Wheaton Precious Metals (WPM)

[NYBob]

Silver Wheaton is the darling in silver mining sector
Published on 2011-02-15 09:55:00
By Mark Thomas

When you look at the Silver ETF chart (SIVR) currently up at $30.48, we are only 1.58% below its former high made around $31. It hit that same level in early December and then again in late December. We then had a large 13% correction back down to $27 level.

At the very end of last year, I reduced my physical ETF position at a 4-6% profit and then was able to add back to it later to reduce my average cost. I also then later was able took increase my exposure in the miners from 20% to now 42%. While this active trading has worked well, I know it seems overwhelming to an average investor to be getting so many updates from me suggesting trades. Understand though, that is being dictated by the large volatility in the market and the opportunities it presents, it won't be like this all the time.

I said last week that the physical silver market was the tightest I have seen in decades. I then added to my physical exposure ETF and turned around and sold that same position this morning for a quick 4.96% gain after commissions due to the strong opening price this morning of $30.20. I took those proceeds and bought my new largest position today, a new 11.4% position in Endeavor Silver (EXK).

I want to point out an interesting opportunity in the valuation of the miners vs. physical silver right now. Notice that physical silver is only about 1.7% from its high it made twice last December. Yet the primary silver mining stocks I'm suggesting are still 10-16% off their highs. Now obviously the stocks went a little parabolic back when silver first hit $31 and became momentum stocks, so you shouldn't expect them to go back to those same levels.

However with silver near $31, I think they should be about 5-7% higher than they currently are. With silver approaching the top of its range, I'm going to sell some additional physical silver ETF tomorrow to lock in an approximate 6% gain and buy a new position in Silver Wheaton (SLW). I also stand ready to sell some additional Physical Silver in down to a core 30% position and take profits and this time I will go to cash and make no additional purchases.

Silver Wheaton is the darling in the silver mining sector and its extreme valuation is what has always made me dubious of it. However I have changed my mind on Silver Wheaton (SLW) because it simply is the best company in the silver mining sector that is directly leveraged to higher silver prices. I will just have to live with the higher risk inherent in its valuation.

Its relative valuation is very high at eighteen time's current revenue and even ten times an optimistic 2013 revenue estimate of $1.2 billion. However, since the company has no capital expenditures because they don't literally own or operate any mines and have 59% profit margins that are rising, I'm going to take a small 8.5% position tomorrow. I will buy my position half after the open and the remaining half around mid-day.

An additional note on Hecla Mining (HL), I overlooked something very important researching them that has come to my attention. Since they have been in the Silver Valley of Idaho region for over 100 years, they are partially responsible for a superfund cleanup of a large area. This could be about a $400 million liability and it has changed my mind on the stock longer-term. I didn't really feel as strong about Hecla because it was pretty fully valued at 5 times revenue and offers little growth.

So tomorrow on the open, I'm selling my 10% Hecla mining
position and buying a new position in US Silver (USSIF.PK).
They are a $170 million market cap company that trades at only
2.3 times revenue that offers better exposure to domestic
US Silver at a much cheaper valuation and has no potentially
huge environmental liability like Hecla.
US Silver is pink sheet company with decent volume but don't
everyone all buy it at the open and use a limit order no
higher than .53 cents.
I will slowly buy a 9.7% position throughout the day to
average my cost.

US Silver (USSIF.PK). US Silver made an incredible purchase of
the Galena mine from Coeur d'Alene Mines when it had financial
trouble and basically have leveraged at $15 million investment
into a $167 million market cap just since 2006.
They basically own three mines all contained in one large
property the historic silver valley in North Idaho.
The Idaho Silver Valley was one of the most prolific in America
producing 1.6 billion ounces of silver since 1833.
Most of the mines have closed down in the last 20 years with
such low silver prices and decreasing production rates.
However, some mavericks like US Silver spent the last five years
reopening, investing in and resuming production.
Once again we have a company that had the guts to make their
large capital investments when prices silver were low.
They are great Americans who were betting on higher future
silver prices and those bets are now paying off.
Two hundred eighty-three Americans have good quality fairly
secure jobs now because of it.

US Silver owns the famous Galena mine and mill,
the Coeur mine and the Caladay Project.
The Galena mine is the only one producing currently with
exploration in the Coeur and they have rebuilt
the Caladay shaft after a cave in to move men
and material easier.
Two of the three mines are connected by an underground rail
and they have made a lot of capital improvements.
They now control 14,000 acres of claim in an area 11 miles long
by 4 miles wide.
The stock is riskier, because the company is 100% dependent
on this one producing mine and it has higher cost per ounce
of silver of around $13.

US Silver primary mines for silver but they have a lower quality
ore that fluctuates in what it actually produces per ton
but it also produces lead and copper.
I have a lower forecast than the company of 2.2 million troy
ounces of silver, 5.5 million lbs. of lead
and 750,000lbs of copper.
That produces a 2011 revenue estimate of 70 million.
While they have these negatives relative to other companies,
their lower valuation more than reflects that already.
With a market cap of $167 million and little debt, it trades
at just 2.38 times revenue.
Not only that but as one of the few remaining primary producers
of silver in the United States, they are
a strategic national asset.

I like the way I have positioned the model portfolio now.
When Physical was cheaper relative to the miners, we were
adding to our position and were more heavily weighted in it.
Now that physical is more expensive relative to the miners,
we are doing the opposite and are 50/50%.
If we get good earnings from PAAS Tuesday after the bell and
Wed from Hecla, our portfolio of miners will perform very
nicely.
If not we will have to tough out some rough times to deal with.

US Silver Corporate NEW Presentation - January 2011

http://www.us-silver.com/i/pdf/2011-Jan-Corp-presentation.pdf

http://www.us-silver.com/s/Presentations.asp

Courtesy: www.thesilvershortage.com

http://www.commodityonline.com/commodity-stocks/Silver-Wheaton-is-the-darling-in-silver-mining-sector-2011-02-15-36459-3-1.html



http://investorshub.advfn.com/boards/board.aspx?board_id=12388