MINING REPORTER
Peter Barnes and his team at Silver Wheaton Corp. would have liked to have soaked up some of the spectacular weather in Vancouver this summer. Instead, they spent much of the last three months locked in negotiations with executives from the world's largest gold company to finalize what Mr. Barnes calls the hardest deal of his life.
The resulting transaction, which was unveiled yesterday, is being widely lauded as a true game changer for Silver Wheaton, giving it a stake in the world's third-largest silver deposit.
The Vancouver company convinced Barrick Gold Corp. to give up 25 per cent of the silver production from its massive Pasqua Lama project in South America for $625-million (U.S.).
Although the Pasqua Lama mine, which straddles the border between Chile and Argentina, is expected to take more than three years to build, the deal will begin generating cash flow for Silver Wheaton almost immediately. Barrick has agreed to deliver all of the silver production from three currently producing mines or about 2.4 million ounces of silver per year until 2014 or when Pasqua starts production.
"It really validates our model. Most people wouldn't expect us to be able to do a deal with a company like Barrick. But it shows it is a good model and it works for both sides," Mr. Barnes said in an interview yesterday.
"I mean, they are smart guys."
Founded just five years ago, Silver Wheaton has quietly become the world's largest mining royalty stream company, both by revenue and market value. Silver Wheaton's shares touched a new 52-week high of $12.97 (Canadian) yesterday and its market capitalization swelled to $3.9-billion.
The brainchild of Goldcorp chairman Ian Telfer and mining financier Frank Giustra, Silver Wheaton has grown through a series of acquisitions of silver streams produced at gold and base metals mines. The company buys silver production from miners for upfront payments and agrees to pay a predetermined per-ounce price for each ounce of silver produced. It then sells the silver at a profit.
Silver Wheaton's stake in Pasqua Lama's silver production will complement its other cornerstone asset, a 25-per-cent interest in Goldcorp Inc.'s Penasquito project in Mexico. The gold and zinc mine's massive silver content makes it the largest silver deposit in the world.
With commercial mining at Penasquito just starting, Silver Wheaton says its production profile will grow by 250 per cent to 40 million ounces a year by 2013 once Pascua Lama's construction is complete. The Penasquito and the Barrick silver streams will account for nearly half of Silver Wheaton's revenues over the long term.
Salman Partners analyst Haytham Hodaly said the cash flow generated by the Barrick deal means Silver Wheaton could soon be paying a dividend to its shareholders.
"We could see a progression from a company that generates an incredible amount of cash to a company that pays big dividends to its shareholders," he said.
Mr. Barnes, however, said Silver Wheaton is still on the hunt for another big deal. The company issued $250-million (U.S.) worth of stock in a bought deal share issue to help finance the transaction. Once it makes an initial $212-million payment to Barrick, the company will have approximately $100-million in cash and access to a $400-million debt facility to pay for another acquisition.
"So after having the biggest and best deal we've ever done, we've still got $500-million in firepower to do the next one without issuing more shares," Mr. Barnes said.
Silver Wheaton (SLW)
Close: $12.75, up 10¢
© The Globe and Mail
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