Vale strikes gold deal – by Star Staff (Sudbury Star/Reuters – February 6, 2013)

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

Vale agreed Tuesday to sell 70% of the gold produced at its Sudbury mines over a 20-year period to Vancouver-based Silver Wheaton in a deal worth $570 million.

Silver Wheaton will also pay $1.33 billion for 25% of the gold produced at the Salobo mine in Brazil over its mine life, the companies announced. In total, the deal is worth $1.9 billion in cash. The Sudbury gold stream covers six producing mines — the Coleman, Copper Cliff, Creighton, Garson, Stobie and Totten mines — and one development mine, the Victor project.

From 2013 to 2015, the Sudbury mines are expected to average attributable production of approximately 30,000 ounces as the Totten mine gradually reaches full production. Gold production is expected to peak once the high-grade Victor deposit begins production.

The deal will immediately boost Silver Wheaton’s production by adding expected average gold production of 110,000 ounces of gold per year over the next 20 years, or 5.9 million silver equivalent ounces. The move into gold is a departure for Silver Wheaton, which has focused almost exclusively on silver stream financing deals.

“While we have traditionally focused on silver, we have never been averse to strategically adding ‘the right’ gold streams to our portfolio,” said Chief Executive Randy Smallwood in a statement.

Smallwood added that while the company believes there are significant opportunities in the silver space, it is open to layering more high-quality gold streams into its portfolio.

In addition to the cash and warrants, Silver Wheaton, a precious metal streaming company, will pay a set amount, about $400 per ounce for gold, at the time of production. The warrants will have a strike price of $65 and a term of 10 years.

Gold was worth about $1,670 per ounce on Tuesday, while silver was worth about $32 per ounce.

Silver Wheaton now expects to produce some 33.5 million ounces of silver equivalent in 2013, up from some 28 million equivalent ounces in 2012. By 2017, production is expected to top 53 million silver equivalent ounces.

The company has secured a $1 billion revolving credit facility with a 5-year term and a $1.5 billion bridge financing facility with a 1-year term to finance the deal, which replace an existing $400 million revolving credit facility.

When combined with existing cash on hand, the company expects to fund the Vale deal while still pursuing other growth opportunities.

Shares of Silver Wheaton closed at $36.11 on Tuesday on the Toronto Stock Exchange.

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