Time to Buy Silver Wheaton Corp.

Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW) remains a great long-term opportunity for investors looking for a previous metals stock.

| More on:
The Motley Fool

Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW) is a precious metals streamer that has plenty of long-term potential for investors.

Unlike the traditional miners who typically carry a larger debt load due to the costs associated with setting up a mine, streamers operate under a slightly different business model that has lower risks but many of the same rewards.

Streamers differ from miners in that they don’t own or operate the mines directly. Streamers provide an upfront financial infusion to the miner, who then proceeds to set up operations. In return for that initial investment, streamers negotiate discounted rates with miners for the precious metals produced from the mine.

Typically, that discount can be over 60% of the market rate of the metal. Streaming contracts for gold can have a rate as low as US$450 per ounce, and silver can be streamed for as little as US$4 per ounce.

In short, streaming deals can be lucrative for all parties, and especially if the price of gold is expected to rise.

What’s in store for gold this year?

Gold prices rallied last year — their first rally in over half a decade. As gold prices shot up, so did the stock price of gold producers (and, by extension, Silver Wheaton). Unfortunately for producers, the rally was short-lived, and prices cooled towards the end of the year. Gold producers still managed to finish the year on a high with many up over 40%.

Several unprecedented events, ranging from the ongoing uncertainty over rising interest rates, the surprise Brexit vote, the fallout of markets, and the unexpected election of Donald Trump, all played a part in gold price fluctuations last year.

This year could be just as tumultuous, if not more. The U.S. Fed has already decided to keep interest rates unchanged for now, and the growing uncertainty over longtime policy shifts by the new administration in Washington will only fuel uncertainty and push investors back into the perceived safety of metals.

Some industry pundits late last year speculated gold could hit US$1,400 per ounce this year, and given the growing number of uncertainties in the market, that now seems likely.

Where does this leave Silver Wheaton?

I’m optimistic about Silver Wheaton this year for a few reasons.

First, Silver Wheaton’s existing contract base is estimated to yield 330,000 ounces of gold and 30 million ounces of silver annually over the next few years. Keep in mind that over the lean years that preceded last year’s rally, producers became accustomed to streamlining costs and improving efficiency. That alone screams potential in the form of stable costs and increased productivity.

Second, if gold prices continue to rise as speculated, the margins for Silver Wheaton selling precious metals will produce even more revenue for the company. Renewed demand for gold in both China and India over recent months should boost demand and, by extension, push prices up even further.

In my opinion, Silver Wheaton remains a great long-term investment for those looking to diversify their portfolios with a precious metals stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned. The Motley Fool owns shares of Silver Wheaton. Silver Wheaton is a recommendation of Stock Advisor Canada.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »