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When one considers silver, thoughts of Silver Wheaton Corp.
[SLW-TSX, NYSE] might be not far behind. The company is
the largest precious metals streaming company in the world.
Streaming deals are undertaken with mining companies by
making a fixed-rate payment in return for a set percentage of
an operation or project's future output. An additional fixed-rate
payment is made by the streaming company to cover delivery
costs, typically with a small inflationary adjustment attached.
Silver Wheaton's model affords shareholders precious metals
exposure, primarily to silver, with the advantage of not having
attendant exploration or project expansion risk. It also decouples
the company and its shareholders from margins pressure experi
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enced by mining companies when their costs of production rise.
"In addition, streaming also gives you the upside when there's
exploration success and expansion potential," Silver Wheaton
President and CEO Randy Smallwood told Resource World.
Streaming deals often make sense for mining companies as the
material involved is frequently a by-product of their core activity.
"For example, it might be a deal with a copper company or
another base metals-focused company and their silver and gold
will be a by-product within their asset. It will be undervalued
by the marketplace because it is considered a non-core, non-
essential part of the mine's business model. By freeing up this
by-product, a mining company is then able to generate better
value from their current portfolio," Smallwood said.
The capital secured from the sale of by-product silver or gold
can be reinvested on core activities. For development proj
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ects, a pre-production streaming deal adds a layer of stability.
"[Streaming] improves the internal rate of return of the project
because of the value we put in as capital," Smallwood said.
STREAMING SILVER
Randy Smallwood, President and CEO of Silver Wheaton,
explains the operations of this unique company
By Simon Rees
Randy Smallwood, President and CEO, Silver Wheaton Corp.
