Taking a Traditional Business Model and Perfecting It
Friday, September 17th, 2010
By Mitchell Clark, B.Comm. for Profit Confidential
The spot price of gold always gets the headlines, but equally as impressive has been the price spot performance of silver. The two metals tend to trade commensurately, but some of the most impressive capital gains in the stock market recently have been in silver resource companies.
One of the top standouts in the silver business is Silver Wheaton Corp. (NYSE/SLW). This company actually isn’t in the business of mining. It’s in the business of acquiring the rights to silver, gold and other precious metal production, which it can resell for profit. It’s a great, unique business model that’s been a huge moneymaker for shareholders.
This company is widely considered the largest precious metals streaming company in the industry. Currently, Silver Wheaton has 15 silver purchase agreements and two other precious metals agreements where, in exchange for an upfront payment, it gets the right to purchase all or a portion of the silver production at a low, fixed cost.
The company currently owns a portfolio of world-class assets, including silver streams from Goldcorp (NYSE/GG) and Barrick Gold Corporation (NYSE/ABX), two of the largest gold producers in the world. In a sense, Silver Wheaton’s business model provides leverage to increases in the price of silver without using the leverage or risk inherent in futures markets.
This year, the company’s current streaming agreements allow for exposure to 22.2 million ounces of silver and 20,000 ounces of gold, for total production of 23.5 million silver equivalent ounces. By 2013, the company expects its annual streaming exposure to grow to 38 million ounces of silver and 59,000 ounces of gold, for total production of over 40 million silver equivalent ounces. That is a significant amount of growth and the company doesn’t have to provide any ongoing capital expenditures to generate it. This is why the company’s business model is so successful and the stock’s been a major wealth creator.
Silver Wheaton doesn’t hedge its exposure to silver prices, so it’s no surprise then that the stock just hit a new all-time high on the market. It’s been breaking through new price highs since the beginning of the year.
This company is a great example of the successful execution of a unique business plan that very few other companies are using. Strong management is the key here. This kind of business models allows for some commodity price leverage without the fixed costs necessary to discover, extract, sell and deliver silver and other precious metals to the marketplace. It’s a great idea that’s riding the precious metal price wave.
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Tags: gold, precious metals, price of gold, silver, silver stocks, stock market
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Mitchell is a Senior Editor at Lombardi Financial specializing in small-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Penny Stock Reporter, Micro-Cap Stocks, and Monster Profits. Mitchell, who has been with Lombardi Financial for thirteen years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. While Mitchell is not working he enjoys fly fishing, motorcycling and tending to his hobby farm.
