Update Silver Wheaton (SLW)

03/25/2011 3:30 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

On March 23 Silver Wheaton (SLW) announced that it had finished 2010 with a 9% increase in attributable proven and probable reserves. That’s an increase to a record 954 million silver equivalent ounces. A more conservative measure, attributed measured and indicated resources climbed by 1%.

Silver Wheaton doesn’t actually do any silver mining itself. Instead it buys long-term contracts to purchase silver from a wide variety of silver mines that include Goldcorp’s (GG) Penasquito mine in Mexico and Barrick Gold’s (ABX) Pascua-Lama mine in Chile and Argentina.  Projected 2010 “production” based on these contracts totaled 22.2 million ounces of silver and 20,000 ounces of gold—or 23.5 million silver-equivalent ounces. The company forecasts that “production” will climb to 40 million silver equivalent ounces by 2013.

As a buyer of production contracts rather than an actual operator of silver mines, Silver Wheaton still takes on some mining risk. Operators could see production fall because of unexpected drops in ore grades or operating accidents. That would mean less silver for operators and for Silver Wheaton.

I think the addition of these reserves is worth a modest bump in my target price for Silver Wheaton to $48 a share by June 2011 from the previous $45 a share.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Silver Wheaton as of the end of January. For a full list of the stocks in the fund as of the end of January see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/


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