Nobody likes mining companies these days. But remember; in times of uncertainty, the greatest opportunities are born. Currently, there’s a shining star in the mining sector that remains under the radar: Silver Wheaton Corp. (NYSE:SLW).
Why Silver Wheaton Isn’t Like Any Other Miner
Based in Vancouver, Canada, Silver Wheaton is the largest precious metal streaming company. At the very core, for an upfront payment to mining companies, this firm gets the right to purchase all or a portion of their silver and/or gold production for a surprisingly low fixed price. (Source: Silver Wheaton Corp., accessed September 22, 2015.) You must know the difference; Silver Wheaton isn’t like any typical mining company. The streaming company doesn’t really operate a mine, or has to explore for the precious metals. Thus, it doesn’t have capital expenditure and exploration costs. It just funds miners to build a mine, and then reaps the rewards. One could say it’s less “risky.” Silver Wheaton currently has several streaming agreements on 21 operating mines and six development projects. Here’s the kicker; the company’s operating costs historically have been around $4.00 per ounce of silver and $400.00 per ounce of gold. In the second quarter of 2015, these costs for the company were much lower. Average cash costs were $4.36 per ounce of silver and $395.00 per ounce of gold. (Source: Silver Wheaton Corp., August 11, 2015.) If you follow the mining sector closely, you know that these are huge margins that are very uncommon for even well-managed mining companies. To provide some perspective, in the second quarter, Goldcorp Inc. (NYSE:GG) produced an ounce of gold for total cash cost of $656.00. (Source: Goldcorp Inc., July 30, 2015.)
Silver Wheaton: Billionaires Buying
Just look at the chart below of Silver Wheaton’s stock.
Chart courtesy of www.StockCharts.com
Since the beginning of the year, the stock price has fallen close to 50%, and it may show there aren’t many buyers. Bearish sentiment prevails. Don’t be fooled by this. With Silver Wheaton stock prices down and out, smart money is already pouring in. My colleague, Robert Baillieul, wrote about why billionaire Ray Dalio bought Silver Wheaton’s stock. Others like Ken Griffin, Cliff Asness, and Murray Stahl have also either increased their stakes or initiated a position. You can read more here.
Could Silver Wheaton’s Stock Hit $40.00 Again?
While the mining companies are struggling to keep operations running, Silver Wheaton is in a great position. It is looking at opportunities at early stage and/or near competition worth $5.0 billion. Regarding these properties; just recently, the CEO of the streaming company, Randy Smallwood, said “This is probably the best portfolio of assets that we’ve ever seen.” (Source: Bloomberg, “Metal Rout Tempts Silver Wheaton With $5 Billion Streaming Feast,” September 21, 2015.) Investors should be looking at Silver Wheaton for the long-run. As I see it, when the gold and silver prices move to the upside, and with the company acquiring solid assets, this could really pay investors massive rewards. When the precious metal prices turn, it will not be shocking to see Silver Wheaton’s stock hitting its 2011 highs around $40.00 and above. Here’s something even better; Silver Wheaton also pays dividend. In other words, investors essentially get paid to wait. With all this said, note that this is just an illustration of how there still being companies that present great opportunities despite the mining sector being in the slumps.