The Silver Wheaton Corporation
is a unique public company slotted in to the metal mining industry as a middleman. It is the only company that offers such a service. They donít own nor control any physical mines, but instead Wheaton purchases silver assets below the current market price using futures contracts with several silver miners, including Goldcorp
, Hellas Gold, Glencore and Lundin Mining. Afterwards the company sells the silver to manufacturers and other industries at a big profit margin. Another unique perk for Wheaton is that it doesnít need to pay income tax because its umbrella company is based in the Cayman Islands.
Profitability for the company is based solely on the price of silver
; because this is the only product they buy and sell. Although Wheatonís contracts take inflation in to account, the company pays a fixed rate on the silver
it buys, no matter what the fluctuations are in the market place at the time. The company makes the most profit when silver prices rise significantly, because they are contracted to buy it at a lower price. In extreme cases this can work the other way also, as when the silver market crashes, the company must still purchase with the same fixed price as per the terms of the contract. Wheaton has no control over production, so they do not always get the amount of ounces they would hope for.
Recent forecasts suggest the company
aimed for 13 to15 million ounces to be produced in 2008, and 25 million or more by the end of 2009. Silver price is on the rise, having increased 175% in the 2003 to 2007 period and, going by of June 2008 data, silver increased to more than $17 per ounce.
Historically the value of silver remained around $5 per silver ounce, but a mentioned has recently spiked in price, making Wheaton contracts very profitable. However in the future it is highly likely when it comes time to renew or negotiate new contracts that the mining companies will raise their silver sale price significantly to reflect this fluctuation in the market.
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