Why invest in Silver Wheaton?
Silver Wheaton is the largest precious metal streaming company in the world, and derives approximately 80% of its revenue from the sale of silver and approximately 20% of its revenue from the sale of gold. The company has entered into twenty precious metal purchase agreements with fifteen operating partners, including Vale, Barrick Gold Corporation and Goldcorp Inc.
It is estimated that 70 percent of silver production comes as a by-product from base metal and gold mines. This characteristic, along with Silver Wheaton management’s bullish sentiment for long-term silver prices, was the basis for creating Vancouver-based Silver Wheaton in 2004. Silver stream agreements allow Silver Wheaton to purchase, in exchange for an up-front payment, the by-product silver production from a base or precious metal mine that it does not own or operate. The predetermined price that Silver Wheaton pays for future silver production is approximately US$4 per ounce, with a small inflationary adjustment, ensuring that costs are fixed. This allows the company to stabilize operating costs and reduce downside risk, while providing the upside of significant leverage to the price of silver. Other than the initial up-front payment, no additional capital expenditures or exploration costs are required. Yet, Silver Wheaton benefits from the production and exploration growth of its operating partners.
Silver Wheaton’s low-risk business model, which was designed specifically to create long-term shareholder value, has a number of unique aspects. At its core are multi-year agreements to purchase, at a low fixed cost, all or a portion of the silver production, and some gold, from high-quality mines in Mexico, Chile, Argentina, Brazil, Peru, Sweden, Greece, Portugal, Canada and the United States. The company has fixed operating costs, no ongoing capital expenditures or exploration costs, and no exchange rate risk. In addition, a large percentage of the company’s revenue is derived from low-cost and long-life mining operations and it does not sell forward its silver sales. All of this provides significant leverage to increases in the price of silver while mitigating the downside risks associated with traditional mining companies. Furthermore, Silver Wheaton has an industry-leading production growth profile, and it is very well positioned for further, sustained growth.