Silver Wheaton's (NYSE:SLW) stock has soared in the past 12 months.
In this clip from Industry Focus: Energy, Motley Fool analysts Sean O'Reilly and Taylor Muckerman explain what the company does, and how they've positioned themselves to profit so handily from the mining industry.
A full transcript follows the video.
This podcast was recorded on July 19, 2016.
Sean O'Reilly: I can't believe how well the stock's been doing. I want to get your thoughts on Silver Wheaton.
Taylor Muckerman: Silver Wheaton. Yes. Yes.
O'Reilly: The thing I've not forgotten, that it was your No. 1 pick last year, when we did the little stock-picking thing.
Muckerman: Yes. Crushing it.
O'Reilly: The thing's like what -- 200%? Yes. Why are they doing so well, and how are their recent earnings?
Muckerman: You've seen, they're doing so well because you've seen prices of silver and gold rally a little bit. Obviously, it's sold off pretty tremendously.
O'Reilly: You didn't like them because you saw silver prices increasing, though. They're a good producer, is what you liked, right?
Muckerman: They're not even a producer. They just, they're a streamer. They pay base metal mines, miners that are producing lead, zinc, iron ore. These companies like Vale and even some Goldcorp. You know, you look at other big base metal miners that aren't necessarily in the business of selling silver and gold. It's almost just like a castoff, like a by product for them.
O'Reilly: These people that are going after iron ore, they get some ancillary gold or silver or something.
Muckerman: Right. Silver Wheaton will help finance the mining and then pay, basically, a royalty for each ounce of gold or silver that they're given. That's agreed-upon cost upfront. Their all-in cost is known years in advance of what it's going to be down the road. It's a very high-margin business for them.
O'Reilly: They're not having to deal with operating these stinking mines.
Muckerman: Right. They sell it at market prices. That's their business. They're the first company to really do it.
O'Reilly: That's awesome.
Muckerman: They're the largest streamer in the business. Then, their dividend is tied to the previous four quarters' cash flow. It's a predictable, dividend increase/decrease, or just no dividend at all. It's prudent, which I appreciate.
O'Reilly: They're not committing themselves to pay a dividend when they, theoretically, can't pay.
O'Reilly: OK. Got it. Cool.
Muckerman: With their production in record gold sales, which is something that, it still is a small portion of their business in terms of production, not production, but in terms of sales. It's something that they're focusing on more intently, is gold. They had a nice rally with the prices and record sales and solid production from the miners that they're working with.