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Silver Wheaton Company’s Missions and Performance

Analyze Silver Wheaton’s (SLW) mission and vision statements against the performance of the organization. Then, evaluate how well the company lives out its mission and vision statement. Provide support from the organization’s performance in your evaluation.

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In summary, Wheaton vision is to:

  • Remain a leading silver company.
  • Continue giving its investors superior returns by diversifying its portfolio of assets.
  • Maintain its position as a company where mining companies can continue to look for funds.

From what the company has stated in its vision statement, it’s possible to analyze how well the company is living its vision.

With respect to the first statement, the assertion deduced from the vision statement is that the company is already a leading silver company and the intention is to continue with a strategy of entrenching its market position.

Since its inception in 2004, its solver production has continued to increase every year. According to their projections, the trend will continue to increase in the near future.

Silver Wheaton has grown by almost 1000% compared to rivals. Production for 2011 increased to over 25 million silver equivalent ounces (Fact sheet January 2012). The company is projecting 27 million for this year. 43 million silver equivalent ounces is what the company projects to produce in 2016.

Over the period under consideration, the company has increased the number of mines it operates in three continents. Its best mine in Mexico is expected to continue giving strong results for 20 continuous years barring any disaster.

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Wheaton has established streaming partnerships with mines located in politically stable nations of South America, North America, and Europe. The investments the company has had required fixed capital and low operating costs. This reduces risks significantly. Last year, the company started giving investors dividends on a quarterly basis. Wheaton has tied dividend payout to percentage growth. Hence, as the company continued to grow, investors will continue to get more dividends. It’s reported that the company has more than 1 billion dollars in cash and credit to invest in new mines. Specifically, the company wants to invest in Pan American Silver and Augusta Resources. Wheaton is therefore committed to the strategy of diversification.

As already noted, the company has $840 million in cash and an undrawn $400 million revolving credit facility (Fact sheet January 2012). The company plans to use this money to invest in mining companies. With this amount of money, it’s possible for Wheaton to maintain its position as a company where mining companies can continue to look for funds.

According to the analysis above, Silver Wheaton is living out its mission and vision statement.

Assess how Silver Wheaton’s (SLW) strategic goals link to the company’s mission and vision.

Silver Wheaton’s strategic goal is to maintain its position as the leading silver company. Already, the company has achieved the impossible feat of being among the leading silver companies in the world in 8 short years. Maintaining that position is not easy considering that there are other companies. It is also easy to replicate the success of silver Wheaton by focusing on mines in Africa and Asia. Although Africa and Asia are not politically stable, governance is improving and geological surveys in most parts have not been carried to determine the presence of minerals, especially in high potential areas.

The company plans to achieve its strategic goal by diversifying its portfolio of assets and investing in new mines. Diversifying its assets and investing in new mines is part of its mission and vision. The most important assets for the company are mines from where it gets streaming silver. Towards that end, the company has invested in 19 mines. The investment is in form of the long-term silver purchase agreement and the rest is a purchase agreement for metal purchase. All these agreements are with companies in politically stable counties. This is important because mining in some countries of Africa is a high-risk business due to political instability.

Political instability in areas of operations significantly increases risk and lengthens the period of realizing returns on investments (Alkhafaji, 2003). Investing in mines is dependent on the available capital the company has. As indicated, the company has approximately 1.2 billion in cash and credit. This is a significant amount by any standard. Mining companies consider investments from silver streaming as an alternative to a cheap source of investment. Currently, equity markets are not the best place to raise investments due to the current debt crisis in Europe and suppressed growth in northern America. An Investment from a company such as silver Wheaton is perhaps the best.

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It’s clear, therefore, that the company’s strategic goal of maintaining its position as the leading silver company is directly linked to its vision of diversifying its portfolio of assets and investing in new mines.

Analyze Silver Wheaton’s (SLW) financial performance to determine the link between the company’s strategic goals, strategy, and financial performance. Detail your findings.

Silver Wheaton’s financial performance is good by any standards. According to its audited accounts for 2011, its sales almost doubled from $423,353 in 2010 to $729,997 (Silver Wheaton Corp. – Investors – Financials, n.d.). During the period, the cost of sales increased only slightly from $140,320 to $143,723. Administrative and general expenses also increased marginally from $24,669 to $25,180. Net earnings grew massively from $ 153,381 to $550,000.

Looking at the balance sheet, the company is very liquid. In January 2010, current assets stood at $ 233,474 but jumped to $845,212 (Silver Wheaton Corp. – Investors – Financials, n.d.). At the same time, current liabilities actually declined. Total assets grew as well as retained earnings.

The company continued to invest in long-term investments. Between 2010 and 2011, the total amount invested stood at $67,781.

The company strategy for continued financial performance has been simple. Instead of developing its own mines and incurring prospective and licensing costs, the company has developed a partnership with existing mining operations to buy their silver streams. This partnership has benefitted both parties. Mining companies are able to sell silver streams for more money. As the company itself explains, silver originating from nonsilver companies is valued less than silver from companies such as Silver Wheaton, which exclusively deals with silver.

By selling their silver through silver Wheaton, mining companies realize more money for their silver than would otherwise be the case. Also, the purchase agreements they sign with silver companies are a source of investments and extra income.

Wheaton gains by getting a guaranteed source of silver at a predetermined price per ounce for little initial capital investments in the way of prospection and capital equipment. It’s also not part of settlements at the end of the life of the mine.

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To achieve its strategic goal, the company has invested in 19 mines on three continents. This allows the company to diversify its assets and hedge against risk from unexpected events in any of the mines.

The company’s strategic goal of being a leading silver streaming company is supported by the strategy of acquiring silver at a low cost by signing purchase agreements with existing mines. As a result, the company has been able to get a regular and increasing supply of silver over the years until today. As a result, the company’s financial performance has been improving tremendously.

Conduct a competitive and marketing analysis of the organization to determine strengths and opportunities

Market segments

Silver Wheaton targets a number of market segments viz. minters, electronics manufacturers, food and health industry, jewelers, and clean energy industry. Silver is minted to produce coins that investors buy to hedge their wealth against loss of value, especially in times of uncertainty (Dess, Lumpkin & Eisner, 2010). Demand from this segment has increased in recent times. Electronics companies form the bulk of customers for silver companies, as the metal is an essential component in computers and phones. As demand for electronics continues to soar, demand from this segment will continue to be strong.

The food and heath industry requires silver for its bacteria-fighting qualities. It’s also used to produce jewels and expensive tableware and cutlery. As emerging markets continue to prosper, demand for silver jewels and expensive tableware and cutlery made from silver will continue to rise (Hitt, Ireland & Hoskisson, 2011). Lastly, clean energy is the rage nowadays as the world continues to warm leading to devastating consequences. Silver is used as a component in photovoltaic cells. Demand for clean energy will continue to increase; hence, an increase in the consumption of silver.

There are other industrial applications of silver.

Market trends

In all the segments listed above, demand will increase in the foreseeable future. Their pattern of demand will essentially remain as it is today because they consume silver as a raw material. The key driver of increased demand will be the emerging markets of Asia, South America, Eastern Europe, and Africa

Competition in the market

There are a number of companies that produce and market silver that are competitors of Silver Wheaton. Most of them, however, are producers and marketers of other precious metals. For companies that exclusively deal with silver, silver Wheaton is among the largest. These competitors are large companies with a lot of resources but lack the directed attention of a single mineral as in the case with silver Wheaton.

Strengths and opportunities

Strengths

Strong financial position: the company has a strong balance sheet and over $1 billion in cash and credit for investments.

Low-cost strategy: the company has an operating cost of an ounce of silver of $3.99 while the average realized value of silver is $34.60. This translates to a healthy operating margin.

Partnerships with silver mining companies: silver Wheaton has signed a purchase agreement with mining companies and this guarantees the company’s regular source of silver.

Diversification: the company has diversified its assets to include investments in different mines located in politically stable countries.

Focus on silver: As a silver company, silver Wheaton is able to sell its silver at a higher price as compared to companies that deal with other precious metals. Focusing on a single product is also a smart differentiation strategy.

Opportunities

Increase in demand: all the market segments discussed above have shown a growing appetite for silver. This means that as the market demands increase, prices are likely to continue climbing. The company will therefore continue to be more profitable.

Good mines: some of the company’s best mines have a long life of up to 20 years.

Investment opportunities elsewhere: some countries in Africa, especially in central Africa, have vast mining potential for minerals. As these countries stabilize, investment opportunities for silver Wheaton will open up. This is especially so because the company is in a healthy financial position.

Market uncertainty: the current market uncertainty in Europe will push more people to alternative investment opportunities such as investing in silver; hence, driving market demand for silver upwards.

Apply the appropriate strategy (low cost, differentiation, or niche) that will maximize Silver Wheaton’s (SLW) return to shareholders. Provide a detailed rationale for the reason you chose this strategy and state the expected outcome(s).

A low-cost strategy is an appropriate strategy that will maximize Silver Wheaton’s (SLW) return to shareholders. A low-cost strategy is achieved by pursuing operational efficiency. This way, the company will be able to give a low price to value ratio to its customers. Costs can be driven further by silver Wheaton in cutting down on operational expenses.

Wheaton is one of the leading silver companies in the world and its goal is to continue being at the top of the game. This can only be achieved if the company captures a significant market share of the world’s silver. This is not an easy proposition, but it can be achieved through cost leadership.

Already, the company’s unique model allows it to have an operating cost of silver of $3.99 against a price realized of $34.60 (Silver Wheaton Corp. – Investors – Financials, n.d.). This puts the company at a significant advantage over other silver companies that own mines and invest heavily in prospecting and actual mining. There are other risks these companies face but Wheaton does not face. Wheaton can further cost down cost by trimming its operational costs. This way, the company will be able to offer its customers competitive prices; not cheap prices.

One of the problems of a low-cost strategy is that by offering low prices, customers may perceive the product as inferior (Hill & Jones, 2008). Aware of this problem, Wheaton can sell its silver to selected customers at discounted rates equivalent to cost saved. This will ensure that the perception of poor quality does not develop and yet reward loyal customers with cheap silver. This way, more customers will be attracted to do business with Wheaton in the short and long-term.

Create a detailed scenario in which a merger or acquisition would be a viable strategy to implement. Consider who the merger or acquisition would involve, the market conditions making it a good choice and the type of strategy that would make it a success.

A merger or acquisition would not appropriate if the targeted company owns mines. This is because silver Wheaton’s strategy is to invest in silver streaming as opposed to owning a mine and running it. Wheaton specializes in silver and if the company was to own a mine, it would have to deal with other minerals that are outside its current operational purview. This would lower the valuation of silver Wheaton’s silver.

The right merger would be between Wheaton and a company that also deals with silver streaming. Such a merger would further strengthen Wheaton’s market position in terms of market share and capital would improve tremendously. The company would acquire more mines and production would increase.

A merger with a company that owns a mine would work if other minerals other than silver were sold to other companies on a streaming basis. Also, the mines would have to be exceptionally rich in silver and priced in a way that the total quantity and value of silver would justify a purchase and running a mine.

A merger or an acquisition of this kind would be appropriate under the competitive market condition where there would be many players. Low-cost strategy would be a success after a merger or acquisition.

If you were a leader in Silver Wheaton’s (SLW) organization, determine the appropriate rewards that would best motivate employees toward achieving the desired strategy. Review the financial performance (2011 Annual Report) of Silver Wheaton (SLW) to ensure the rewards are appropriate. Justify your selection.

From the results released, the company uses stock-based compensation to reward employees. But looking at the company’s salary expenses, they are low compared to the income generated. A number of factors are responsible for superior employee motivation. They are:

  • Interesting work
  • Good wages
  • Appreciation of work done
  • Job security

The first motivator is the self-actualization factor. Good wages as a motivator is psychological. The third is the self-esteem factor while the fourth is a safety factor. According to Maslow, the most basic needs of employees must be met first. Good wages as a psychological need needs to be considered. All these needs cannot be satisfied singly; all the needs in the hierarchy are important in ensuring general employee motivation.

According to Herzberg’s two-factor theory, the absence of hygiene factors leads to dissatisfaction (Joyce & Woods, 2001). In our case, lower wages is a hygiene factor. However, the hygiene factor does not lead to satisfaction when present; they only remove dissatisfaction. Interesting work is a motivator whose absence may not lead to dissatisfaction.

A study done in 1987 found that employees ranked motivating factors in the following order:

  • Interesting work
  • Good wages
  • Job security

For Wheaton silver, the desired strategy for motivating employees will depend on which motivational theory is used as a reference point. If Hertzberg’s theory is used as a reference, pay, and job security, which is hygiene factors, needs to be considered first by the management. Then, motivating factors, which are pay and work appreciation, should then be focused on.

As per Adams’s equity theory, the management should start doing by focusing on areas where inequities may be perceived to exist (Sadler & Craig, 2003). One such area is pay. Making job interesting and job security should come later. Vroom’s theory posits that an employee’s efforts should be rewarded first.

In all theories, motivation is directly linked to pay and interesting work. For Wheaton silver, the following options are recommended:

  • Promotions
  • Job enlargement
  • Enriching the job
  • Offering of stipends
  • Monetary compensation
  • Non-monetary compensation

Adams equity theory predicts that if inequities exist, the employee will lack motivation. In the case of silver Wheaton, the company has been doing exceptionally well financially. It has close to 1 billion dollars in cash reserves. There is a possibility that employees may feel cheated in terms of pay considering the kind of profits they are making for the company. Therefore, the appropriate reward that would best motivate employees toward achieving the desired strategy would be to increase their compensation.

Evaluate how Silver Wheaton’s (SLW) current strategy supports or discourages ethical business behaviors (or perhaps both). Discuss how you arrived at your assessment.

Ethics in business is very important. Without a code of ethics, it’s possible for employees to get involved in illegal activities. Many businesses have collapsed due to ignoring ethical considerations in their day-to-day operations (Finlay, 2000). Two good examples are WorldCom and Enron. Conflicts of interest are best resolved through code and ethics and consistent enforcement of the same. Also, weak corporate governance can lead to the same problem. Too much emphasis on profitability can lead to lead to inappropriate actions to project an image of a company doing well financially.

In the case of silver Wheaton, the company has a code of ethics that guides its operations. According to the company, the goal of the code of ethics is to promote ethical dealings inside and outside the company. It also encompasses reporting of the company’s financial records at the end of every financial year. It also lays down guidance on compliance with applicable law (Silver Wheaton Corp. – Company – Corporate Governance, n.d.). Other issues covered by the code of ethics includes how to deal with conflict of interest, fair dealing, competitive practices, handling of company’s suppliers, corruption, contributions to political causes, equal opportunity, and others (Silver Wheaton Corp. – Company – Corporate Governance, n.d.).

The company’s current strategy discourages unethical behavior. This is because the company believes in gradual growth directed by prudent investment. The mines the company has also invested in are in countries that do not condone unethical practices in mining. It also has a code of ethics that guides every aspect of the operation of the company besides sound corporate governance structures.

References

Alkhafaji, A. F. (2003). Strategic management: formulation, implementation, and control in a dynamic environment. New York: Haworth Press.

Dess, G. G., Lumpkin, G. T., & Eisner, A. B. (2010). Strategic management: creating competitive advantages (5th ed.). New York: McGraw-Hill Irwin.

Fact sheet January 2012. (n.d.). silver Wheaton. Web.

Finlay, P. N. (2000). Strategic management: an introduction to business and corporate strategy. New York: Pearson Education.

Hill, C. W., & Jones, G. R. (2008). Strategic management: an integrated approach (8th ed.). Boston: Houghton Mifflin.

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2011). Strategic management: competitiveness & globalization : concepts (9th ed.). Australia: South-Western Cengage Learning.

Joyce, P., & Woods, A. (2001). Strategic management: a fresh approach to developing skills, knowledge and creativity. London: Kogan Page.

Sadler, P., & Craig, J. C. (2003). Strategic management (2nd ed.). London: Kogan Page.

Silver Wheaton Corp. – Company – Corporate Governance. (n.d.). Silver Wheaton Corp. – Home. Web.

Silver Wheaton Corp. – Investors – Financials. (n.d.). Silver Wheaton Corp. – Home. Web.

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