A Gem within the Rubble
I always here people saying when is the bottom going to be in? We have beome so complacent inflating/deficit spending/ and using are debt to spend our way out of recessions i.e 2001, that most find it incomprehensible to think we will have a lost decade. I don't think it is just a lost decade, i think it is a lost decade with unimagniable inflationary pressures on the horizon. But all hope is not lost, there are a few industries that will will prosper far greater than in our bubble economy. Other than producing gold miners which are all extreme bargains, is the silver mining industry which in my opinion presents a far higher risk profile than the gold miners. Silver Standard Resources (ssri), (sso.to) is a buy, but I have become increasingly bullish on Silver Wheaton. Silver Wheaton obvisouly has a superb managment team as they have what I think, developed a dynamic model.
Silver Wheatons comparative advantages:
* They have already spent enough capital expenditures to increase production from 18m/oz to 30-32m oz from 2009-2011/2012. Including about 400m oz of reserves.
* Their royalty streams are not taxed and are excluded from Canadas decision to tax energy trusts. Even if they are in the futures it will likely be taxed as a capital gain.
* They have a very diversified set of royalty streams(13), the majority of them growing fairly rapid.
* Most of their contracts give them the right to purchase silver in the range of 3.2-4.8/oz, with a few applying a 1% increase for inflation after three years.
* They recently aquired one of their main competitors at a bargain price (somewhere in the neighborhood of 8$/oz.
* There is Global inflation occuring, especially in the U.S, which i believe will push silver to all time highs. Inflation coupled with the vast quanitity of silver needed to further industrialize the BRIC countries, and the increasing use in electronic devices.
*To sum it up, their operating income will be net income, making them a levered play on the price of silver without having to deal with most of the risks inherent in the industry