In 2014, Silver Wheaton Corporation had a nice start before plummeting to record lows in the second half. The initial gains were all given up as all silver stocks fell victim to dwindling prices. The bottom line took a hit as a result of the free fall with the price of silver per ounce contracting for seven quarters straight.
Last year’s silver debacle is still fresh in our minds, but the precious metal is having a positive start to 2015 with gains of 3.5% in the first week. Experts are curious if silver stocks can maintain this early year success with prices sitting at $16.25 per ounce. And there is a strong possibility it can with the reemergence of previously exhausted safe-haven bids.
After some relatively stable times, the global economy seems to be heading towards turmoil once again. Oil prices have dropped to $50 a barrel and are dramatically affecting the global equity market. Deflation and the possibility of Greece leaving the monetary union are other key concerns moving forward. Given the tumultuous speculation, the equity market is expecting insurance investments like Blackrock’s iShares Silver Holding Trust ETF (NYSEARCA:SLV) to be especially attractive and helpful for the precious metal.
Silver’s industrial demand is also raising some flags. In the first half of 2014, silver benefitted from steady growth up until the decline that highlighted the second half. But experts are expecting industrial silver demand to experience a slow but steady 27% growth by 2018. This steady growth will be supported by electronics and the electrical sectors. And thanks to a unique business model in which they finance base metal companies, Silver Wheaton has positioned itself a step ahead of other silver companies by avoiding the pressures of a low-price environment.
Silver Wheaton’s debt to equity ratio sits around 0.28, and at the end of the third quarter in 2014, had $233 million in cash on their balance sheet and access to a $1 billion credit facility. They also utilized a cash operating margin of $15.08 per ounce for a nine month period ending in late September of 2014, which was lower than their 2013 margin but substantially higher than the competition.
The remaining concern with Silver Wheaton rests mainly in the potential for further pullbacks in silver pricing. Safe-haven bets are all well and good, but industrial demand is the driving force behind silver more so than with gold. A weakening global economy could take its toll on silver, but it also means that investors could prop silver up by shoveling money at a struggling market. But as of now, Silver Wheaton looks to be firmly positioned at the top.
