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|Company||Silver Wheaton |
|Submitted On||Dec. 31, 2010|
|Stock Price at Recommendation||$39.08|
|Star Rating (out of 5)||***|
|Industry||Precious metals and minerals|
|Market Cap||$12.0 billion|
|Competitors and Peers|
Coeur d`Alene Mines
Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and Motley Fool CAPS.
59% profit margins
$255 million in cash
$114 million in debt
In their most recent quarter, earnings went from $33 million to $69 million year-over-year.
Cash flows went from $45 million to $79 million year-over-year.
Silver production went up 45%.
The cost of the silver last year? $4 an ounce. This year? $4 an ounce. They have a long-term option to buy silver at that price. When I say "long-term," I mean 25 year contracts. In other cases, 10-year contracts. In others, for the life of the mine.
They have 15 such contracts in place with various mine operators, in politically stable regions (i.e. not China).
That's the story for this company. The macro story for silver is even more interesting.
One guy, Ted Butler, has been arguing for years that the price of silver has been manipulated. Demand has gone up and up and up. Silver is the best conductor of electricity in the world. It's the best reflector of light. Silver is used in computers, in lasers, in electronics, in photography. And yet the price has stayed cheap. It's 50 times cheaper than gold. And yet there is less silver bullion in the world than gold bullion. It's no surprise that the Hunt brothers tried to corner the market in silver. Or that China is trying to do it now.
Listen to Ted Butler talk about silver here:
According to Butler, the price of silver has apparently been manipulated for years. It's been artificially low. Bear Stearns had a massive short position, AIG had a massive short position. Today another bank has a massive short that has kept the price down.
Silver is the only commodity where a high concentration is in the hands of one party.
In regard to price manipulation: A couple of months ago the regulatory body (the CFTC) acknowledged that one entity has a huge short position in silver. It's J.P. Morgan. 35-40% of the silver short belongs to this one bank. Which is a huge short position. And what a lot of people suspect is that the bank is doing it for the Chinese. China is the largest refiner of silver in the world and, some suspect, is trying to corner the market in the rare metal. Why short silver? To disguise the fact that it's actually obtaining silver bullion.
One guy on the CFTC, Bart Chilton, has taken up Butler's cause and at the meeting he has been asking, "what's going on with silver?" So there is some pressure to look at J.P. Morgan's book and see who has been shorting silver.
At the latest meeting, December 16th, the CFTC agreed that they would take a look at what swaps justified the short position. Right now there has been no regulation at all, except for the exchanges (the COMEX and the NYMEX) who have a conflict of interest. The exchanges (and J.P. Morgan) have been fighting to delay but they have lost.
I don't know if you hold any J.P. Morgan but you might want to sell. 25 lawsuits have been filed over this already, all seeking class action status.