I'm new to SLW but not new to investing. Have a bit of a "Gold Bug" mentality, but don't own physical PMs yet. My brain is flashing "Inflation" while some very smart people I know are whispering "Deflation"....
Bottom line I'm not sure how I should think of Silver Wheaton, except, perhaps as a "PayDay for Silver Miners". Just playing with the concept, tell me what you think?
I ASK MYSELF when do "PayDays" (specialized lenders) make more money?? In GOOD times or in BAD times?
And I have to think the answer is basically this: The BEST contracts get written in BAD times, so that things are really SUPER GOOD in GOOD times.
So bad times are good? Well, if my thinking is on track, and who knows, but seems like "Yes" - too long a good (high price for the PMS) would make the better low cost Miners "too prosperous" to really need money, right?
More related thoughts on this:
1. If I was clever and dedicated enough I'd go back and study the actual contracts and see when / where the "best" contracts were written. Perhaps somebody that REALLY knows something could comment on this?
2. As a programmer I'd love to know enough about each of the "income streams" to build a model that would allow me to predict actual volumes, and actual sales prices against costs to predict income for each stream.
I would think SLW would have such a thing?! It not some of the "better" analysts? Comments? Instead of Brain Dead predictions based on the price of Silver being somehow linearly related to the income streams of the SLW business model we could make actual predictions....
3. A little comment in the SLW annual report really intrigued me, has not let me go, and that is that they write these Contracts (historically) with LOW COST PRODUCERS.
This is just another fact among many, and I'm really not experienced at this directly, BUT does this not mean that: " A WHOLE LOT OF HIGH COST MINING CAPACITY WOULD GET SHUT DOWN LONG BEFORE SLW
would be at break even???
This is just my opinion but while we are witnessing what i think is global deflation central banks have no choice but to continue in even bigger ways to try and reflate by creating inflation, in this environment metals usually do well (albeit in the past year and a half they have trended lower) as far as SLW is concerned i think that they have been lumped up with the traditional miner as they have a unique buisness model yet have a fraction of the risks that a traditional miner have. The fixed investment and long life spans of each stream is where the strength of SLW stands. After its initial upfront payment SLW has the right to buy cheap production for in most cases in excess of 25 years. Its valuation is most definitely associated with the price of silver and rightfully so, for every dollar in price silver adds SLW adds 33.5 million in revenue (per 33.5 mil ounce quidance for this year) and conversely should the price of silver decline by a dollar it has the negative effect of 33.5 million dollars in revenue so naturally SLW is tied to the price of silver. It is my opinion however that at the current price its relatively undervalued, i come to this conclusion because of the strong margins SLW achieves through its low purchase price. As far as modeling is concerned i have also been trying to model revenue and earnings and the way i do it is looking at each stream and following those companies as close as possible since SLW reports last after it streams have reported it gives you some insight into the amount due SLW, the problems i run into is the difficulty in calculating "produced but not yet delivered" production this is the wildcard for me each and every quater... Hope you have better luck modeling than i do, in closing i think this company has a great model insuring profit present and future, limited risk exposure while enjoying the rewards of higher silver prices. Good luck !!!