A Monumental Score for Silver Wheaton
Feb 6th 2013 2:45PM
Updated May 13th 2013 4:30PM
The biggest name in in the ultra-successful business of precious metals streaming just got a whole lot bigger, adding a huge gold deal to an expanding portfolio with its largest mining company partner to date. Do you see what I'm trying to convey here? It's big! It's huge! It's downright monumental!
By partnering with diversified mining giant Vale for a pair of key gold stream transactions, Silver Wheaton has provided investors with grand-slam evidence of the unmistakable success of the underlying business model. Of course, some might have considered the stock's 1,370% gain since I highlighted a unique buying opportunity back in 2008 as sufficient confirmation that this company is truly something special.
For upfront cash consideration of $1.33 billion, Silver Wheaton will receive 25% of gold production from Vale's Salobo copper/gold mine in Brazil -- for a per-ounce purchase price of $400 (subject to minor inflation adjustments) -- over the life of that mine. Vale is presently doubling the throughput capacity at Salobo, and Silver Wheaton projects average annual attributable production of 60,000 ounces of gold over the first 20 years of production. With epic mineral reserves already in place, and robust opportunities for further resource expansion through exploration, Salobo will almost certainly outlive every other mine in Silver Wheaton's impressive long-term portfolio.
In addition, Silver Wheaton will lay claim to 70% of gold production from six of the operating mines (plus one key development project) within Vale's world-class complex of nickel-heavy polymetallic mines in Canada known as the Sudbury mines. This particular stream carries a 20-year term, a fixed purchase price of $400 per ounce, and an up-front cash payment to Vale of $570 million. Over the 20-year term, the stream is projected to supply 50,000 ounces of attributable gold annually. Connected with the transactions, Vale will also receive 10 million Silver Wheaton warrants with a strike price of $65. Taken together, these gold streams will bolster Silver Wheaton's production profile by an average of 5.9 million silver-equivalent ounces per year, and place a Foolish punctuation mark after my previous discussion of "How Silver Wheaton Will Surpass 50 Million Ounces."
Silver Wheaton has, rather famously, bagged the big deals before. In Goldcorp's Peñasquito mine in Mexico, and Barrick Gold's Pascua-Lama project on the border between Chile and Argentina, Silver Wheaton had already scored landmark streaming deals that secured the company's position as the unstoppable leader of the precious metal streaming and royalty world. Last summer, the company generated 5 million new reasons to love the stock through a $750 million deal with HudBay Minerals . With each big stream that Silver Wheaton acquires -- and forthcoming deals are certainly in the cards after the company secured $2.5 billion in debt financing in conjunction with the Vale streams -- frankly my long-term price objective of $100 per share grows more conservative-looking with each passing year.
I look forward to offering a more detailed discussion of the pro forma Silver Wheaton that results from this transformative deal. To track my own ongoing coverage of this resoundingly successful growth story, please bookmark my article list or follow me on Twitter. My Foolish colleague Dan Caplinger has prepared a detailed report outlining the compelling investment thesis for this star of the silver screen, and I encourage Fools to access that special report by clicking here.
The article A Monumental Score for Silver Wheaton originally appeared on Fool.com.Fool contributor Christopher Barker owns shares of Goldcorp (USA) and Silver Wheaton (USA). The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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