May 18, 2009
– Comments (20) |
RELATED TICKERS: SLW
I love anything silver right now. I'm wondering how you came up with your projected silver price?
Well silver is A) used as an inflationary hedge and B) Increasing industrial use, especially the future of batteries. I like silver for many other reasons than that as well. The gold and Silver ratio historically trades at 55:1. Based on the global debasment of all currencies especially the sterling and USD, I expect silver to go to the moon. Those are just conservative estimates, as silver hit $50 an oz at its high in 1980. SLW is pure play on silver because it does no mining, as it is strictly a royalty company. They also got approval from the candian gov't to operate from the caymens, thus they pay little to zero income taxes. I actually just put that up to see if people like that type of thing..
Actually the historical gold/silver ratio is 20:1. Currently it's about 65:1. Long ago it used to be about 9:1 until some huge silver deposits were discovered.
I'm in agreement that silver is on the rise and I think that we'll see an interesting development when the economy finally recovers. China will probably be one of the first countries to recover. They already are one of the biggest consumers of silver.
During an economic recovery, silver holds it's value longer than gold due to industrial demand. China will be buying inflation priced silver in huge amounts before anybody else realizes a recovery is starting. I think this will lead to a peak in silver that we have never seen before. I'm thinking around $80 an ounce. China also tends to hoard commodities when they go up in price, so it may even go higher. When the recovery is realized globally, global demand for silver will increase and maintain silver prices months after the gold prices fall.
I love the pick and think your buying at the perfect time.
For more info on silver go to my pitch here.
I meant post bretton woods, where gold and silver were allowed to freely fluctuate in the U.S. I am in agreement with the long time historical ratio. I think you and I maybe in different camps about silver and gold. I think hyperinflation is not out the ring of possibilities, especially due to the fact that we have showed no signs of slowing down. Even in my conservative estimate I think it will be 3-5 worse than inflation of the late 70's/early 80's. That coupled with the fact mining output has been declining year after year during the last decade, makes me like both metals.
As for me and slw, I initiated over 75% of my position in nov, when it was incredibly cheap, and the rest immediately when I heard the silverstone aquisition in the rumor mill. The same goes for yamana gold. I have been slowly picking away at silver standard resources: SSRI, which I think you would love (nearing 2 billion of total resources)!
I will def check your pitch out, but I've been in this boat for a while. I don't know if your into international equities, but there has been a big deal announced, that most U.S investors havn't even heard of.
You've done a phenomenal job with this, speedy!! I will be sure to link to it in a future article... excellent valuation analysis... and I especially like how you took care to account for inflationary adjustments to silver prices paid.
We arrived at more or less a similar range through disparate means. In suggesting SLW shares were selling for the equivalent of $3.30 per per mineable ounce of silver in the ground, I implied a fair value before the Silverstone deal of $37 at TODAY'S silver price of 13.80! Assuming a long-term silver price of $25, I would value shares well above $60 pre-silverstone. I haven't yet recalculated for acquired Silverstone reserves.
Long ago, I suggested that SLW would reach triple digits before this was all said and done, and I'm standing by that forecast. I continue to believe that we will see $50 silver during this multi-year bull market, and consider SLW to offer the best (and safest) leverage to that price appreciation. CDE nd HL could pay off huge as well, of course, but SLW will perform handsomely.
Again, excellent job with the valuation!!
Thanks you -
I put in a sensitivity table with the discount rate vertical and long term silver price on the horizontal axis. The production numbers are rather conservative as it immeditely adds 3m-4m oz year of production. Yeh I wasn't putting particular emphasis on the actualy valuation, but for others to input their predicted future silver price. I agree, it will see triple digits eventually, hopefully they can buy tech's alaska royalty and 1 or 2 other, I'm not concerned with share dilution as long as the financing is used productively, which has been the case thusfar.
Ahh, I see I underestimated you to the point that I realize you should be on my favorites list.
I love SSRI as well. I didn't catch the international deal though. Care to enlighten me on that?
Also currently I'm looking more at platinum and some of the more exotic precious metals. Have you done any research in that area and do you have any opinions?
As long as we all agree that inflation is inevitable, share dilution is a non-issue. They will be making money hand over fist when silver prices rise and if they are run well, will be buying shares back with inflationary dollars
Platinum is really tricky because there are basically only 2/3 places in the world where pure platinum ore can be mined. Unfortunately they rank no.1 and no.2 on places I don't wish to go to, South Africa and Russia. Anglo-Ashanti for a more pure play on plantinum. But BHP Billiton, in my opinion, provides a better risk/reward investment. As you know they do mine a lot of base metals, silver, some gold, some plantinum and Uranium.
The deal I mentioned (not yet officially approved) is Canda's Vittera Bid for Australia's ABB GRAIN. They have multiple segements dealing with wheat i.e (wheat pooling/ grain marketing/handling and well as services to local producers). I think you get the point..Profitability is largely a function of wheat prices, which fluctuates wildly as crops often are ruined by the weather. In other words, they will have taken the weather risk out of the equation in addition to having a global reach on this industry. They are both growing rapidly, which is not shown in the current price.
One of my other favorites is MIGAO, a candian based potash company. I would say it's a mini-chinese potash, but serves china instead of the U.S despite the location. This is another valuation play. MIGAO has invested in PPE such that capacity will increase 70-75% over the next 12-18 months.
Hope this was of any use
TRUE, SLW is my largest holding, mostly because of the price appreciation since nov. I only hold resource stocks, because their is a huge supply-demand disconnect in Oil, wheat (I wish I could post the production-consumption numbers on here, as they narrowed rather substancially over the current decade), Silver, Gold and eventually Uranium.
I was hopping SLW doesn't pay down any debt to the amount it is in U.S denominated currency.
I was hopping SLW doesn't pay down any debt to the amount it is in U.S denominated currency.
What do you think would be more prudent?
Acqusition costs would be too high in a bull silver market. I suppose they could invest in exploration, but that seems to counter everything that they have done so far.
Hope this was of any use
Actually yes, for my real life money, I'm trying very hard to buy non-US stocks right now. I'm concerned with my exposure to the US dollar.
I'll have some US exposure, but mainly on inflationary plays.
Seems like you're being very generous with your expectations for silver prices and with your discount rates. I agree with you in principle that silver stands to appreciate (I hold actual), although not permanently, and I agree with you that Silver Wheaton is conservatively priced today (I do not hold) but I think your expectations represent a highly improbable moonshot.
IMO your lowest silver prices and highest discount rate might still be a bit too optimistic long term.
Funny, I thought he was be a little too conservative.
I guess everything is based on your perspective of inflation and your valuation of silver.
I'm of the opinion that once the silver price goes up, there's little chance you'll see silver go below $20 until the next depression.
Remember SLW is a royalty, thus it does not actual mining. This takes out quite a bit of mining risks, as they now have a diversified of 12 streams with 2 more likely to come-on line in the new couple of years. You have your opinion on where silver is going and so do i. What makes the biggest difference (valuation wise), is the long term price. I don't consider the long term price a moonshot in the least, in fact I think it's somewhat conservative. But then assumptions are what make the great investors stand out from the rest, so who knows silver could stay at 13 forever as nothing is outside the realm of possibilities.
Well, what catalysts other than inflation do you see that will support silver prices as inflated as you expect? I agree with you that inflation is on the way (Although I suspect we may disagree on where you'd be best off putting your dough - I say equities.) and I'm sure we'll see higher PM prices once it's apparent that inflation is upon us but that will not last forever. I just don't really see any support for perpetually high silver prices. As an aside, the futures market certainly doesn't have much to say about where silver ought to trade into 2010 - prices are basically flat whereas you might expect to see contango. Not that I place much value in the predictive powers of the futures market... You're certainly right about assumptions and the market tends to make pretty poor ones in aggregate.
In terms of discount rates, I think 7% is too generous for anything. Pick the most stable cash-generating business in the universe and I don't think I'd discount it at 7%.
I'm not sure how you arrived at all your numbers, but there is virtually no way that SLW is worth $47 per share.
Realistically speaking, SLW might be worth something between $10 - $20. $25 tops. Not $47. And I say all this as someone who is moderately bullish on SLW.
Also, if there's high inflation, your discount rate of 7% would be very low IMO.
As I mentioned in a previous reply, this was more of a expirement to see if people like this sort of thing. The fact that i put a sensinsity table in it should have conveyed the message, but i'm sorry if ou misunderstood. If 7% is to high, what do you think is approrpriate 10, 12%? If that is the case I presume you attach at 20% on the actual miners, is that correct. SLW hit 20$ last year without inflation so I wouldn't say that would be realistically speaking unless you think inflation may only be 3-5% or so. Also Silver is being used as a larger component of batteries and other various industrial uses.
-I hope this answered anything, but this was mostly meant so you would be able to project what you think the silver price would be and thus the intrinsic value of slw. I take this that you two aren't a fan of these type of postings? I'm just trying to get a feel
If you guys think that Silver will go up and the USD will go down (I think this) then take a look at the silver Wheaton U warrants - good 'til 2013, can buy warrants in CDN dollars, but they're exercisable at $20 USD, so if silver and silver wheaton go up - good! If the USD goes down - even better. Seems like a double whammy to me.
Coeur has an interesting article on their website with detailed analysis of silver prices. Basically, even with strong investor appetite, the "Silver Institute" predicts a $14 average price for 2010. Silver demand is growing, but not rapidly. Supply is increasing rapidly next year with many new mines coming online. You can see the report on http://www.coeur.com/, just look for the link that says "World Silver Market". Therefore, Silver Wheaton is currently approximately fairly valued unless a big event happens (like someone steps up and buys a massive amount of silver to artificially move the price). A more interesting metal is molybdenum, which is likely to experience a real supply shortage in just a few years, and huge price increases without depending on investors.