(Dorothy Kosich, Mineweb.com) Silver Wheaton's US$625 million deal with Barrick to acquire 100% of silver production from three gold mines, and 25% of the silver production from the massive Pascua Lama project, which commences mining in 2013, gives the company a substantial boost in the world of mining royalties.
The Vancouver based silver mine already had acquired the future silver production of Goldcorp's Peñasquito mine in Mexico, the largest silver deposit in the world. Now it will also have a stake in the production of the world's third largest silver deposit, Pascua Lama, which covers two nations, Argentina and Chile.
The combination transforms the world's largest mining royalty stream company into the major leagues of silver mining with a production profile that will grow 250% to 40 million ounces annually by 2013. As Silver Wheaton CEO Peter Barnes told analysts Tuesday, "This is a transformational acquisition that propels Silver Wheaton to the next level in terms of size and growth profile."
The terms of the deal require Silver Wheaton to make cash payment of US$212.5 million on signing a contract with Barrick, probably at the end of the month. This should be easily accomplished with the US$250 million in bought deal financing pursuant to a syndicate of underwriters led by Genuity Capital Markets and GMP Securities, who will acquire 22,525,000 shares of Silver Wheaton at a price of US$11.10/sh.
"In connection with our US$625 million silver stream acquisition from Barrick," Barnes said, "Silver Wheaton intends to finance the initial upfront cash payment of US$212.5 million with cash on hand (US$70 million), along with a portion of the proceeds from the offering. The remaining upfront cash payment of US$137.5 million per annum, for the next three years, is expected to be financed by operating cash flows with no debt drawdown anticipated."
In the Barrick deal, Silver Wheaton acquires 100% of the silver production from Barrick's Lagunas Norte, Pierina and Veladero mines effective from September 1, 2009, until the end of 2013, a total annual combined silver production of 2.4 million ounces.
The combined silver production of Barrick's Pascua Lama Project and Goldcorp's Peñasquito project alone will represent 40% of Silver Wheaton's long-term future revenue stream. Peñasquito will yield 7.2 million ounces of silver annually for Silver Wheaton, while Pascua Lama will generate an additional nine million ounces for a combined total of 16.2 million silver ounces annually out of just two mines.
Silver Wheaton will hold a significant stake in three of the world's top five silver deposits, and in nine of the top 35 silver deposits. And, as Barnes told analysts, the company will also offer high leverage to silver price increases.
In a news release, Barrick CEO Aaron Regent said, "The transition enhances Pascua-Lama economics. The upfront cash consideration increases return and represents an attractive source of financing for the project while still maintaining Barrick's upside on 100% of the gold and 75% of the silver production at Pascua Lama."
Barrick's Pascua Lama Project is expected to have a mine life of more than 25 years based on proven and probable reserves of 17.8 million ounces of gold and 718 million ounces of silver. Annual production is anticipated to be 750,000-800,000 ounces of gold and 35 million ounces of silver during the first five years of mine life.