Silver Wheaton (SLW) Acquires Gold Rights to Salobo Mine, Sudbury Mines

Silver Wheaton (NYSE: SLW) announced in a press release that it has acquired 25 percent of the gold production for the life of Salobo Mine and 70 percent of gold production of Sudbury Mines for a 20-year period from Vale S.A. (NYSE: VALE).

The terms of the deal per the press release are these:

 

The Company will pay Vale total cash consideration of US$1.90 billion, plus 10 million Silver Wheaton warrants with a strike price of US$65 and a term of 10 years1. US$1.33 billion will be paid for 25% of the gold production from Salobo, while US$570 million will be paid for 70% of the Sudbury gold production. In addition, Silver Wheaton will make ongoing payments of the lesser of US$400 (subject to a 1% annual inflation adjustment from 2016 for Salobo) and the prevailing market price, for each ounce of gold delivered under the agreement.

Combining the production from both mines, Silver Wheaton will boost its gold production by 100 thousands ounces a year, with about 60,000 ounces from Salobo and around 50,000 ounces annually from Sudbury.

Over the next five years, gold revenue from the deal with brnig the percentage of gold exposure of Silver Wheaton to an average of 12 percent, going as high as 25 percent some years.

Including the new streams, Silver Wheaton revised its production guidance, with 2013 now expected to include 33.5 million ounces of silver equivalent production, along with 145,000 ounces of gold. For 2017, silver equivalent production is estimated to come in at 53 million ounces, and gold at 180,000 ounces.

CEO Randy Smallwood said this in the release:

"Partnering with Vale on two new gold streams represents a significant step forward for Silver Wheaton and for the streaming model as a whole.  Not only does Silver Wheaton gain accretive gold ounces to further grow and diversify our company, but the precious metals streaming model has now been further endorsed by another one of the world's preeminent mining companies."Silver Wheaton is a proud Canadian company, and we are also excited to be adding another asset based here in Canada , our second one in less than a year."

"While we have traditionally focused on silver, we have never been averse to strategically adding 'the right' gold streams to our portfolio. The world-class nature of the Sudbury operations and the Salobo mine, with its exciting expansion and exploration potential, along with the quality of Vale as an operating partner, convinced us that these assets would be ideal additions to Silver Wheaton's portfolio. Consistent with the mines underlying our existing streaming portfolio, the precious metal coming from both of these assets is produced as a byproduct and represents only a small fraction of the overall economics of the mining operations. While we will continue to believe there are a significant number of streaming opportunities in the silver space, we are also open to layering more high-quality gold streams into our portfolio."

"Vale has a history of mining success spanning decades, and we are confident that Salobo and Sudbury will deliver substantial long-term value to both companies' shareholders. These gold streams will significantly increase Silver Wheaton's overall growth profile, which, given our unique dividend policy, should also translate directly into dividend growth."

Silver Wheaton closed Tuesday at $36.24, up $0.24, or 0.67 percent.