The trend for silver and gold commodities to outperform the major miners has been underway for severasl years. One thing is sure and that is that this trend, like most trends, will come to an end. Will that be 2013 or 2014 or 2015? We cannot know. We do know that major miners have smartened up a lot in 2012. The mushrooming capital costs have eventually forced management to abandon growth just fot the sake of growth. Breakeven now for most new gold mines is about $1,500 gold. Low grade remote deposits will remain low grade remote deposits until gold surpasses $2,000 to $2,500 an ounce.
In terms of royalty streaming companies Silver Wheaton is very different from the gold focussed companies such as FNV SSL and RGLD. SLW is cheaper in terms of NAV and cash flow. But it has less torque or leverage in a rising silver market. SLW is paying $5 for refined silver (roughly) in a $30 silver market. A $3 rise in silver would be 10% SLW margin goes from $25 to $28 for a 12% increase. In other words, SLW has very little leverage as compared to ther commodity.
Gold streams are typically $400 to $500. If we use a $500 stream and a market price of $1,650 we get a $165 increase if we apply 10%. The gross margin goes from $1,150 to $1,315 for a 14.3% increase.
SLW gets much higher operating margins which is good. The downside is that you get less and less leverage compared to the silver commodity as prices rise. SLW still pays a dividend and it can grow and grow and grow. The commodity itself is stagnant and costs about 0.5% per year for storage or for an ETF.
The leverage factor may be part of explanation why SLW is relatively cheap in most metrics versus the gold versions (SSL FNV RGLD)