November 12, 2013 / 11:29 PM / 4 years ago

Silver Wheaton expands into early-stage mine financing

VANCOUVER (Reuters) - Only a day after announcing its first deal using a novel financing method to fund an early-stage mining project, Silver Wheaton Corp SLW.TO hopes to follow up with a second one soon, and sees plenty of demand down the road.

Known as “early deposit streaming,” the deals give mine exploration companies cash upfront in exchange for their future production of such byproducts as silver or gold at a set price.

Silver Wheaton CEO Randy Smallwood expects plenty of demand for the new form of financing from junior mining companies desperate for funds because slumping metal prices and soaring mining costs have dried up money from equity and debt markets.

“I’ve been in this business for over 30 years and I’ve never seen it this bad for the junior explorers. There is no capital for them in the capital markets,” Smallwood said in an interview in Vancouver, where Silver Wheaton is headquartered.

Until now, Silver Wheaton has generally signed deals with mining companies on assets that are either already in production or well into development.

Late on Monday, the company said it had signed a deal with Sandspring Resources Ltd SSP.V, a small junior mining company that is developing the Toroparu project in Guyana.

The copper-gold project is still early-stage and Sandspring has not yet completed a bankable feasibility study to determine its commercial viability.

For an upfront payment of $13.5 million, followed by an additional $135 million payable during construction, Silver Wheaton has secured the right to buy 10 percent of the gold output over the mine’s life at $400 an ounce.

Silver Wheaton can then sell the gold at the prevailing market rate, which is currently about $1,267 an ounce.

Smallwood said the company had looked at 50 to 60 early-stage projects and narrowed it down to just two, of which Sandspring was one.

Asked if another deal was forthcoming soon, he said: “We are hopeful ... Discussions are ongoing.”

CONFIDENT ON PASCUA-LAMA

Smallwood said Silver Wheaton was “confident” that Barrick Gold Corp (ABX.TO) would restart development of its shelved Pascua-Lama gold and silver project in South America, although he admitted the halt had been “a bit painful.”

Barrick said last month it would stop development on Pascua-Lama indefinitely as the cost of the project spiraled upward and environmental concerns grew.

Silver Wheaton bought 25 percent of the mine’s future silver production in 2009, paying Barrick cash in exchange for the silver at a discounted price. With the development halt, Barrick and Silver Wheaton have amended their agreement to provide “healthy compensation,” Smallwood said.

Asked whether Silver Wheaton was in streaming deal talks with Glencore-Xstrata Plc (GLEN.L) or other suitors for its $5.9 billion Las Bambas copper mine in Peru, Smallwood said: “We are active.”

He declined to elaborate.

Bloomberg quoted Smallwood as saying in September that a streaming contract on the Las Bambas mine would, “add a lot of value to the sales process.”

Glencore agreed this year to sell the copper project to meet demands from China’s competition authorities after the company’s takeover of mining group Xstrata.

Peru’s minister of energy and mines told Reuters on November 3 that Jiangxi Copper Co Ltd (600362.SS), China’s top producer of the metal, Chinalco Mining Corp International 3668.HK, and Minmetals Development Co Ltd (600058.SS) are all interested in Las Bambas.

Reporting by Nicole Mordant and Julie Gordon. Editing by Andre Grenon

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