Resource World Magazine

www.resourceworld.com 7 A P R I L / M A Y 2 0 1 4 Streaming is also a flexible and applica- ble model for mining companies both large and small. "Agreements last year ranged from Sandspring Resources Ltd. [SSP- TSXV; SSPXF-USOTC], which is a junior with a $25 million market cap, all the way up to Vale S.A. [VALE-NYSE], which has well over $100 billion in market cap," Smallwood said. The deal with Vale was announced on February 5, 2013. Under its terms, Silver Wheaton has agreed to uptake gold equal to 25% of life-of-mine production from Vale's Salobo Mine, Brazil, and 70% gold production, for 20 years, from vari - ous Sudbury mines in Canada. The deal is expected to add an average of 110,000 ounces gold per year (5.9 million silver equivalent ounces) over the next 20 years. The deal was valued for a total cash con - sideration of $1.9 billion and Vale was also issued 10 million Silver Wheaton warrants at a strike price of $65 across a 10-year term. "The Vale transaction was transfor - mative; it was the largest streaming transaction ever and it was completed with one of the world's largest mining companies … it really does highlight the importance of streaming," Smallwood said. OVERCOMING CHALLENGES Overall, the company has streaming agreements with 19 mines and five devel- opment-stage projects around the globe. For the nine months ending September 30, 2013 (the latest figures available at the time of writing), the per ounce price paid by Silver Wheaton for silver and gold under its agreements averaged $4.11 per ounce and $383 per ounce respectively. (all figures in US$) The company's total silver production sourced from streaming stood at just over 19.45 million ounces, with sales at almost 16.76 million ounces. Gold stood at 108,575 ounces for 86,095 ounces sold. Like many others, Silver Wheaton was affected by the harder price climate of 2013. Net earnings for the nine-month period were $281.6 million ($0.79 per share) compared with $408.3 million ($1.15 share) in the corresponding period the year before. On February 5, 2013, the day of the Vale deal, silver recorded a London fix at $32.01 an ounce. This had tumbled to $18.61 an ounce by June 27, 2013. There has been subsequent support and, on February 24, London's silver fix stood at $22.05 an ounce. "There's no doubt that low silver prices will lower the returns on our investments. But 2013 also opened up opportunities for us. Indeed, outside of the commod - ity price, it was one of our best years and the acquisitions we made in 2013 were of the highest quality. They are foundation assets for the future," Smallwood said. Another challenge has been the fortune of the Barrick Gold Corp. [ABX-TSX, NYSE] Pascua-Lama Project that straddles the Argentinian-Chilean border and in which Silver Wheaton is aligned to stream 9 million ounces silver per year for the first five years of operation. Last year, Barrick decided to temporarily suspend construc - tion work at the project and it will remain on care and maintenance until conditions improve. Silver Wheaton subsequently amended a silver purchase agreement with Barrick and is now entitled to 100% of the silver production from Barrick's Lagunas Norte, Pierina and Veladero mines until end-2016. Silver Wheaton also has a completion guarantee with Barrick, giving them the option to cancel the stream should the mine not meet certain operational met - rics. If cancelled, Silver Wheaton will be entitled to the return of the upfront cash consideration of $625 million, less a credit for any silver delivered up to that date. "We will continue to receive around 2 million ounces silver from the other mines until they deliver us the 9 million ounces per year from Pascua," Smallwood said. "To summarize, we are well compensated for these delays at Pascua and that's one of the advantages of the streaming structure when dealing with development projects." "But Pascua is also a classic case of why we invest in high-quality assets. In its first five years, it will average about 1 million ounces gold per year at a cash-cost range of $200 per ounce, which is a very strong incentive to get the project built and mov - ing forward," he said. "We are confident that work at Pascua will start again and, obviously, hope that this will be sooner rather than later. But no dates have been confirmed yet." "I'm certain it will become a mine because it is one of the best gold deposits in the world, and I have no doubt that it will be one of our best assets," he con - tinued. "So right now, the advantage of owning Silver Wheaton is that you essen- tially get a free option on Pascua because it's been priced out of our share value." EYES ON THE PRIZE Following the Pascua-Lama announce- ment, Silver Wheaton amended its objectives for 2017, with the company now aiming to achieve production of 42.5 million silver equivalent ounces that includes 210,000 ounces of gold. Silver Wheaton is on track to meet this target, Smallwood said, stressing that new proj - ects coming on stream by end-2014 will prove essential for the projected growth. "Silver Wheaton has streaming agreements with 19 mines and five development-stage projects."

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