The best silver company in the world- Silver Wheaton

If you have never heard about Silver Wheaton (SLW), you should pay attention to it. I think this is the best silver company in the world. You may notice that I did not say it is a silver mining company. Why? First, here is the summary for the company per Yahoo Finance: "Silver Wheaton Corp., together with its subsidiaries, operates as a silver streaming company worldwide. The company has 14 long-term silver purchase agreements and 2 long-term precious metal purchase agreements whereby it acquires silver and gold production from the counterparties located in Mexico, the United States, Canada, Greece, Sweden, Peru, Chile, Argentina, and Portugal. Silver Wheaton Corp. is headquartered in Vancouver, Canada." What does it mean by "silver streaming company"? That's the key to differentiate it from other conventional mining companies. Silver Wheaton is a royalty company for silver. In a nut shell, it has cash in hand and lends its capital to those small early stage silver mining companies that desperately needs cash for their business. In return, SLW gets certain percentage of sales of silver mined by those companies when they go into production. That is the royalty checks SLW simply collects and cashes in the bank day in and day out. Given this unique business model, SLW does not need many employees (I heard it has about a dozen employees) with no real operations, and the best is that it does not take any mining risks other miners must take. Don't sneer at such royalty checks. According to the latest company estimate, it may bring in $700 million worth of royalty checks in 2011 at the silver price around $36 per oz. That's right, $700 million in a company with very few employees and no real operations!

If you really understand its business model, you should realize Silver Wheaton has an unbelievable potential. Here is what CEO Randy Smallwood recently talked about its amazing business: "The mining industry once again finds itself facing significant inflationary pressures, resulting in accelerating operating and capital costs. The benefits to Silver Wheaton in this environment are twofold. First, Silver Wheaton is immune from inflationary cost pressures as our unique business model guarantees essentially fixed operating costs of approximately US$4/oz. Fixed costs provide our investors with significant margin expansion as silver prices climb. Second, as mining companies' capital commitments continue to materially increase, and cash needs arise, Silver Wheaton can offer a very attractive source of funds compared to other forms such as debt and equity." 

I could not believe my eyes when I saw at how low price SLW could acquire the silver rights: $4 per oz! Think about it, the current silver price is about $39/oz. In other words, its profit margin is $35/oz. Do you get the point? What kind of profits SLW will have if silver price goes up to $50 or even higher? I have no doubt this will happen. It is not a matter if but just when silver will significantly appreciate. At the current price of $37 for SLW,  I think it is a good value to buy. But please remember, I'm not saying it is the absolute bottom for SLW. It is a futile game to try to time the bottom. For value investment, it is even stupid. Although I'm not predicting and I simply don't know, it is not unthinkable that SLW may drop to a much lower price. When it happens it simply means it becomes even more valuable. I'm already in and I will add more if its price comes down.  By the way, SLW even pays a small dividend, which I expect will significantly increase over time.