Goldcorp sells Silver Wheaton stake for $1.57B (February 11, 2008)

Goldcorp (G-T, GG-N), one of the world’s biggest gold miners, has found buyers for its entire 48% stake in the unique pure silver play, Silver Wheaton (SLW-T, SLW-N), leaving the company with a windfall of nearly $1.57 billion in cash.

On a bought-deal basis, the company will sell 108 million Silver Wheaton shares for $14.50 apiece, a move that will simplify its corporate structure and strengthen its balance sheet.

Goldcorp will use the money to fund development projects over the next five years, during which time the company aims to increase production by 50% to 1.65 million oz. gold.

Goldcorp already plans to spend more than $3.9 billion on developing the Penasquito project in Mexico, lonore in the James Bay region of Quebec, and Cerro Blanco in Guatamala, and to provide sustaining capital to its other operations. The company is also looking to develop its Pueblo Viejo project, in the Dominican Republic, where a feasibility study is under way. The project is a joint venture, with Barrick Gold (ABX-T, ABX-N) holding 60%.

BMO Capital Markets analyst David Haughton says it was likely Silver Wheaton’s success over the past few years that drove Goldcorp to capitalize on its stake.

“At some stage, you do have to think about whether you want to be consolidating Silver Wheaton into your own financial statements, as they do, or whether you would like to step back,” Haughton says.

Silver Wheaton, which listed on the TSX in October 2004, has watched its share price surge as high as $19 per share from under $4. The company gets all of its revenue from silver it purchases through contracts with five separate mines. In 2007, Silver Wheaton expected to sell 13 million oz. silver and the company wants to increase that to 25 million oz. per year by 2010.

Haughton says the deal was also good from a Silver Wheaton standpoint because Goldcorp’s interest in the pure silver player created uncertainty for the company.

“The stake that Goldcorp has could have been considered an overhang on Silver Wheaton,” Haughton says.

By overhang, he means Goldcorp had the power to sell off blocks of Silver Wheaton shares whenever the stock rose, which would limit the stock’s ability to grow.

Silver Wheaton’s director of in- vestor relations, David Awry, says the company is well aware of this threat.

“I think the investment community has been worried that Goldcorp will sell shares at any given time. . . which maybe there wasn’t enough demand in the market for,” Awry says.

Awry says the sell-off will free Silver Wheaton to make more deals with gold companies that view Goldcorp as a direct competitor.

“There was some apprehension of competitors to Goldcorp to do deals with us because it would benefit Goldcorp,” Awry says.

“Silver Wheaton will also benefit because the number of shares available to the public will nearly double, which, in turn, will cause the index funds’ positions to double,” Awry adds.

Goldcorp made the agreement with a syndicate of underwriters led by Macquarie Capital Markets Canada, Genuity Capital Markets and GMP Securities. The offering will close on Feb. 14 and still needs to get the necessary approvals.

On the news, Silver Wheaton shares fell 3% by mid-day, or 43, to $15.04 on nearly 11.7 million shares traded.

Goldcorp shares slipped almost 2%, or 79 each, to $36.67 on a trading volume of 2.7 million shares.