Silver Wheaton and Vale announced in early February 2013 that they have entered into a binding term sheet agreement for Silver Wheaton to acquire 25% of the life-of-mine by-product gold production from Vale’s Salobo copper mine in Brazil and 70% of the by-product gold production, for a 20-year term, from six Vale mines and a development project in the Sudbury district, Canada. Consideration for the acquisition is $1.9 billion in cash, plus 10 million Silver Wheaton warrants with a strike price of $65 and a term of 10 years.
The $1.9-billion cash payment is split $1.33 million for the Salobo gold stream and $570 million for the Sudbury gold stream. In addition, Silver Wheaton will make ongoing payments of the lesser of $400/oz (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.
Gold production from these assets will accrue to Silver Wheaton retroactively from January 1, 2013. Silver Wheaton expects the agreement to deliver an average of 110,000 oz/y of gold to the company over the next 20 years, approximately 60,000 oz/y from Salobo and 50,000 oz/y from Sudbury.
Vale’s Salobo mine is based on the largest copper deposit ever found in Brazil. The mine began operating in May 2012 with a designed mill throughput capacity of 12 million mt/y. Vale has subsequently begun a second phase of construction to expand mill capacity to 24 million mt/y by the end of 2015.
Salobo has mine reserves of more than 1 billion mt at copper and gold grades of 0.69% and 0.43 g/mt, respectively.
The Sudbury gold stream covers the Coleman, Copper Cliff, Creighton, Garson, Stobie and Totten mines, and the development-stage Victor project. All of the orebodies contain a mix of nickel, copper, platinum group metals, cobalt, gold and silver.
The addition of the Vale streams will increase Silver Wheaton’s percentage of revenue generated from gold production over the next five years from 12% to a peak of around 25%.
Silver Wheaton President and CEO Randy Smallwood said, “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.”