Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW) continues to have a great year on the market. Year-to-date, the company is already up a very impressive 27%, and the rise in stock price does not seem to be going away anytime soon.
Let’s take a look at why the company’s stock is on a tear and what this means for investors.
Streaming is the way to go
First off, Silver Wheaton is not your typical precious metals company. Silver Wheaton is a streamer, which has a slightly different business model than a miner. This business model exposes the company to significantly less risk, but it can reap huge rewards at the same time.
Streamers typically finance mining companies using an upfront payment that the miner then uses to set up operations and begin mining. For that upfront investment, streamers typically get the precious metal from the mine at a significant discount, which can then be sold at the market rate elsewhere.
That discount is a significant factor in how lucrative the process can be. Streaming prices can be as low as US$400 per ounce for gold, and US$4 per ounce for silver. Compare these to the spot prices for both metals, which are nearly US$1,250 and US$15 per ounce, and you can start to see the allure in this model.
The fact that both metals are up this year only makes Silver Wheaton, which has a number of streaming agreements already in place, a better investment going forward.
Silver Wheaton and gold
As the company name implies, Silver Wheaton is a silver streamer. But the company also streams gold as well as other metals such as copper.
Over the last few months, gold has started to appreciate in value, and in the past few years Silver Wheaton has gradually stepped up the amount of gold streaming that it is exposed to.
While both gold and silver are up for the year, gold has vastly outperformed silver, rising nearly 17%. In comparison, silver has risen 9%.
Silver Wheaton’s percentage of gold from all production hovered near 27% just two years ago; now that level is near 40%. Silver Wheaton has also made it known that it expects that level to increase to nearly 50% over the next three years.
Silver Wheaton has signed a number of streaming agreements over the past few years that will give the company a steady stream of metals and revenue for years to come.
While much of the stock’s growth this year can be linked to the increase in value of both gold and silver, the fact remains that over the long term, Silver Wheaton remains a great option for investors.
Even taking into consideration the current rally on the stock, Silver Wheaton is currently trading at just under $22, making it an excellent buy for those looking to diversify their portfolios with a stock that has huge long-term potential.
