Silver Wheaton To Pay US $625M For Barrick Silver Stream

VANCOUVER — Having worked out another major silver-stream contract, this time with Barrick Gold (ABX-T, ABX-N), Silver Wheaton (SLW-T, SLW-N) will beef up its attributable silver reserves by 43%.

There are essentially two components to the streaming agreement that sees Silver Wheaton making US$625 million in upfront payments to Barrick.

The first part, only a taste of what is to come, gives Silver Wheaton an immediate 100% silver stream from three of Barrick’s operating mines, Lagunas Norte, Pierina and Veladero, until the beginning of 2014. Silver production from the three mines runs around 2.4 million oz. a year.

It is the second part of the agreement, however, that is the main course: A 25% life-of-mine silver stream from Barrick’s massive Pascua- Lama project that is slated to be up and running by 2013.

Once Pascua-Lama is commissioned, it will net Silver Wheaton 9 million oz. silver a year during the first five years of its 25-year mine life. The gold-silver project, straddling the Chilean and Argentinean border about 200 km northwest of San Juan, is set to produce around 650,000 oz. gold and 22.5 million oz. silver (including Silver Wheaton’s take) annually over its mine life.

The deal gives Silver Wheaton a stake in one of the largest silver deposits in the world. Barrick pegs Pascua-Lama’s proven and probable reserves at 399 million tonnes grading 56 grams silver per tonne for about 718 million oz. silver.

The silver doesn’t come free of charge, however. Similar to its other streaming agreements, Silver Wheaton will pay either US$3.90 per oz. silver or the prevailing market price if it happens to be less.

Indeed, the deal is much like one Silver Wheaton signed with Goldcorp in 2007 for a silver stream from the Penasquito project in Mexico. Goldcorp, a major Silver Wheaton shareholder, agreed to sell it a 25% silver stream from Penasquito for US$485 million.

The agreement with Barrick comes with a few guarantees for Silver Wheaton if construction on Pascua- Lama falls behind schedule. As part of a completion guarantee, Silver Wheaton will continue to receive the 100% silver stream from Lagunas Norte, Pierina and Veladero if, for example, Pascua-Lama hasn’t reached 75% of design capacity in 2015 or if it isn’t up and running between 2014 and 2015.

Silver Wheaton also receives the first right of refusal on further metal streams from Pascua-Lama if silver accounts for more than 50% of the value.

Silver Wheaton will make the US$625-million payment in four tranches. The first, US$212.5 million, is due on closing. The second, third and fourth, each coming in at US$137.5 million, are respectively due one, two and three years after the closing date, which was expected to fall on Sept. 22.

To fund the transaction, Silver Wheaton says it will use US$70 million in cash on hand and the rest from a revolving credit line or securities. Handily enough, on the same day that Silver Wheaton released news of the silver stream agreement with Barrick, it also announced a US$250-million bought-deal financing.

The bought deal has Silver Wheaton issuing 22.5 million shares at US$11.10 and giving underwriters an overallotment of 3.4 million more shares at the same price. Gross proceeds could reach US$287.5 million.

As for Barrick, while the silver streaming funds may go a good ways towards chipping away at Pascua-Lama’s hefty pre-production price-tag of about US$3 billion, it may just be icing on the cake.

Barrick has also announced that it is raising US$4 billion through a bought-deal financing, with funds earmarked to ending much of its gold-hedge positions.

An open-pit project, Pascua- Lama, situated in arid mountains at an altitude above sea level between 3,800 and 5,200 metres, will be a 300,000-tonne-per-day mine with throughput of 45,000 tonnes per day.

Barrick has said that, weather permitting, it plans to begin building the mine this month.