The Shovel Makers Always Win
When there is a gold rush, or in this case a silver one, the people who reliably make money are those selling the shovels. In the investing world, the shovel sellers are the mining companies themselves. For a company like Pan American Silver, this situation is a dream come true. Their costs to dig the metal out of the ground are relatively fixed, so every pound the silver price rises is almost pure profit dropping straight to their bottom line. It is a beautiful example of what the City calls operational leverage.
Then you have the even cleverer chaps, the streaming companies like Wheaton Precious Metals. These firms do not even get their hands dirty with mining. Instead, they act like financial wizards, having paid miners cash up front years ago in exchange for the right to buy silver at a fixed, low price. As the market price soars, their profit margin widens into a gigantic grin. They get all the upside of the price surge without any of the messy risks of actually running a mine.