I follow quite a lot of companies, so the usefulness of a watchlist to me cannot be overstated. Without my watchlist, I’d be unable to keep up on my favorite sectors and see what’s really moving the market. Even worse, I’d be lost when the time came to choose which stock I’m buying or shorting next.
Today is Watchlist Wednesday, so I’m discussing three companies that have crossed my radar in the past week — and at what point I may consider taking action on these calls with my own money. Keep in mind that these aren’t concrete buy or sell recommendations, nor do I guarantee I’ll take action on the companies being discussed. What I can promise is that you can follow my real-life transactions through my profile and that I, like everyone else here at The Motley Fool, will continue to hold the integrity of our disclosure policy in the highest regard.
This week, with metals prices taking such a nasty tumble, I thought I’d focus on three metals play worth closely monitoring.
Silver Wheaton Corp. (USA) (NYSE:SLW)
My plan is actually to bring “beating the dead horse” to a whole new level. I’m fully aware that I’ve been pounding the table on Silver Wheaton Corp. (USA) (NYSE:SLW) for some time now, but there’s very little denying the fact that it’s one of the most strategically smart royalty interest companies in existence.
As a royalty interest company, Silver Wheaton Corp. (USA) (NYSE:SLW) supplies upfront cash to miners in order to help them facilitate the buildout of their mines. In return, Silver Wheaton Corp. (USA) (NYSE:SLW) locks in long-term contracts — occasionally life-of-mine contracts — that allows it to purchase silver and gold at rates that are significantly below the current market price. The best aspect of royalty interest companies like Silver Wheaton Corp. (USA) (NYSE:SLW) is that they are completely absolved of mine costs beyond the initial investment agreement. Thus, they are almost a pure play on metals prices and tend to make a profit even if metal prices drag.
In August, Silver Wheaton Corp. (USA) (NYSE:SLW) reached its most recent deal with HudBay Minerals Inc Ord Shs (NYSE:HBM), securing the rights to its silver production at a low fixed-cost of $5.90 per ounce and 100% of its gold production at its 777 mine through at least 2016 for $400 an ounce In return, Silver Wheaton will fork over up to $750 million in cash for the buildout of HudBay Minerals Inc Ord Shs (NYSE:HBM)’s Constancia mine. Even with the tumble metal prices took this week, Silver Wheaton’s margins will continue to remain fat with gold hovering near $1,400 an ounce and silver near $23 an ounce, and its dividend could still head even higher.
However, there are two sides to the Golden Star Resources story. On one handm you do have considerably higher costs than many other miners within the sector. For the fourth quarter, Golden Star reported an operating cash cost of $1,033 an ounce and relied heavily on higher realized selling prices and a 12% boost in annual gold production to push its cash flow from operations higher. That would indicate to some that spot gold prices are the sole determinant of its movements.