Gold Wheaton to duplicate success of Silver Wheaton

When the team behind Gold Wheaton Corp. first approached David Cohen about the idea of mimicking the wildly successful business model of Silver Wheaton Corp (SLW-T, SLW-N), the former chief executive of Northern Orion Resources was “initially sceptical.”

That scepticism lasted all of about two and a half minutes, Cohen joked to investors and analysts on a conference call today that laid out the details of the new play on gold and precious metal byproducts.

“It’s the same group behind Gold Wheaton that brought you Silver Wheaton and that same success is going to be duplicated in the gold space,” Cohen, the company’s new chairman and chief executive, said enthusiastically.

“Investors have wanted it and asked for it for a long time as they have watched Silver Wheaton grow to an incredibly strong company.”

Silver Wheaton listed on the TSX in October 2004 and has seen its stock reach as high as $19.30 per share from under $4. The company gets all of its revenue from silver it purchases through contracts with five separate mines. It has moved from an initial market capitalization of C$559 million to one of about C$3.3 billion today.

Gold Wheaton hopes to match and ultimately surpass that success. And it looks like it may have the management to do it. Gold Wheaton’s board of directors contains heavyweights such as visionary mining financier Frank Giustra (who was also involved in Silver Wheaton), FNX’s founder and executive chairman Terry MacGibbon, and Francesco Aquiline, head of an investment group and owner of the Vancouver Canucks hockey team.

Gold Wheaton’s first transactioncompleted at the lightening speed of just two weeks–was signed with FNX Mining (FNX-T).

Under that deal, FNX will receive a C$175 million cash payment for selling most of the PGMs contained in its ore. FNX will also receive C$175 million worth of shares upfront, with a further $50 million in shares, warrants or cash six months after the financing closes.

FNX, which operates three producing mines in Sudbury–McCreedy West, Levack and Podolsky–has agreed to sell Gold Wheaton 87% of all payable PGM production at a gold-equivalent price of US$400 per oz.

FNX will also hold more than a 40% equity stake in the new gold stream company.

News of the arrangement sent shares of FNX shooting up $1.66 per share to close at $25.11 apiece on a trading volume of about one million shares. FNX has a 52-week trading range of $21.52-$39.77.

Gold Wheaton’s second transaction was signed with junior Redcorp Ventures (RDV-T, RDFVF-O), in which it will buy 100% of the life of mine payable gold production from Redcorp’s Tulsequah Chief mine in northwestern British Columbia and any other mines within a defined project area for a staged US$90 million upfront payment plus US$400 per oz. gold produced.

Redcorp Ventures inched up 2.5 a share to close at 23 on a trading volume of 5.7 million. Over the last year it has traded at between 13.5 and 57 a share.

The two initial transactions alone should result in Gold Wheaton’s annual production averaging about 100,000 gold-equivalent oz. for the next ten years.

The company expects to purchase approximately 30,000 oz. of gold-equivalent production this year growing by a factor of five to about 162,000 oz. in 2010. “That’s almost unbelievable,” Cohen said, adding pre-tax cash flow will come in at about $15 million this year alone. “Not bad for a company just coming out of the starting blocks.””

Gold Wheaton is taking over the stock market listing of Kadywood Capital Corp. (KDC.H), which is listed on NEX, a board that provides a new trading forum for listed companies that have fallen below TSX Venture’s listing standards.

Cohen said the Gold Wheaton concept is “simple” and a “great idea” avoiding the risk and inflationary pressures in the traditional mining model. Gold Wheaton has no exposure to capital and fixed costs, skills shortages, or permitting headaches and its timeframe for developing the business is diametrically opposed to the traditional mining model.

“We’re all conditioned in the mining business to look at this long and very frustrating gestation period for a mine,” he said. “By the time you get it built you hope to hell that metal prices remain high. Gold Wheaton is a completely different animal.”

For Gold Wheaton, the lead time to get cash flow into its treasury is just a matter of weeks, Cohen explained.

“We’re taking away all the unknown exploration and development risk in this business,” he said. “It just doesn’t get better than this.”

As for the market outlook for the price of gold, Cohen said the only direction is up: “I wouldn’t be surprised if we see gold in the $1,400 to $1,500 per oz. range.”

Gold peaked at US$1,003 per oz. in March with the current spot price of $869.20 per oz.