Comparison Case Study: Silver Wheaton

• SLW trades near 52-week lows after declining 40% in 2015, but this is an opportunity that investors shouldn’t miss as better silver pricing will take the stock higher.
• Silver pricing will improve as solar installations across the globe increase, leading to higher silver demand as the solar industry accounts for 56% of silver consumption.
• Due to rising demand, lower scrapping activity, and the maturity of existing mines, the silver market’s deficit is expected to go up to 57 million ounces in 2015.
• SLW will capitalize on the deficit in the market on the back of its streaming agreements that will help it increase its silver production at lower costs.
• SLW recently entered into a streaming agreement with GLCNF that will help it increase
More importantly, Silver Wheaton is well-placed to capitalize on an anticipated increase in prices due to recent streaming agreements.
Why Silver Wheaton can capitalize on the favorable end-market situation
Silver Wheaton is constantly focused on increasing its production. The company reported record production and sales volumes of 11 million and 10 million silver equivalent ounces, respectively, during the previous quarter. These numbers were driven by a strong performance from its Salobo and Peñasquito mines, coupled with the ramp up in production at Constancia. Going forward, Silver Wheaton’s production should increase further with the addition of the Antamina mine streaming agreement.
Silver Wheaton has entered into a long-term streaming deal with Glencore (GLCNF) valued at $900 million. As per Bloomberg, “Silver Wheaton will receive an amount equal to 34 percent of silver production at the Antamina mine in Peru until the delivery of 140 million ounces and the equivalent of 23 percent of silver production thereafter.” Consequently, the company now forecasts its production to increase 26% from last year and is expected to reach 44.5 million silver equivalent ounces in
If we look at the graphic below, it can be clearly seen that there are numerous intercepts below the current open pit area and also below the bottom of the block model itself. Source: Silver Wheaton
More importantly, Antamina adds another low-cost streaming agreement to Silver Wheaton’s portfolio as the company will need to pay only 20% of the silver spot price for each ounce delivered. Moreover, investing in Antamina is a part of Silver Wheaton’s strategy to focus on those assets that are at the bottom half of the cost curve. According to Silver Wheaton President and CEO Randy Smallwood, “This asset is well down I’d tell you in the low decile of the copper cost curve. And so it fits very nicely in with some of our other assets.”
Conclusion
Thus, the weakness in Silver Wheaton’s stock price this year is an opportunity in disguise for investors. The company will get better in the long run on the back of an improvement in the silver market’s dynamics and its improving production. Moreover, since Silver Wheaton is a streaming company, it enjoys a low cost base, which will ultimately lead to a better margin performance when prices get better. Hence, in my opinion, it will be a good idea to buy Silver Wheaton’s drop as the stock can deliver robust gains in the long