For some time we have held the silver royalty company, Silver Wheaton (SLW) for its play on the price of silver without any of the risks associated with operating mines. However, we are now concerned that the gold miners which sell their silver to Silver Wheaton will start demanding higher prices once existing contracts expire. SLW could then lose much of its leverage to the metal.
Consequently, we recommend replacing SLW with silver miner, Tahoe Resources, owner of a property in Guatemala with some 235.2 million ounces of silver in indicated resources. The property will also produce significant amounts of gold, lead, and zinc once operations begining in 2014. Production costs are expected to be around $6 per ounce, which would make Tahoe one of the lowest-cost producers in the industry.
Kevin McArthur, the head of Tahoe, formerly ran Goldcorp (GG), a leading gold miner that took a 40% stake in Tahoe when it sold the property to the junior miner. Under the terms of the purchase, Goldcorp has the right to acquire all of Tahoe at a later date, which could also benefit Tahoe shares.
Meanwhile, Japan’s reconstruction will add to the world's demand for industrial raw materials, so we expect our recommended resource stocks will continue to rack up gains.
Finally, just a clarification from last week’s update. The labor protests in Wisconsin, like the protest movements in the Arab world, have their roots in people not making forward economic progress. Whether you’re a middle class Midwesterner or a Cairo resident scraping by on a subsistence wage, inflation is going to take an ever-greater toll on your income. All the more reason to own precious metals stocks.
A nation of sheep will beget a government of wolves. — Edward R. Murrow
