The company finished the first quarter with $82 million of cash on the balance sheet. What's more, Silver Wheaton has to make a final $135 million gold stream payment to HudBay Minerals this summer. The company stated that it had the option to deliver this payment in Silver Wheaton shares. Given the amount of cash on the balance sheet, Silver Wheaton is likely to take this option. At Silver Wheaton's current share prices, this will lead to a less than 2% dilution for the company's shareholders.

Trading at a discount to other companies in the field
Silver Wheaton is trading at less than 20 times its future earnings, a significant discount to companies like Royal Gold (NASDAQ:RGLD)and Franco Nevada (NYSE:FNV). The market gives more value to Royal Gold and Franco Nevada; both companies trade at 42 times their future earnings. The reason for this discount is Silver Wheaton's high exposure to silver prices, which have recently underperformed gold prices.

What's more, Franco Nevada and Royal Gold have significant amounts of cash on their balance sheets, which is readily available for new royalty and streaming deals. Silver Wheaton also has higher debt, which it took to acquire gold streams from Vale's Salobo and Sudbury mines back in 2013.

During the first quarter earnings call, Silver Wheaton stated that it was happy with the current debt level and did not intend to use its operational cash flow to repay a portion of this debt. Importantly, this $1 billion debt is bearing an interest rate of less than 2%, so interest expenses do not weigh on the company's performance.

Bottom line
Silver Wheaton continues to be a solid performer. With first quarter average cash costs of $4.57 per silver equivalent ounce, the company is positioned to deliver stable cash flow even in the low-price environment. Silver Wheaton is trading at a significant discount to Royal Gold and Franco Nevada, one that could be reduced if silver prices manage to hold at current levels. The company targets production growth of nearly 35% in five years, but this number could be revised upward if Silver Wheaton is successful securing new deals this year.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000… per hour (that’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock… and join Buffett in his quest for a veritable landslide of profits!

 

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers