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When Randy Smallwood goes hunting for a mine acquisition, he has one hard and fast rule: Bet on the asset, not the management team.
Rather than a stinging rebuke of his mining brethren, the mantra is what has helped Mr. Smallwood, a geological engineer by training, build Silver Wheaton Corp. into the world’s largest precious metals streaming company after he helped found it in 2004.
“We look for management-proof projects,” the chief executive officer of Vancouver-based Silver Wheaton said during a recent visit to Toronto. “We want assets that will be good under any management team.”
Silver Wheaton makes its money by purchasing streams of future silver and gold production from companies that mine it as a byproduct; Silver Wheaton can then sell the precious metals into the spot market, usually at a higher price. The company invented the so-called streaming business, under which it makes a lump-sum, upfront payment and then pays the production cost for ounces on delivery from mines typically focused on copper, lead, zinc or nickel.
Long relegated to the fringes of the mining industry, streaming is now drawing mainstream attention as miners face soaring costs at the same time as debt and equity markets have slammed shut.
“This is the first time in my career that I may not be able to afford everything that is out there,” said Mr. Smallwood, whose company has access to $2.5-billion (U.S.) in debt, credit and cash on hand and is building cash flow by $250-million each quarter.
“What we’ve seen in the last six months is that people are knocking on our door,” he said on the sidelines of the Prospectors and Developers Association of Canada conference earlier this month. “It’s the same people that we’ve talked to in the past, but they are either opening the door for the first time or they are actually coming and knocking on our door and saying, ‘You know that proposal you had for us a few years ago? We wouldn’t mind refreshing it and seeing what you’ve got.’”
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/how-silver-wheaton-prospers-despite-mining-slump/article10100901/