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Silver Wheaton Corp. (NYSE: SLW) practically invented the streaming business model. Established in 2004 with a main focus on silver, Silver Wheaton is now the largest precious metals streaming company in the world.
What exactly is streaming?
A silver or gold "stream" is a contract that allows the owner to purchase, in exchange for an upfront payment, all or a portion of the byproduct silver or gold produced by a mine it neither owns nor operates.
This model is beneficial to both parties. The streaming company gets large quantities of silver or gold production for many years at what is often a huge discount to the market price. Silver Wheaton, for example, pays about $4 per ounce of silver and $400 per ounce of gold.
In return, the producer gets a large, upfront cash infusion, typically used to finance construction or expansion. It also gets an ongoing payment for each ounce delivered.
From an investing standpoint, SLW stock is a great way to play the precious metals space. It comes with less risk than investing in miners, while still offering upside potential.
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Silver Wheaton's (NYSE: SLW) Advantage over Silver Miners
Like other royalty-type companies, SLW's investments are upfront. They have no downside risk associated with production, expansion, exploration, and most other cost risks borne by mining companies.
One of the most attractive features of Silver Wheaton's business model is how the streaming deals are structured.
You see, SLW offers massive potential upside over time since most streams are what's called "life of mine." As partner mining companies continue to explore, discover, and often expand their resources at existing projects, it often leads to an extension of mine life and greater ultimate production volumes than originally expected. That expanded production will benefit SLW in the future, and at no further cost beyond the fixed purchase price for each produced ounce.
SLW also gains from its share of the expanded resources, without having to contribute to the costs associated with that expansion.
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.