Mining is highly cyclical, with commodity prices rising and falling in long-term trends. For Foolish investors, these cyclical industries allow for classic value investing, with the market offering great companies at deep discounts that can yield market-crushing long-term total returns. This article highlights silver and explains the long-term bullish case for the precious metal. More importantly, it offers a low-risk way for long-term investors to profit immensely should silver prices soar.

Silver has many important uses other than jewelry or a store of value that can justify long-term price appreciation.

Electronics

Solar panels

Nuclear reactors

Metallurgy

Chemical production

Medicine

Water/food purification

Engines

Typically, investors who want to invest in silver either purchase coins or invest in silver miners such as Pan American Silver (NASDAQ:PAAS). However, silver streamers such as Silver Wheaton (NYSE:WPM) are far superior investments to traditional miners or collecting coins.

Pan American Silver: Good as far as silver miners go

As seen in this chart, even adjusting for dividend reinvestment, Pan American Silver has lost investors money over the last 12 years despite silver prices almost tripling. Meanwhile, Silver Wheaton has crushed the market by 222% annually, with 24.4% annual total returns vs the market's 7.7%. Yet, I call Pan American Silver a good silver miner. I have several good reasons for this.

First, compared to its peers, it has the highest yield at 3.3% vs 1.1% for the industry average. Similarly, its valuation in terms of price/sales (3) and price/book (1.1) compares favorably to the industry average's 5.1 and 1.7, respectively.

Second, I'm impressed with Pan American Silver's ability to cut costs while increasing production. Specifically, in the first quarter, it increased production of silver and gold by 5% and 43% while cutting its production costs for those metals by 20% and 27%, respectively.

Finally, Pan American Silver's Dolores mine expansion project, which will increase silver production by 38% and gold production 33%, along with its 348% increase in silver reserves at its La Calorada mine, might serve as a good growth catalyst should silver prices recover.

However, Pan American Silver, like most silver miners, is terrible when it comes to profitability and operating efficiencies.

Company Net Margin Gross Margin Return on Assets Return on Equity Pan American Silver -58% -58.50% -15.10% -18.80% Silver Wheaton 48.32% 49.18% 4.61% 9.67% Industry Average -38.10% -39.20% -8.30% -11.8%

Company Yield 10-Year Projected Annual EPS Growth Rate 10-Year Projected Annual Dividend Growth Rate 10-Year Projected Annual Total Return Pan American Silver 3.40% 4% 2.34% 1.60% Silver Wheaton 1.10% 35% 26.36% 27.50%

When it comes to profitability, operating efficiency, and long-term growth prospects, Pan American Silver is trounced by Silver Wheaton. What makes Silver Wheaton so special?

Silver Wheaton: a superior business model

Silver Wheaton's metrics are so much better than Pan American Silver -- and the average silver miner -- because it's actually not a miner at all, but the largest precious metal streamer in the world. Rather than owning and operating its own mines, Silver Wheaton pays an upfront fee to 24 mines and development projects in North America, Europe, and South America in exchange for 25%-30% of their by-product silver production. Since 70% of all silver is created as a by-product of other precious metals production, this creates a win-win situation.

The miner gets paid cash up front, which helps fund expansion or operating costs, while Silver Wheaton gains very cheap and reliable sources of silver and gold. In the first quarter, Silver Wheaton's average cost for silver was $4.12/oz. and $386/oz. for gold. Compare that to Pan American Silver's $15.45/oz. silver cost, silver's commodity price of $19.89/oz., or gold's $1,273/oz., and one can see why Silver Wheaton is so profitable.

Because it doesn't own or operate the mines, Silver Wheaton doesn't face expensive capital expenditures or exploration risk. Rather it lets its partners, including Pan American Silver and Vale, expand production, and then it makes its arrangements to stream from them. With silver prices now at three-year lows, Silver Wheaton can actually make better deals and lower its costs of silver and gold. Since 100% of production is unhedged and with minimal overhead costs, any upturn in silver and gold prices drops straight to the company's bottom line.

A major growth catalyst for Silver Wheaton and the reason its long-term growth prospects are so bright is its plan to increase its silver and gold production by 35% and 61.3%, respectively, from 2013 through 2018.

Foolish takeaway

Investing in precious metals can be fraught with risk, but silver has more industrial uses than most and stands a decent chance of recovering over the long term as global economic growth increases demand for those uses.

Silver miners such as Pan American Silver are poor ways to invest in precious metals as their shares prices sometimes fail to track rising silver prices. Silver Wheaton offers a far better pure play for profiting from rising silver and gold prices. Its substantially lower costs allow it to remain profitable even when miners are hemorrhaging cash, and its ability to lock in better prices during cyclical downturns means higher profitability when prices eventually recover.