Silver Wheaton Increases Gold Stream From Salobo Mine and Revises 2016 Production Guidance
VANCOUVER, Aug. 2, 2016 /CNW/ - Silver Wheaton Corp. ("Silver Wheaton" or the "Company") (TSX:SLW) (NYSE: SLW) is pleased to announce that its wholly-owned subsidiary, Silver Wheaton (Caymans) Ltd. ("SWC"), has agreed to acquire from a subsidiary of Vale S.A. ("Vale") (NYSE: VALE) an additional amount of gold equal to 25% of the life of mine gold production from its Salobo mine, located in Brazil. This acquisition is in addition to the 50% of the Salobo gold production that SWC is currently entitled to. SWC will pay upfront cash consideration of US$800 million for the increased gold stream and the 10 million Silver Wheaton common share purchase warrants previously issued to a subsidiary of Vale will be amended to reduce the strike price from US$65 to US$43.75 per common share1. In addition, SWC will make ongoing payments of the lesser of US$400 (subject to a 1% annual inflation adjustment now commencing in 2019 on the entire 75% stream) and the prevailing market price for each ounce of gold delivered under the agreement.
TRANSACTION HIGHLIGHTS
- Provides immediate and long-term production and cash flow
- SWC will receive an additional 25% of the gold production from Vale's Salobo mine, entitling SWC to a total of 75% of the life-of-mine gold production from the mine.
- Immediately increases Silver Wheaton's consolidated production and cash flow profile as Salobo gold production is expected to average approximately 300,000 ounces per year in total between 2016 and 2020, of which SWC will be entitled to 75% as of the effective date of July 1, 2016.
- Increases Silver Wheaton's consolidated estimated Proven and Probable gold reserves by 3.2 million ounces, Measured and Indicated gold resources by 0.7 million ounces, and Inferred gold resources by 0.4 million ounces.
- At current production rates, Proven and Probable reserves are sufficient to support 50 years of mine life, with excellent potential to further extend the mine life.
- Increases Silver Wheaton's gold growth profile
- With the additional stream from Salobo, Silver Wheaton's estimated attributable gold production in 2016 is now forecast to be 305,000 ounces, and estimated average annual attributable gold production over the next five years (including 2016) is anticipated to be approximately 330,000 ounces per year.
"The Salobo mine is a cornerstone asset for Silver Wheaton and should be for generations to come," said Randy Smallwood, Silver Wheaton's President and Chief Executive Officer. "We did not hesitate at the opportunity to increase our exposure to a mine with one of the lowest copper cash costs in the world, 50 years of mine life on reserves alone, and what we believe to be substantial exploration and expansion potential. As we have said on numerous occasions, Salobo is the ideal asset for the streaming model, as it is primarily a base metal producer where precious metals represent only a relatively small portion of the mine's overall revenues."
"The addition of another 25% gold stream from Salobo further adds to Silver Wheaton's robust cash flow. Given the quality of the portfolio, with over 90% of our production coming from mines in the lowest half of their respective cost curves, and the expected production profile over the next five years, Silver Wheaton is very comfortable financing this transaction using cash on hand and our existing revolving credit facility. Based on our guidance and current commodity prices, the upfront payment represents slightly more than one year of anticipated cash flow. The strength of our cash flow potential speaks volumes about the streaming model in general and the unparalleled quality of Silver Wheaton's portfolio in particular."
TRANSACTION TERMS
- The existing gold purchase agreement has been amended and restated to provide for the additional 25% stream, with SWC now receiving 75% of the life-of-mine gold production from this mine.
- SWC will be entitled to all attributable gold production for which an off-taker payment is received after July 1, 2016.
- SWC will pay a wholly-owned subsidiary of Vale upfront cash consideration of US$800 million for the increased gold stream as an advance payment against the purchase price for the sale of gold to SWC.
- In addition, subject to the approval of the Toronto Stock Exchange, the 10 million Silver Wheaton common share purchase warrants, initially issued on February 28, 2013 and expiring on February 28, 2023 entitling a wholly-owned subsidiary of Vale to purchase one common share of Silver Wheaton for each whole warrant upon payment of US$65 per common share (subject to the terms of the warrant indenture) will be amended such that the per common share strike price will be decreased from US$65 to US$43.75. The amended warrants will become effective on August 16, 2016. Neither Vale nor its wholly-owned subsidiary is an insider of Silver Wheaton.
- SWC will make ongoing payments of the lesser of US$400 (subject to a 1% annual inflation adjustment now commencing in 2019 for the Salobo stream) and the prevailing market price, for each ounce of gold delivered under the agreement. The terms of the existing gold stream on Salobo were modified so that the annual inflation adjustment that was scheduled to start in 2017 will now start in 2019.
- Gold deliveries for the entire 75% gold stream will be the obligation of a wholly owned subsidiary of Vale, but will be guaranteed by Vale and the direct holder of Salobo, Salobo Metais S.A.
- Mill throughput at the Salobo mine is currently 24 million tonnes per annum ("Mtpa"). If throughput capacity is expanded within a predetermined period and depending on the grade of material processed, SWC will be required to make an additional payment to Vale, relative to the 75% stream, that now ranges from US$113 million if throughput is expanded beyond 28 Mtpa by January 1, 2036, up to US$953 million if throughput is expanded beyond 40 Mtpa by January 1, 2021. For example, if Salobo is expanded to 36 Mtpa between 2021 and 2025, the expansion payment would range between US$514 million and US$692 million.
FINANCING THE ACQUISITION
Silver Wheaton intends to use cash on hand together with proceeds available under the Company's US$2 billion revolving credit facility ("Revolving Facility") to pay the upfront cash payment of US$800 million. The Revolving Facility has a maturity date of February 27, 2021.
ABOUT THE SALOBO MINE
According to Vale's public filings, the Salobo mine, located in the Pará state of Brazil, is the largest copper deposit in Brazil. This low-cost copper-gold mine was commissioned in November 2012 with a design throughput capacity of 12 Mtpa and subsequently expanded to 24 Mtpa of mill capacity in mid-2014. The mine is well-positioned relative to infrastructure and is connected to the national power grid.
The Salobo mine has total estimated Mineral Reserves of 1.157 billion tonnes grading 0.67% copper and 0.35 g/t gold2, and, along with additional Mineral Resources, also has substantial exploration and expansion potential. The acquisition of an additional 25% life of mine gold stream adds an estimated 3.2 million ounces of Proven and Probable Mineral Reserves, 0.7 million ounces of Measured and Indicated Mineral Resources, and 0.4 million ounces of Inferred Mineral Resources attributable to Silver Wheaton. Total estimated attributable Mineral Reserves and Mineral Resources for the now 75% life-of-mine gold stream are detailed in the table below.
Vale has indicated that it intends to re-initiate an exploration program at Salobo as early as 2017 that will include additional exploration drilling.
SILVER WHEATON ANNOUNCES NEW PRODUCTION GUIDANCE
Silver Wheaton is pleased to provide its updated one-year and long-term production guidance, which incorporates the additional 25% life-of-mine gold stream on the Salobo mine. In 2016, Silver Wheaton's estimated attributable gold production is now forecast to be 305,000 ounces, up from 265,000 ounces previously, and estimated average annual attributable gold production over the next five years (including 2016) is anticipated to be approximately 330,000 ounces of gold per year, up from 260,000 ounces. Silver production in 2016 is now forecast to be approximately 32 million ounces, down slightly from 32.8 million ounces previously guided as production from San Dimas and Peñasquito is expected to be lower offset in part by better than expected production from Antamina. Average annual silver production over the next five years (including 2016) remains unchanged at 31 million ounces per year.
Given the strong performance of the silver price year to date, the gold:silver ratio has contracted substantially since Silver Wheaton originally released silver equivalent production guidance for the year. Previous guidance was based on a gold:silver ratio of 80:1. Given the recent volatility of both gold and silver prices, Silver Wheaton will now provide production guidance on both a silver equivalent basis (SEO) and gold equivalent basis (GEO). As such, and based on the average LBMA gold and silver price for the first half of 2016 ($1,234 and $16.27, respectively)3, Silver Wheaton is now forecasting 2016 production of 55 million SEOs or 730,000 GEOs, and production over the next five years (including 2016) is forecast to average 56 million SEOs per year or 740,000 GEOs per year.
Over the next five years, forecast production growth from Salobo, Peñasquito and Constancia is expected to be offset by the cessation of production from assets with fixed terms. In particular, the 10-year-term contract on Capstone Mining's Cozamin mine, acquired with Silver Wheaton's 2009 acquisition of Silverstone, expires in April 2017. In addition, Silver Wheaton's streaming agreement with Barrick regarding Pascua-Lama provides the Company with silver production from the Lagunas Norte, Veladero, and Pierina mines until March 31, 2018. Hudbay's Constancia mine is expected to meet the completion test, resulting in gold production from the 777 mine attributable to Silver Wheaton dropping from 100% to 50% in 2017. And lastly, as a reminder, Silver Wheaton does not include any production from Barrick's Pascua-Lama project or Hudbay's Rosemont project in its guidance.
SALOBO ACQUISITION PRESENTATION
A presentation on the highlights of the acquisition has been posted on the Company's home page at www.silverwheaton.com.
Q2 2016 CONFERENCE CALL
Silver Wheaton will discuss the transaction in more detail in its 2016 second quarter results conference call to be held on Thursday, August 11, 2016, starting at 11:00 am (Eastern Time). To participate in the live call please use one of the following methods:
Dial toll free from Canada or the US: 1-888-231-8191
Dial from outside Canada or the US: 1-647-427-7450
Pass code: 45537734
Live audio webcast: www.silverwheaton.com
Participants should dial in five to ten minutes before the call.
The conference call will be recorded and available until August 18, 2016 at 11:59 pm ET. The webcast will be available for one year. You can listen to an archive of the call by one of the following methods:
Dial toll free from Canada or the US: 1-855-859-2056
Dial from outside Canada or the US: 1-416-849-0833
Pass code: 45537734
Archived audio webcast: www.silverwheaton.com |
