More reasons to buy SilverstoneMore reasons to buy Silverstone (SST.V)
1. Better growth prospects than other companies
I own various junior silvers such as FR, EDR, and MAG. I ought to have invested in certain others but I never did, mostly because I had neither spare capital nor spare time to follow them. I want these companies to do well, and I like and respect what they are trying to accomplish. Most of these companies have done very well over the last 2 or 3 years and are likely to continue to do well. However, the difference between SST and the others is similar to the difference between Silver Wheaton and other silver mining companies. SST will be growing its production by acquisition, not by the usual cycle of exploration, development, and mining. This eliminates both the lengthy time frames and the normal heavy costs of that cycle. Buying production is much faster than developing production, and when done this specific way eliminates most of the costs, since SST is not involved in the actual mining. The Silver Wheaton business model involves buying production, not buying the mine which has the production. With this strong advantage compared to its peers, Silverstone can grow much faster and cheaper. Sure, when its market cap is well above a billion dollars I can start to worry about relative performance, but that is not a problem to worry about now.
If you take a look at a 3 year chart of Silver Wheaton, it went from under $2.50 Canadian to over $12.50 in under 2 years. It has gotten so big (market cap over $2.7 billion) that it has become more a proxy for the silver price than a growth stock. This is not because it isn't growing, but because it is harder for a $2.7 billion company to triple its revenues than a $200 million company. But more important is for us to observe that the best period of stock market performance was in its first years. Certainly this 500% price increase is not due to acting like their peers, but is due to not acting like them. And SST appears to be following in its footsteps.
I believe we will see this stock go up 25-40% with the announcement of news of another acquisition. Maybe more. I could be wrong of course in the short run. The market may not understand the transaction, or the market may ignore the transaction for a while due to poor conditions in the resources market or a dropping silver price. I don't expect these market hindrances but I suppose anything is theoretically possible. Possible, but not likely, and certainly not long-lasting. I can imagine this stock going to over $10 within 24 months and perhaps within 12 months. So even though the stock has tripled in about 6 months and made an all-time high just days ago, I don't believe the run for SST is anywhere close to being over if in fact it makes further silver offtake agreements with other companies. If you buy Silverstone, you are mostly betting that the company will merely continue to do what it started doing in its first silver purchase agreement (finalized April, 2007)
Silverstone can double or triple its silver "production" and revenues overnight
Why else should you buy Silverstone now? I explained previously that Silverstone could double or triple its silver production and revenues overnight. Silverstone has contracted to receive about 1.0-1.2 million ounces of silver per year from Capstone. That was deal #1, a deal which turned the company into a silver "producer" overnight. Now it is presumably negotiating deal #2 with one or more other companies. I figure that anything less than 1 million ounces of silver per year for deal #2 would not be worth doing, it is too small. Assuming that deal #2 is for exactly 1 million ounces of silver per year, that effectively doubles Silverstone's overall silver production (from 1.0 to 2.0 million ounces of silver per year). If deal #2 instead involves 2.0 million ounces, that effectively triples Silverstone's overall silver production (from 1.0 to 3.0 million ounces of silver per year). Once the news is out, the market will become further convinced that Silverstone management is serious and capable of rapidly ramping Silverstone up the production growth curve using the Silver Wheaton model. I am betting that the market response to this is going to be fantastic, just as it has been for Silver Wheaton. Why *wouldn't* there be a big reaction in the market to Silverstone's doubling or tripling its annual revenues with the stroke of a pen? Why *wouldn't* the market start to anticipate deal #3 and #4 once deal #2 is announced?
"Silverstone is actively seeking new silver streams..."
- from Silverstone website at: www.silverstonecorp.com
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