TORONTO (miningweekly.com) – Silver-streaming company Silver Wheaton on Tuesday said it would venture into the gold market by acquiring a share of the production from two mines owned by diversified miner Vale for $1.9-billion in cash and ten-million warrants.
The deal would immediately increase Silver Wheaton's production and cash-flow profile by adding expected average gold production of 110 000 oz/y over the next 20 years or 5.9-million silver-equivalent ounces.
Under the agreement, Silver Wheaton would pay Vale $1.33-billion for gold equal to 25% of the life-of-mine production from its Salobo mine, located in Brazil, as well as $570-million for 70% of the gold production, for a 20-year term, from certain of its Sudbury mines, located in Canada.
Production would comprise about 60 000 oz/y from Salobo and about 50 000 oz/y from Sudbury.
"While we have traditionally focused on silver, we have never been averse to strategically adding 'the right' gold streams to our portfolio. While we will continue to believe there are a significant number of streaming opportunities in the silver space, we are also open to layering more high-quality gold streams into our portfolio,” Silver Wheaton CEO Randy Smallwood said in a statement.
The addition of the Vale streams would increase Silver Wheaton's percentage of revenue generated from gold production over the next five years from an average of 12% to a peak of about 25%.
Silver Wheaton said the use of precious-metals streaming by Vale further validated the benefits of streaming in unlocking the value of by-product precious metals production.
Further to the upfront costs, Silver Wheaton would pay $400/oz of gold at the time it is produced. The warrants would have a strike price of $65 and a term of ten years.
Silver Wheaton now expected to produce 33.5-million ounces of silver equivalent, which includes 145 000 oz of gold this year. By 2017, the company expected to produce 53-million ounces of silver equivalent, including 180 000 oz of gold, an increase of more than 80% from 2012.
Silver Wheaton had entered into an agreement with Scotiabank and BMO Capital Markets as joint lead arrangers and co-bookrunners to underwrite two new credit facilities comprising a $1-billion revolving credit facility with a five-year term, and a $1.5-billion bridge financing facility with a one-year term, which would replace the existing $400-million revolving credit facility.
TSX-listed shares of Silver Wheaton, which have a market capitalisation of C$12.79-billion, on Tuesday closed at C$36.11 apiece.