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What Makes Silver Wheaton a Leading Precious Metals Investment?

NEW YORK ( TheStreet) -- Silver Wheaton (SLW - Get Report), the world's leading silver streaming company, has recovered in the past few months. Investors seeking to add precious metals to their portfolio could consider Silver Wheaton because its type of business makes it less risky than precious metals producers such as Barrick Gold (ABX) and Goldcorp (GG). Let's see why.

Silver Wheaton's business consists of investing in silver and gold projects which are operated by precious metals producers. For its investment, the company receives a certain percent of the precious metal produced at a very low and relatively fixed (usually adjusted for inflation) cost.

This type of business reduces its risk related to rising production costs or any delays a mining company may face (for example: Barrick Gold's Pascua-Lama mine has been delayed since the end of last year and has yet to resume. These delays resulted in a sharp rise in the company's developing costs of this project).

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In exchange, Silver Wheaton provides bullion producers: Additional capital to develop mines, reduces their debt burden and buys a portion of their future production. Moreover, the weakness of precious metals in the past couple of years led to a fall in the operating cash flow of gold and silver miners. Thus, they are forced to cut down their capital expenditure which slowed down the progress of some projects. Case in point, Barrick Gold slashed its capital expenditure by nearly half from $5 billion in 2013 to $2.55 billion in 2014.

Because of this type of business, Silver Wheaton is able to maintain its debt low: Its debt-to-equity ratio is 0.29 compared with Barrick Gold at 0.96.

Moreover, the company plans to expand its attributed production from roughly 36,000 silver equivalent ounces in 2014 to 48,000 by 2018 - nearly 34% growth.

Source: Silver Wheaton's Web site

In late day trading Thursday, Silver Wheaton was down about 1% at $26.11. Barrick Gold was down about 2% at $18.17. Gold Corp shares were down about 1% at $27.46

In summary, the ongoing growth in operations, low debt, and its importance to precious metals producers are likely to keep Silver Wheaton a viable business and an interesting investment for people who wish to add precious metals to their portfolio.

At the time of publication the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates SILVER WHEATON CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate SILVER WHEATON CORP (SLW) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SLW's debt-to-equity ratio is very low at 0.29 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, SLW has a quick ratio of 1.98, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for SILVER WHEATON CORP is currently very high, coming in at 77.57%. Regardless of SLW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SLW's net profit margin of 48.25% significantly outperformed against the industry.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • SILVER WHEATON CORP's earnings per share declined by 40.5% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, SILVER WHEATON CORP reported lower earnings of $1.05 versus $1.65 in the prior year.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 40.2% when compared to the same quarter one year ago, falling from $133.42 million to $79.81 million.

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