INTERVIEW: Silver Wheaton CEO Says Time is Ripe for Silver Deals
08/09/2012| 07:50am US/Eastern
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(This article was originally published Wednesday.)
By Edward Welsch
Precious metals buyer Silver Wheaton Corp. (SLW, SLW.T) announced its return to deal making after a two-year hiatus Wednesday with its largest deal ever--paying $750 million for the right to purchase gold and silver output from mines owned by HudBay Minerals Inc. (HBM, HBM.T).
The Vancouver company's chief executive, Randy Smallwood, says it's the ideal time to start making deals for silver again, now that prices have declined 29% over the last 12 months to about $28 an ounce, and with financial problems in Europe making it hard to raise capital in the mining sector.
"It's good to be back making acquisitions," Mr. Smallwood said in an interview after the HudBay deal was announced. "With silver prices as high as they were over the last two years above $40 an ounce the deals were just too expensive," Mr. Smallwood said. "So we've had to be patient ... we do think silver is near a bottom [now]."
Vancouver-based Silver Wheaton is the world's largest precious metals "streaming" company. That means it buys the small amounts of silver and gold produced as a byproduct of mines that mainly yield other metals like copper or zinc. By selling their byproducts to Silver Wheaton, miners get extra financing for their projects and reduce some of the risk from swings in precious metals prices.
The small streams add up--Silver Wheaton has claims on about 28 million ounces of silver a year, and expects its deals with companies building new mines to increase that to 48 million ounces a year by 2016. The company is valued at more than 10 billion Canadian dollars (US$10.1 billion) on the Toronto Stock Exchange.
In the deal inked with Toronto-based HudBay Minerals Wednesday, Silver Wheaton will pay $750 million upfront to HudBay to help it build the Constancia copper mine in Peru, and in return will be able to buy the silver from the future mine as well as an existing HudBay mine in Manitoba for $5.90 an ounce. The deal will add an average of another 4.9 million ounces of silver a year to Silver Wheaton's stream.
Mr. Smallwood said the problems in Europe's financial markets have made it difficult for mining companies to find funding, which makes Silver Wheaton's streaming deals more attractive.
"European banks have typically been some of the most aggressive lenders in the mining space, [but] all the European banks are focused on trying to rebuild their foundations, they're not out there lending money right now," Mr. Smallwood said.
"These are the times that are best to make acquisitions, because that's where we can provide some support to some of these promising projects and get a piece of the action," he said.
The two biggest deals in Silver Wheaton's history were with two of the world's largest gold mining companies--it helped finance GoldCorp Inc.'s (GG, G.T) Penasquito mine in 2007 and Barrick Gold Corp.'s (ABX, ABX.T) Pascua Lama mine in 2009.
"Silver Wheaton's ... step-up in growth was essentially driven by the Penasquito and Pascua Lama streams," Raymond James analyst Brad Humphrey wrote in a note to clients Wednesday. "With the acquisition of the Hudbay streams, this growth is not only increased, but also diversified."
Silver Wheaton shares closed up 3.7% at C$29.75 Wednesday in Toronto.
Write to Edward Welsch at edward.welsch@dowjones.com
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