One of them is the demand for precious metals coming from the two upcoming giants: India and China. The demand for these precious metals is very much due to the need of these countries to build some real wealth reserves. In India, however, the cultural importance of gold and silver makes demand quite inelastic for these precious metals there.
Now, why am I boring you with these details about the demand structure of these metals? The answer is that there are some companies that have their financial performance tied, almost completely, to the changing prices of these metals. One company, in particular, that shows this trend is Silver Wheaton Corp. (USA) (NYSE:SLW).
What’s so special about the company?
Everything. Silver Wheaton Corp. (USA) (NYSE:SLW) is the largest silver streaming company in the world. It engages in long-term contracts with different mining companies to purchase the silver they produce. The mining companies here are those that are primarily involved in the extraction of base metals, and silver for them is usually a by-product.
Silver Wheaton Corp. (USA) (NYSE:SLW) contracts these companies at a very low price and pays an upfront payment for the engagement to begin. After that, Silver Wheaton is just liable to pay delivery payments to the mining company once the silver is delivered to them. It’s a win-win business model as Silver Wheaton Corp. (USA) (NYSE:SLW) is able to get the silver at cheaper rates and mining companies are able to sell off their by-products. Therefore, the difference between the cost for silver and the market price of silver is what the company reports as earnings.
As the prices for gold and silver fell, the company became unattractive to investors. The company has been facing a decrease in its share price from last nine months. I believe that with such constant devaluation, the time has come for investors to buy this stock.
Silver prices have shot up recently as there has been a resurgence in the purchase of silver from the long term retail investors. Another reason why silver is gaining momentum is wide application of this metal in today’s world. The metal is used in industrial applications, like electronics, in photography products, in the manufacture of jewelry and silverware, etc.
Silver prices have increased by as much as 6.5% in July, which is why Silver Wheaton has increased by 26.39% in this month alone. I believe this is a very useful metric, and because of this Silver Wheaton Corp. (USA) (NYSE:SLW) seems ready to launch.
Other players in the industry
Two other players in the silver streaming business are Pan American Silver Corp. (USA) (NASDAQ:PAAS) and First Majestic Silver Corp (NYSE:AG). Both of these companies engage in the exploration, development and operation of silver properties by themselves. Therefore, their operations are different from Silver Wheaton Corp. (USA) (NYSE:SLW), but they are equally affected by the changing prices of silver.
Pan American Silver Corp. (USA) (NASDAQ:PAAS) has operations in several places such as Bolivia, Argentina, Mexico and Peru. Pan American Silver Corp. (USA) (NASDAQ:PAAS) has been reporting some impressive numbers. In fact, in its first quarter results, the company reported a 14% increase in its silver production. The company’s owns 100% of its La Colorada mine in Mexico where its silver production grew from 3.7 million ounces in the year 2010 to a figure of 4.4 million ounces last year. The company has attractive fundamentals as it is trading at a forward P/E of 23.80 and a P/B of 0.72.
First Majestic Silver Corp (NYSE:AG)’s operations are almost entirely based in Mexico where it owns five silver producing mines. Its La Encantada mine, which is its biggest operation, was able to produce a whopping 4,036,502 ounces of silver in the year 2012. The company has also initiated its Del Toro Silver project, which is set to become the company’s largest operation by 2014. First Majestic Silver Corp (NYSE:AG) has also received almost $14 million as partial compensation under a court order which can bring as much as $93.84 million into the company. As silver prices increase, I expect this company to show robust growth in its share price as its fundamentals point towards a forward P/E of 11.19 and a P/B of 2.54.
The takeaway
Silver companies are back under the radar as market participants expect silver prices to increase in the coming days. Silver Wheaton Corp. (USA) (NYSE:SLW) is, and will be, my undisputed champion in the wake of a recovery in silver prices. Other than that, I also expect Pan American Silver Corp. (USA) (NASDAQ:PAAS) and First Majestic Silver Corp (NYSE:AG) to report some solid increase in their share prices in the coming years.
The article Silver Companies Ready to Launch originally appeared on Fool.com and is written by Usman Ghani.
Usman Ghani has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Usman is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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