Mining companies have 3 options when they need to raise capital other than retained earnings; 1.sell stock, 2.borrow from a bank, or the newest, 3. a streaming deal. Why mining companies like streaming deals is simple. Selling stock dilutes their stocks value and takes a long time to recoup the expense. Borrowing money is also a negative to the bottom line and like selling stock takes a great deal of time to recoup. In addition, the loan must be repaid no matter what happens to the price of the commodity and or the mine in question, AND is paid back by the underlying corporation that owns the mine, not the mine itself. The silver stream is attractive because they are in essence selling forward the commodity in the ground from a particular mine. There is no expense taken against earnings, it’s basically a futures contract from an individual mine, not the corporation per se. The mining company gets the money upfront and sells the commodity after they mine the commodity at a reduce price to the streaming company, in this case Silver Wheaton. I believe all told, the average price for Silver Wheaton’s silver is about $8-$9 per ounce when you consider the upfront payment and the cost per ounce.
A futures contract sells a commodity at a future time at a future set price. However, unlike a standard futures contract this streaming contract only gets paid back in essence with the actual production from the mine. Thus the mine is borrowing the money, not the corporation. If the mine goes out of production nothing is paid back until it goes back into production unless the contract is written with special production commitments, which some are. Silver Wheaton writes these deals so that they get a small portion of the mines overall assets, whether it’s 100% of the silver in a Zinc mine or 25% of the silver in a gold mine. It’s in Silver Wheaton’s interest to keep the mine profitable for the producer to keep it in production. They don’t take all the eggs, only a enough to leave the goose laying. This was devised by Silver Wheaton management which is mostly still there, I think it’s brilliant.
Goop! Excellent points! But what's to stop Barnes or some other mining engineer/businessman to show this business model to JP Morgan or some other financial powerhouse and convince such a powerhouse that there is "easy money" to be made in the mining business by financing promising mining prospects, like SLW does, and enter the silver streaming business? That is the biggest fear that I have with SLW....that competitors will enter their territory, immitate their business model, and either take away business or at least make SLW lower their rake on their silver streams. Seems like it would have to happen eventually but apparently it hasn't happened yet, at least on a scale that significantly puts a dent in SLW's future profitability.
There was an attempt by another company in Canada to use this model. Capstsone tried it, but it was in addition to their other business and although they were successful in doing some deals they sold their book of deals to Silver Wheaton and got out of the streaming business about 2 to 3 years ago. They had done some very profitable deals I believe, but I think they wanted to focus on what they did best, mining, not financing.
So why isn't this powerhouse over $60. a share???? If their financials shown here are accurate, their earnings are ready to explode, WHY isn't this priced higher??? Their model is lok the Goldmas Sachs of Silver.....
I keep buying more at these levels, but am getting leary that somebody knows something that the small investers don't know......
You forget that SLW is well connected within the industry. They are first and foremost geologists who know how to analyze mining potential.
For example, I personally think a company like Geologix (GIX.TO) with a Board of Directors and top management from Goldcorp, the old Wheaton River, Silver Wheaton (including Randy Smallwood) would more likely get financing from SLW than from any other source.
Geologix, Inc. Board of Directors
25 years industry experience
Former partner of Nemeth Thody Anderson, Chartered Accountants
Currently serves as President & CEO of UEX Corporation.
President , CEO, Director
20 years experience in the mineral resource industry; discovery through development & production.
Cominco, Wheaton River (VP Corp Dev.), Glencairn (VP Corp Dev.), Geologix
Development of 2 operating mines through BFS and production
President of Silver Wheaton Corp.
20 years experience, with specific experience in mine development and operations.
TeckCominco, Homestake , Westmin Resources, Wheaton River Minerals, Goldcorp
President & CEO of Candiani Mining, previous Federal Congressman in Mexico
Extensive background in Latin American divesture deals, equity and M&A transactions.
Previous Advisor to Southern Copper, Endeavour Silver, La Camera, and Mitsui
B.Sc., MBA, CFA
25 years experience investment banking, corporate development, M&A
Prior President of Macquarie North America, Managing Director Mining Group Scotia Capital; VP of
Investment Banking Group CIBC Wood Gundy; VP Corporate Development at Placer Dome Inc.;
Eduardo Luna, MBA
Advisor to the Board
Executive Vice President & President, Mexico Primero Mining, Prior President Goldcorp Mexico,
Prior President Luismin Mining Mexico
Robert Willis, P.Eng.
Advisor to the Board
Chairman & CEO, San Marcos Mining, Past Director, President, and Chairman , Geologix, Prior
President and CEO of Manhattan Minerals Corp., Prior President and CEO of Pioneer Metals Corp
Give me all your money, I got a mine to start, I keep everything but the silver stream, and I'll give you the silver stream for ten, twenty five, forever,
Money for nothing, and your kicks for free.