Silver Wheaton increases gold consolidation deal to 75%

JOHANNESBURG (miningweekly.com) – Through its wholly-owned subsidiary, Silver Wheaton Cayman (SWC), dual-listed silver miner Silver Wheaton is acquiring an additional amount of gold equal to 25% of the life-of-mine gold production from Vale’s low-cost Salobo gold/copper mine, located in Brazil.

This is in addition to Silver Wheaton’s 50% stake in Salobo gold production. SWC will pay an upfront cash consideration of $800-million for the increased gold stream and the ten-million Silver Wheaton common share purchase warrants previously issued will be amended to reduce the strike price from $65 a share to $43.75 apiece.

In addition, SWC will make ongoing payments of the lesser amount between $400 and the prevailing market price for each ounce of gold delivered under the agreement.

This transaction will provide immediate and long-term production and cash flow to the company, as Salobo gold production is expected to average 300 000 oz/y in total between 2016 and 2020.

This increases Silver Wheaton’s consolidated estimated proven and probable gold reserves by 3.2-million ounces. It also increases its measured and indicated gold resources by 700 000 oz, and its inferred gold resources by 400 000 oz.

At current production rates, Salobo’s proven and probable reserves are sufficient to support 50 years of mine life, with excellent potential to further extend the mine life.

“The Salobo mine is a cornerstone asset for Silver Wheaton and should be for generations to come. We did not hesitate at the opportunity to increase our exposure to a mine with one of the lowest copper cash costs in the world, 50 years of mine life on reserves alone, and what we believe to be substantial exploration and expansion potential,” said Silver Wheaton CEO Randy Smallwood in a statement.

“As we have said on numerous occasions, Salobo is the ideal asset for the streaming model, as it is primarily a base metals producer where precious metals represent only a relatively small portion of the mine’s overall revenue,” he added.

Silver Wheaton intends to use cash on hand, together with proceeds available under the company's $2-billion revolving credit facility (RCF), to pay the upfront cash payment. The RCF has a maturity date of February 27, 2021.

Silver Wheaton’s estimated attributable gold production is now forecast to be 305 000 oz, up from 265 000 oz previously, and estimated average yearly attributable gold production over the next five years is expected to about 330 000 oz/y – up from 260 000 oz/y.

Silver production is now forecast to be about 32-million ounces, slightly down from 32.8-million ounces previously guided, as production from San Dimas Peñasquito is expected to be lower, offset in part by better-than-expected production from Antamina.

Average yearly silver production over the next five years remains unchanged at 31-million ounces a year.