Miner Silver Wheaton (NYSE, TSX:SLW) Confident

September 17th, 2015 by

Even as the rest of the mining industry looks for new solutions to its problems, Silver Wheaton Corp. (NYSE, TSX:SLW) remains confident about its future prospects.

It’s true enough that the company’s stock has fallen about 37.5% from its 2015-highs earlier this year. Indeed, it has suffered the same industry-wide downturn that has plagued its peers. So how is this predominantly silver mining firm going to afford all of the share repurchases it has proposed?—even after actually paying its current shareholders a 5-cent dividend during the third quarter?

Note the highlighted dividend data. Source: Google Finance

Note the highlighted dividend data. Source: Google Finance

The chart above reveals that Silver Wheaton has not been spared in the painful bear market for precious metals prices (and, of course, painful for the companies that extract them from the ground). The firm’s stock price has fallen roughly 50% from where it started year-over-year. In short, this is not generally accepted as outperforming; heck, it’s not even in treading-water territory.

So, what gives?

Value Buy

Silver Wheaton Corp. is close to finalizing a stock buyback—a “normal course issuer bid,” to be specific. In total, the company would like to repurchase more than 20 million shares of its common stock between the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX), as shares of SLW are traded on both exchanges.

Fist of Dollars

Although it has become fairly commonplace for companies to buyback their own stock, as the practice helps boost per-share prices while also giving the issuer a greater concentration of its equity ownership, it is typically seen as an inefficient use of excess company funds. “Couldn’t that surplus capital be used for research and development?” some interested investor might ask (and rightly so). There’s also the added detail that stock repurchases are frequently used by large corporations to bring share prices above key levels that trigger executive bonuses, perhaps enough incentive for a self-serving CEO to initiate such a repurchase agreement in order to earn more money for himself or herself.

Irrespective of this scenario, a press release from Silver Wheaton expressed the firm’s purpose for the buyback: the stock price is undervalued. If they believe this to be case, the effect is twofold: 1) Why wouldn’t a company want to buy up more of its stock at depressed prices if it thinks it can split the shares, or issue more, at a profit? 2) The purchase of millions of outstanding shares naturally will lift the share price higher, and also leaves less shares available on the market.

Silver Wheaton Bounceback?

The_Motley_Fool_6110b_250x250Obviously, the Silver Wheaton shares will only to prove to be a “value buy” if the share price indeed rises considerably over the medium- and long-term. Yet, this is exactly what many in the mainstream financial news media are suggesting, not just Silver Wheaton itself. The Motley Fool (one of the oldest and most frequented sites covering the equities market) has even asked aloud if share prices are primed to double. Now, if that happened before the calendar year is out, it would only mean that the company had basically broken even on the year—but how impressive a feat in this market.