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Silver Wheaton (NYSE/TSX: SLW)

Silver Mining is for Suckers – December 31, 2010

Overallthis short little article is fine, but Matt Badiali’s simplisticvaluation technique as applied to Silver Wheaton is probably bestignored. Indeed, we find it quite ironic that Matt is trying toconvince investors to be smart and own Silver Wheaton rather than asucker and own the typical exploration and development miner, all thewhile relying on his audience to be suckers or else they would takesuch amateurish analysis with a large grain of salt. In our opinion, amuch more appropriate and robust method of valuing Silver Wheaton wouldbe through through a discounted cash flow analysis of its silverstreams as we have done in our recent Royalty Company report.

Mr. Badiali closes with the following:

Today,silver sells for nearly $30 per ounce, and Silver Wheaton shares are$39. Our fair-value calculation says at the current silver price,Silver Wheaton should be closer to $57. That means we can buy shareswell below fair value right now.

Good luck toanyone who’s relying on that advice. In our opinion Silver Wheaton isfully valued. We’d be buying if the price were right, but at presentthe risk/reward equation does not look favorable through ourspectacles. [Zurbo]

International Minerals (TSX: IMZ)
IMZ Signs Definitive Agreement with Hochschild to Fast Track Production at Inmaculada Property, Peru – December 28, 2010

Thisdoesn’t change the fact that IMZ’s valuation is still heavily reliantupon its earlier stage development projects in Ecuador, but we foundthis part of the joint venture agreement with Hochschild particularlyinteresting:

If Hochschild fails to achieve theprocess capacity at Inmaculada by December 2013 (subject to any forcemajeure delays), then Hochschild must make quarterly prepayments to IMZduring the period of any delay based on the parties’ joint estimate ofIMZ’s 40% share of cash flows that would have been generated ifproduction had started on schedule.

InternationalMinerals did have had to give up 30% of the project for clauses likethe above, and at current metal prices we estimate that the cost ofthis joint venture to IMZ was about $150 million. Not cheap, but itsignificantly lowers the development risk of the project and generallywe think it’s a fair deal. [Zurbo]

Disclaimer:  We may own shares in several of the companies mentioned in this analysis (Metal Augmentor subscribers know which ones), but no compensation has been received fromany of the companies mentioned. This is not investment advice; shouldyou seek investment advice we recommend you discuss the company with alicensed investment advisor or broker.