Investing in precious metals has gone mainstream in the past decade, thanks to a huge bull market in the price of gold and silver. As bullion prices have risen, the number of ways investors can profit from the gain in popularity of precious metals has risen along with them. From traditional mining stocks to bullion-owning exchange-traded funds, investors have plenty of choices of precious metals investments.
But Silver Wheaton (NYSE:SLW) has unique characteristics that in many ways combine the best of both bullion investment and operating mining companies. My premium report on Silver Wheaton goes into more detail on the silver streaming company and includes the following description of the massive opportunity that the company has for future growth.
Silver investments generally fall into three primary categories:
- You can buy bullion directly, paying a mark-up to a dealer and taking on responsibility for storage, insurance, and other costs of carrying coins or bars.
- You can choose to buy exchange-traded products iShares Silver (NYSEMKT:SLV) or Central Fund of Canada (NYSEMKT:CEF), which include silver bullion among their holdings yet are as liquid as ordinary stocks.
- You can buy Pan American Silver (NASDAQ:PAAS), Hecla Mining (NYSE:HL), or a host of other companies that own mines and produce and profit from silver.
Each of those categories, however, has downsides. Bullion offers direct correlation to silver prices but is costly to own. ETFs avoid much of that cost but don't generate income and typically don't give you direct control of physical metal. And while mining stocks generate income and sometimes even pay dividends, mine-specific challenges can make you lose money even when bullion prices are on the rise.
Silver Wheaton, by contrast, is a silver streamer. Formed in 2004, the company offers financing to small mining companies in exchange for the right to purchase a share of their future production at specified prices, usually well below current market prices for the metal. With streaming arrangements around the world, Silver Wheaton has a well-diversified portfolio.
What makes Silver Wheaton an especially promising investment opportunity is that it combines many of the most attractive elements of other silver-related investments. Because it relies on its client miners to produce silver, Silver Wheaton doesn't have to deal with the hassles of running a complex mining operation and is largely insulated from potential disruptions that plague traditional miners. With locked-in prices for the silver it purchases, Silver Wheaton profits from the difference between its contract prices and the prevailing market price when it sells that silver on the market.
Of course, silver prices have already climbed substantially, raising the question of how Silver Wheaton can build on its past success. But the beauty of Silver Wheaton's business model is that it provides opportunities in every phase of the business cycle in mining. When times are good, mines tend to boost production, raising the amount of silver that Silver Wheaton receives under its streaming arrangements. Yet when times are tough, more mining companies need the financing that Silver Wheaton can provide, and so with cash it accumulates during good times, Silver Wheaton can build new relationships with promising silver miners and set the stage for even bigger profits during the next bull phase for the silver market.
In essence, the long-term opportunity for Silver Wheaton is almost unlimited. Through successive cycles of booms and slowdowns in silver production, Silver Wheaton has the tools to survive and prosper throughout.
Fool contributor Dan Caplinger owns shares of Central Fund of Canada. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Hecla Mining. 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.