We talked about a long play on SLW for yesterday's post, possibly our trade of the year for 2017 but maybe ABX and maybe DBA and maybe GILD - it's going to be an easy year for Secret Santa Hedges!
Anyway, SLW is what they call a "streamer" where a company makes an agreement with a mining company to purchase their production at fixed prices. It's like a futures contract but with more bite and they dollar-cost average so imagine they buy silver at roughly the 4-year moving average (16 quarters), less a discount for their guarantees, and they sell it at market prices.
As you can see, that was not a great deal for them working off those 2012 and 2013 contracts but now we're selling the 2013, 2014, 2015 and 2016 contracts into the 2017 market and it's going to get really exciting once the last of 2013 costs wash out of inventory. You can already see the effect in the financials:
| Year End 31st Dec | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | TTM | 2016E | 2017E | CAGR / Avg | |
| $m | 423.4 | 730 | 849.6 | 706.5 | 620.2 | 648.7 | 833.6 | 873.7 | 1,022 | +8.9% | |
| $m | 125.2 | 561.1 | 600 | 387.7 | 202.9 | -157.3 | 36.2 | ||||
| $m | 153.4 | 550 | 586 | 375.5 | 199.8 | -162 | 15.0 | 275.6 | 398.2 | ||
| $ | 0.44 | 1.55 | 1.65 | 1.05 | 0.56 | -0.41 | 0.008 | ||||
| $ | 0.44 | 1.55 | 1.65 | 1.05 | 0.68 | 0.22 | 0.38 | 0.62 | 0.90 | -12.8% | |
| % | +16.2 | +249.1 | +6.5 | -36.0 | -35.6 | -67.2 | -9.3 | +178.5 | +45.1 | ||
| x | 76.5 | 44.8 | 27.5 | 18.9 | |||||||
| x | 0.43 | 0.25 | 0.61 | n/a | |||||||
The made 0.53/share last year in a crappy market and this year they are on track to make 0.60 or better but a sustained move in silver above $20 can send their earnings well over $1/share so it's a great inflation play on a company that operates fairly well in any environment.
