During the past several weeks after attempting to break into higher ground, precious metals Gold and Silver have found themselves under selling pressure which has ignited salvos from numerous pundits that perhaps the multi-year secular bull has run its course and that further slippage in precious metals prices lay in the offing. While we feel that such opines may garner some merit from a short-term trading perspective, whereby precious metals and in particular, mining company shares have witnessed dark clouds above, the long-term trend suggests nothing of the kind and remains firmly intact with blue-skies ahead.
Those investors whom were prescient in identifying the infancy of the secular bull trend in both Gold and Silver, as well as the numerous companies within the space some eleven years ago, have been rewarded handsomely for their foresight. Periodic corrections in the market have provided investors with various opportunities to enter at attractive levels, which we believe is once again rapidly approaching. This prompted us to survey the landscape for those ‘Best of Breed’ stocks which we feel will continue to deliver exceptional returns as the upward trend in precious metals resumes.
When we speak of ‘Best of Breed’ within an industry, Silver Wheaton Corporation (NYSE: SLW) certainly fits such description. SLW has quickly positioned itself as the largest metals streaming company in the world. The company currently has fourteen silver purchase agreements and two precious metals agreements where, in exchange for an upfront payment, it has the right to purchase all or a portion of the silver production, at a low fixed cost, from high-quality mines located in politically stable regions.
Based upon SLW’s current agreements, forecast 2011 attributable production is 25 to 26 million silver equivalent ounces, including 15,000 ounces of gold. By 2015, annual attributable production is anticipated to increase significantly to approximately 43 million silver equivalent ounces, including 35,000 ounces of gold. Beyond the initial upfront payment, no ongoing capital expenditures are required to generate this growth and Silver Wheaton does not hedge its silver production.
Silver Wheaton’s industry-leading growth profile is driven by a portfolio of world-class assets, including silver streams on Goldcorp’s Peñasquito mine in Mexico and Barrick’s Pascua-Lama project straddling the border of Chile and Argentina. The company’s unique business model creates significant shareholder value by providing leverage to increases in the silver price while reducing the downside risks faced by traditional mining companies. Eric Sprott, Clint Carlson, and Jim Simons are among the hedge funds with Silver Wheaton positions (see billionaire Jim Simons’ portfolio).
For fiscal year 2011 (which the company will report after the close of trade today 3/22/12) analysts are projecting year-over-year EPS growth of 100% with revenues growing by 76.5%. In 2012, EPS are anticipated to grow by 43% with revenues advancing nearly 33.7%. Presently, SLW is trading at 19x ttm earnings and should the company meet analysts’ 2012 expectations, SLW will garner a P/E of 14.5X. This is half its competitors’ multiples, where Royal Gold Inc. (NASDAQ: RGLD) and Franco Nevada Corp (NYSE: FNV) 2012 multiples are projected at 33X and 30X respectively with all three companies providing a dividend yield of roughly 1%.
While some may contend that SLW trades at a premium to such peers as Pan American Silver Corp. (NASDAQ: PAAS); Hecla Mining (NYSE: HL) and Silvercorp Metals Inc. (NYSE: SVM), it should be noted that the aforementioned are mining companies, whereas both RGLD, as well as FNV’s business model as streamers; royalty companies serve to provide an accurate comp to that of SLW’s business model.
Nevertheless, should both fiscal and monetary policy actions employed throughout the past dozen years at the hands of the US Fed; Global Central Banks, as well as policy makers spanning the globe persist, precious metals remain an indictment on such endeavors, whereby both the physical metals, as well as companies such as SLW will remain the benefactors. All that glitters, is Gold and Silver.