Silver Wheaton Is a Golden OpportunitySLW) was one of the most volatile stocks in 2015, but the company has performed well this year mainly due to the recent surge in precious metal prices. While surge in price has been the primary reason behind the recent upsurge, Silver Wheaton’s business model also played a part.
Silver Wheaton’s business model differentiates it from other traditional mining companies. As a matter of fact, Silver Wheaton is basically a streaming company, as it lends cash to miners who are struggling in the industry to enlarge or build gold or silver mines, instead of buying very costly equipment and managing inconsistent labour charges.
This suggests that Silver Wheaton does not have to endure all the costs related with running a mining business, as the company has to pay a definite amount of fee for gold streams.
In the most recent quarter, the company’s gold production was 41 percent, a surge of over 21 percent. This was mainly due to the surge in gold streams from the Salobo and the Sudbury mines. Furthermore, it is highly likely that Salobo will carry on providing additional growth as an extra 12 million tons per year of capacity is projected to bring online.
Apart from these, the escalating demand for silver in the industrial uses will play a significant role to drive the metal prices mainly due to the fading mine output. As an outcome of this enhancing demand-supply dynamic, Bank of America Merrill Lynch consensus escalated their silver price projection for this year by around 8 percent to $16.47 per ounce.
At present stage, the company has efficiently used all its opportunities, and it is probable that the stock will endure to achieve more momentum as the outlook of the gold and silver market enhances. With precious metal prices still expected to increase, I think Silver Wheaton is still a buy.
Silver Wheaton has rallied almost 70% in 2016, however, due to the reasons mentioned above, it is highly likely that Silver Wheaton will continue moving higher. With the world economy slowing down and concerns surrounding the Eurozone, holding onto precious metal stocks is probably the safest investment right now. Thus, I think investors should buy Silver Wheaton despite the rally.
Published on Jun 10, 2016By Prudent Investor