Why I'm Stuck Like Glue to Silver Wheaton
Like Brooke Shields with her denim, I won't let anything come between me and my shares of Silver Wheaton (NYS: SLW) .
As the stock struck a fresh 52-week low Tuesday amid a truly astounding bout of weakness for the miners of silver and gold, I remain steadfast with my investment focus on the long-term bullish outlook for silver prices and Silver Wheaton's truly phenomenal outlooks for both earnings growth and strategic growth through new stream acquisitions.
The silver-stream holder's net earnings grew 20% to $147.2 million ($0.41 per share) for the first quarter of 2012. Production volume expanded 8% to 6.7 million silver equivalent ounces (SEOs), and the company reiterated full-year guidance for 27 million SEOs on its way to 43 million SEOs by 2015. Based upon the latest updates from key stream partners Barrick Gold (NYS: ABX) and Goldcorp (NYS: GG) , the pieces are coming together nicely in support of Silver Wheaton's outlandish growth spurt. With the miners facing acute cost pressures, furthermore, Silver Wheaton's essentially fixed cost structure has never looked more attractive.
Aside from that powerful growth outlook, let's have a look at the assets that come along for the ride with Silver Wheaton's bargain market capitalization of $8.2 billion. For starters, take note of the cash balance that's approaching $1 billion and growing fast. After accounting for the company's minuscule debt, net cash comes in at $926 million.
Of course, Silver Wheaton's principle assets are the tremendous reserves and resources underlying the company's stream agreements. Even at the presently diminished silver prices of around $27.50 per ounce, combined attributable reserves plus measured and indicated resources total 1.25 billion ounces of silver with a corresponding market value of $34.4 billion. And in an often-overlooked aspect of Silver Wheaton's strength, the outlook for organic reserve growth from promising assets like Primero Mining's (NYS: PPP) San Dimas mine add fuel to the fire for Silver Wheaton's steadily expanding asset base.
With projected annual cash flow of roughly $600 million at current silver prices, and the cushion of an undrawn $400 million credit facility, the company's flush liquidity position will empower the next round of highly accretive stream acquisitions to come. With the scent of another global liquidity crisis wafting through the macroeconomic air, and given the profound state of under-investment in resource equities at large, I believe conditions have turned strongly in favor of Silver Wheaton as it looks to secure the next generation of stream agreements.
I will remain glued to my bullish CAPScall for Silver Wheaton, initiated back in 2006, through the remainder of this countertrend correction in the resource equity space. It may not be a very popular position to espouse amid this moment of relative weakness, but I am still convinced that Silver Wheaton will forge a very powerful long-term advance. Just as I did during 2008, when I pleaded with investors to consider shares of Silver Wheaton at $2.51 per share, I am here to offer the long-term view during a period of pronounced relative weakness.
At the time this article was published Fool contributorChristopher Barkercan be foundblogging activelyand acting Foolishly within the CAPS community under the usernameTMFSinchiruna. Hetweets. He owns shares of Goldcorp, Primero Mining, and Silver Wheaton. The Motley Fool owns shares of Primero Mining. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.