March 6, 2017 / 8:20 PM / 9 months ago

Mining financier Silver Wheaton open to revamped Primero deal

TORONTO, March 6 (Reuters) - Silver Wheaton would consider changing its financing deal with Primero Mining on the troubled San Dimas mine in Mexico if that would improve the “health of the asset,” the mining financier’s chief executive said on Monday.

Silver Wheaton, a Vancouver-based company that provides miners with upfront payments, or “streams,” in exchange for future production at a discounted, fixed price, counts San Dimas as a key asset.

Operations at the mine were suspended in mid-February after workers went on strike over contract changes proposed by the company to return it to profitability.

“If there’s a way that we can change the agreement to improve the health of the asset, and we get compensated for fair value, then we’ll explore that,” Silver Wheaton CEO Randy Smallwood said in an interview at the Prospectors and Developers Association of Canada conference.

He declined to say specifically how the agreement could be restructured.

Toronto-based Primero has an agreement to sell Silver Wheaton the first 6 million ounces of silver produced from San Dimas each year, plus half of any excess, at $4.20 per ounce, and an additional 1 percent for inflation. The deal continues to the end of the mine’s life.

Bank of Montreal analyst Andrew Kaip said in a recent note that the San Dimas represented some 15 percent of his 2017 revenue forecast for Silver Wheaton.

Primero announced a cost-cutting program and strategic review to consider options such as asset sales after it said on Feb. 23 that its chief executive was stepping down.

“There’s no doubt that they’ve got some challenges in front of them, but we’re confident that if they sharpen their pencils, they can return to profitability,” Smallwood said.

“This is an asset that’s profitable, it’s just had some burdens put onto it - some poorly timed investment decisions by Primero and a pretty heavy head office expense.”

Primero is also engaged in a tax dispute with the Mexican government, arguing that the country’s tax authority is trying to retroactively change an agreement that the company had.

Silver Wheaton is also focused on new deals, Smallwood said, as the mining sector transitions back into a growth phase.

There are streaming transactions worth some $3 billion to $4 billion up for grabs, Smallwood said, but Silver Wheaton will pursue the more profitable deals worth about $1.5 billion to $2 billion. (Reporting by Susan Taylor; Editing by Paul Simao)

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