The Only Silver ‘Mining’ Stock You’ll Ever Need To Buy…

| August 31, 2012 | 0 Comments

Last week’s silver rally is raising a lot of eyebrows in the commodities world.  After all, it was just a few short weeks ago that bears ruled the tape.  The precious metal was trading near 52-week lows with no signs of life on August 17th.

All I can say is… what a difference a week makes!

Silver’s pushing multi-month highs in recent trading thanks to last week’s inflationary meeting notes from the Federal Reserve.  And now, with the shiny metal trading over $31 an ounce, investors are searching for the best way to capitalize on another bullish run for silver.

Some are convinced owning physical silver is the best route.  Others think junior silver miners are the only way to fly.  And of course, you can always buy into a simple silver tracking ETF as well.

While all the above are viable options, one of the most profitable ways to play rising silver is through this extraordinary ‘mining’ company…

… Silver Wheaton (SLW).

I use the term ‘mining’ loosely because even though Silver Wheaton makes money by selling mined silver- they don’t actually do the mining.

You see, Silver Wheaton is a silver streamer.  While it may sound funny, the company’s business model is incredibly simple- and extremely profitable.

Here’s how it works…

The company simply buys silver from miners for an up front fixed cost, then turns around and sells the metal at the prevailing market price.

Believe it or not, this business model is a win-win for everybody involved.  Miners get a guaranteed revenue source from Silver Wheaton due to long-term purchase agreements.

On the other hand, Silver Wheaton capitalizes on the difference between the fixed cost they pay to miners and the prevailing market price for silver.  As long as the price of silver stays above their upfront cost they’re sitting pretty.

And get this…

Silver Wheaton’s average 2012 up front cost is a mere $4.04!

You read that right.  The company’s average cash cost to buy silver is currently $27 below the spot price.  It’s no wonder Silver Wheaton reports quarter after quarter of spectacular profit margins.  As a matter of fact, Silver Wheaton’s Q2 2012 margins were an eye-popping 70%!

But that’s not all…

There’s another beneficiary to this beautiful business model… investors.  Not only do they get a nifty dividend, investors get 100% pure unhedged upside to the price of silver.

Take a look…

Silver Wheaton Chart

As you can see, Silver Wheaton (blue line) is easily outperforming ‘real’ miners like Pan American Silver (PAAS) and Silver Standard Resources (SSRI) since 2009.  What’s more, shares are also leaving the actual price of silver (red line) in the rearview mirror as well.

But wait it gets even better…

Based on current purchase agreements, Silver Wheaton expects to produce 28 million ounces of silver in 2012.  But by 2016, management expects production to swell by 71% to 48 million ounces.

So even if the price of silver stays right where it is, Silver Wheaton’s going to increase revenues dramatically over the next few years.

And what if the price of silver shoots higher (like I think it will)?

Well, then it becomes almost laughable.  The company will not only have a quickly growing revenue source, but much higher prices for the commodity it sells.  And remember, the company’s upfront cash costs are currently a mere $4 per ounce.

Bottom line…

If you’re looking for great way to play a potential silver rally, Silver Wheaton is without a doubt one of the best ways to do it.  Take a look at it for your portfolio today!

***Editor’s Note***  Just a quick note to tell you to make sure you’re buying technology stocks.  The entire sector is at a 10-year high…  and looks poised to skyrocket even higher!   For trading ideas, check out this advisory.

Until Next Time,

Justin Bennett

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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