Why Silver Wheaton Is the Best Alternative to Physical Silver

Source: Thinkstock

Source: Thinkstock

Silver Wheaton (NYSE:SLW) operates as a worldwide silver streaming company. Silver streaming is basically a process by which the company purchases a mining firm’s silver production in order to distribute that silver in the market. SLW has contracts to purchase silver in bulk at prices well below market value, and then proceeds to sell the silver at a higher prices. The company has “multiple long-term silver purchase agreements and two long-term precious metal purchase agreements, whereby it acquires silver and gold production from companies located in Mexico, the United States, Greece, Sweden, Peru, Chile, Argentina, and Portugal.”

Based upon its current agreements, forecast 2014 annual attributable production is approximately 36 million silver equivalent ounces including 155,000 ounces of gold. By 2018, annual attributable production is anticipated to increase significantly to approximately 48 million silver equivalent ounces, including 250,000 ounces of gold. This growth is driven by the company’s portfolio of low-cost and long-life assets. The company is my most preferred way behind physical silver ownership to invest in silver. The company is incredibly profitable, and the stock should see strong capital gains and also pays a dividend for shareholders to wait for a rebound in gold prices. In a recent piece, I covered the financial strengths of the company. The purpose of this article is to review the operational performances of the company, focusing on some of the larger deals the company has in place.

During the first-quarter of 2014, attributable silver equivalent production was 9.0 million ounces (6.9 million ounces of silver and 33,800 ounces of gold), representing an increase of 8 percent compared to the first-quarter of 2013, which was quite strong. There are, however, important happenings at some of the properties where the company has contracts.

First, there were some issues at Penasquito. In Goldcorp Inc.’s (NYSE:GG) first-quarter 2014 Management’s Discussion and Analysis, permitting for the Northern Well Field project — which will add 25 new production wells — has been delayed due to unanticipated additional regulatory requirements related to the interconnection with the existing well fields, securing surface land access rights, and additional permitting requirements by the environmental authority. This is a bit of setback for Silver Wheaton. Goldcorp now expects construction to begin during mid-2014 with completion expected around mid-2015. Contingency plans have been developed for fresh water production at the mine to ensure plant production continues as planned. T

he long-term tailings study continued on schedule this quarter with results still expected in the second-quarter of 2014. Goldcorp has indicated that Penasquito’s exploration drilling program continued in the first-quarter of 2014, resulting in a total of 6,334 meters drilled. The exploration program continues to define the intersection of the copper-gold sulphide rich skarn ore body and porphyry deposit located below and adjacent to the diatreme ore body. In addition to exploration, Goldcorp is investigating the potential for producing a saleable copper concentrate at Penasquito as well as assessing the viability of leaching a pyrite concentrate from the zinc flotation tailings. Successful implementation of one or both of these new process improvements has the potential to significantly improve the overall economics and add to the mineral reserves of Penasquito.