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The Smart Silver Play: Silver Wheaton

Digging deeper into this company reveals why it shines

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There are two ways to invest in silver… the hard way, or the Silver Wheaton Corp. (NYSE:SLW) way.

The hard way is taking a swing on a silver miner. Sure, it may have solid prospects, but it still has to dig the silver up and all-too-often costs greatly exceed initial estimates when getting a new mine up and running.

The Silver Wheaton way is easier, and generally speaking, more fruitful. This Canadian-based silver outfit is considered a silver ‘streaming’ name, meaning it doesn’t do any mining of its own, but rather, invests in low risk and high odds mineral mining operations in order to gain access to that mine’s by-product.

It’s not a terribly unusual role in the silver mining industry, but in terms of size, there’s no other name in the industry that holds a candle to Wheaton’s streaming operation.

More important to current or prospective investors, the growth engine is revving again.

Two weeks ago, the company signed a $750 million deal with HudBay Minerals to acquire the life of mine silver production from HudBay’s currently producing 777 Mine, located in Canada, and 100% of the life of mine silver production from its Constancia Project, located in southern Peru. It was the first deal the company has made in more than two years, though not likely the last for the foreseeable future.

CEO Randy Smallwood notes, “We think silver has reached a bottom around a base level between $25 and $30 (per ounce). We’ve seen this before. This is a cyclical business, and we expect silver prices to rise again.”

Translation: For the same reason pullback in silver prices made it a great time to ink the Hudbay deal, more deals are on the way while silver’s on the lower end of the price scale.

Smallwood isn’t looking to make more deals just for the sake of making deals, however, adding “We’re really targeting quality over quantity … We’d like to get that capital deployed over the next six to twelve months.”

That quality requirement is evident given the results from other mining operations the company’s deployed capital to.

Take the Yauliyacu (Peru) operation — a mine operated by Glencore International (LON:GLEN) — as an example. Yauliyacu has been operating for well over 100 years,producing silver in a bulk concentrate that also contained lead and copper. This bulk concentrate was traditionally shipped to the nearby La Oroya smelter, but in 2009 the smelter was shut down.

Glencore continued producing the bulk concentrate for nearly a full year, but had challenges selling the bulk concentrate to other smelters, resulting in a inventory that Silver Wheaton has carried for some time now. During the second quarter of 2012, Glencore finally moved the entire bulk concentrate inventory off to another smelter, giving Silver Wheaton a very nice boost in sales for the quarter.

Article printed from InvestorPlace Media,

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