Silver Wheaton has dropped from highs of around $40 in October 2011 to lows of $23 in mid-May this year. Currently trading at a price revolving around $24, it still has a lot of catch up to do.
Nonetheless, I am still surefooted that it is a good buy. The critically inclined may be quick to lash out, however, my outlook is backed by good reasons:
Silver Wheaton’s ‘not so good’ performance over the past year was an inevitable fate that was shared by most, if not all, mining companies.
Over the past year, the rickety global economy has had its impacts on the mining industry. Most leading economies have cut back on spending and in the process shrouded investors in fear. No one is really certain about investing in anything. In addition to that, most key currencies are still reeling in the effects of the Eurozone woes and slowdown in the east. The overall effect has been an increase in the price of metals.
The increase in prices has greatly affected the mining industry. In actual fact, Silver Wheaton is even better off than some of the traditional mainstream players. This is because its peerless business model shields it from the direct effects of price fluctuation and widespread uncertainty.
Therefore using the dip in stock price and general slowdown in progression over the past year as a reason not to buy really doesn’t add up. It is an inevitable fate and the fact that Silver Wheaton has been able to hold on demonstrates its ability to forge through times of incertitude.
Placed at a better position
Still on its business model, Silver Wheaton is placed at a better position to conduct business in the current mining environment. Unlike mainstream players, it does not have to worry about the actual mining. This means that it does not have to worry about workers strikes, outraged unions and hefty costs.
At this particular point in time, streaming may just turn out to be the most economical model to implement. Why is this so?
A global mining survey mounted on primary researches by ICD Research has revealed very interesting trends for 2012-2013. The key highlights in the report reveal that there is an expected increase in capital expenditure. In the event that this foresight sees the light of day (which in my point of view it will), traditional mining companies will have a lot to lose.
This is because their costs will go through the roof and in the process bottleneck profits. To make matters worse they will not be able to cushion themselves by reasonably increasing prices. Why? The global economy is slowly getting back in rail and confidence in currency is returning. Demand for metals will fall, taking price along with it. This means that an increase in capital expenditure will have negative implications on the mainstream mining stocks. Silver Wheaton, which focuses on streaming, will not be caught up in the line of fire. The implications will be remote.
Coeur d’Alene Mines Corporation (NYSE: CDE), renowned for its conservative financial profile, is not also seeing the best of days. To start with, it was hit harder in light of the weak performance in mining industries over the past year. It fell 27% compared to Silver Wheaton’s lesser 18%. To add salt to injury, most of its plans have since hit the rocks.
Last week, it was revealed that Coeur d’Alene had backed down from its proposed offering of senior notes. It traced its withdrawal to the prevailing conditions in the capital market and cited that its actions were guided by the interests of shareholders. In as much as the mining player has credible grounds to justify its position, the fact still remains that it has failed to accomplish its plans. Failure is failure – there are no two ways about it. Canny investors will definitely move to places where things actually work. Places like Silver Wheaton
At the moment, I believe that Silver Wheaton is a good buy. It has strong fundamentals, is tactfully placed and currently has the attention of investors in wait of the much anticipated second quarter 2012 income results release slated for August 9th.