Investors may want to consider making new friends with a couple of companies in the Basic Materials sector who have some history of rewarding shareholders. Of course, like making friends in your personal life, doing so as part of an investing strategy requires the same trust element.
The following are two precious metals companies to consider. One is silver and the other is gold. One is Silver Wheaton Corp. (USA) (NYSE:SLW) and the other is Barrick Gold Corporation (USA) (NYSE:ABX). Careful research of their respective operations and financials may make them welcome additions to your stock portfolio, depending on your risk profile.
5 Reasons to consider Silver Wheaton
1. A strong portfolio
Silver Wheaton Corp. (USA) (NYSE:SLW) has several agreements, where they have the right to buy all, or a part of the silver and/or gold production from 19 operating mines and four development stage projects. Their asset portfolio includes silver and precious metal streams on Barrick Gold’s Pascua-Lama project. It also includes streams on Hudbay Minerals’ 777 mine and Constancia project, and Vale S.A.’s Salobo and Sudbury mine.
2. Growth in attributable proven and probable reserves
Silver Wheaton recently reported that attributable proven and probable reserves increased more than 38% in 2012. They grew to a record 1,116.1 million silver equivalent ounces. This consists of 851.4 million ounces of silver and 4.96 million ounces of gold.
Therefore, for proven and probable reserves, the company has major growth in that portion of their Measured and/or Indicated mineral resource that is the economically mine-able portion.
3. They have no exploration costs
As a precious metals streaming company, Silver Wheaton offers upfront money, which they provide to a mining enterprise seeking capital. They can enjoy the benefits of exploration without having to take part in the exploration. They don’t have to invest additional resources (such as manpower, and more) and assume the risk inherent in that exploration.
4. Their Focus is buying at a low fixed cost
Their agreements with other companies pertains to them buying a percentage of a mine’s production at a price that’s lower than the spot price (stated outright value at any given time on the market) for the particular precious metal. Therefore, Silver Wheaton’s gain is the spread between their fixed payment and the spot price.
5. Strong forecasted production
Silver Wheaton Corp. (USA) (NYSE:SLW)’s 2013 attributable production forecast is approximately 33.5 million silver equivalent ounces. The company anticipates annual attributable production to grow to approximately 53 million silver equivalent ounces by 2017.
Production growth is a path to better shareholder returns and something for investors to look at. However, this production growth must be in tandem with cost containment and better production efficiency. A drop in commodity prices, without an accompanying drop in costs, can put the hurt on companies and their shareholders.
5 Reasons to consider Barrick Gold
1. Flush with cash
Barrick Gold Corporation (USA) (NYSE:ABX)’s full year 2012 operating cash flow was a record $5.44 billion. Mr. Jamie Sokalsky, Barrick Gold CEO, said recently, “The first step towards increasing returns to shareholders is to have the underlying business running well. For 2012, we delivered record annual operating cash flow, and the second-highest adjusted earnings per share in Barrick’s history.”
2. Nuggets in Nevada
In their own words, ” Nevada is a core operating region for Barrick and is the cornerstone of our success.” At their Goldrush deposit in the state, the company has a measured and indicated resource of 8.4 million ounces ( as of Dec. 31, 2012). This is a 500% increase from the prior year. Now, everything’s not high-gloss for Barrick; they reported a net loss of $0.67 billion for full year 2012. However, there’s potential for growth and improved results with operations such as Goldrush contributing to their gold pot.
3. They’re getting to the core of the issue
Barrick Gold Corporation (USA) (NYSE:ABX) is refocusing on what they do best – mining for gold. Consequently, the company recently reported that they are ” Pursuing and actively engaged in realizing opportunities to rationalize our portfolio, including the sale of Barrick Energy and other non-core assets with short mine lives and high operating costs.” ( reported Feb. 14, 2013).
4. Future Pascua-Lama production
Barrick Gold Corporation (USA) (NYSE:ABX) is targeting first production at this project on the Chile/Argentina border for the second half of 2014. Pascua-Lama has almost 18 million ounces of proven and probable gold reserves. The expectation is that it will produce an average of 800,000-850,000 ounces of gold and 35 million ounces of silver in its first full 5 years of operation.
5. Moving towards greater efficiency
They’ve instituted a total review of their overhead across all elements of their business. Of note to investors is that Barrick Gold reduced 2013 total overhead costs by more than $100 million. More upside here is that the company, via their review process, expects more cost savings.
The potential exists for these savings to settle into their bottom line. Improving operational efficiency can lead to greater profit margins, greater production, which is all added value to the company and their shareholders.
Furthermore, investors may want to consider Pan American Silver Corp. (USA) (NASDAQ:PAAS) to top up their precious metals portfolio. The company recently reported that Proven and Probable silver mineral reserves increased to nearly 317 million ounces (as at Dec. 31, 2012).
Of significance for investors is the statement by Mr. Michael Steinmann, Pan American Silver’s Executive Vice President, Corporate Development and Geology; he said in February 2012, “Mine-site exploration has always been an important value driver for Pan American, allowing for organic production growth. Since 2004, the Company has added 229.4 million ounces of silver to its mineral reserves solely through exploration activities, excluding acquisitions, and more than replaced the 196.3 million ounces of silver mined during the same period.”
Therefore, the company is building shareholder value via their core exploration activities. Any acquisitions they undertake are as gravy added to an already delectable pot. The company has seven operating mines. Their expectation for this year is to invest $16.3 million to complete approximately 124,000 meters of diamond drilling at these mines.
Of further significance for investors is dividends; Pan American announced in February 2013 that their Board of Directors approved the first quarterly cash dividend of the year. They increased the amount of the quarterly cash dividend by 150% to $0.125 per common share.
The takeaway
As investors, you can make new friends and keep top performing old ones in your portfolio. It means staying abreast of what these companies are doing in terms of their going forward strategy. Remember, “Silver is precious, Gold is too…” and hopefully your portfolio stays that way too.
The article 2 Precious Metal Stocks That Could Drive Your Portfolio Higher originally appeared on Fool.com and is written by Michael Ugulini.
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