Barrick Gold Corp. (ABX) recently divested a 25% interest in its Pascua-Lama silver project in South America to Silver Wheaton Corp. (SLW) for about $625 million. The deal was announced on Sept. 8.
Based in Vancouver, Canada, Silver Wheaton is the world’s only silver trading company. It does not own or operate mines but buys silver at below-market prices through long-term contracts with five major silver producers, including Goldcorp Inc. (GG), Lunding Mining, Hellas Gold and Glencore, and then reselling it to major industrial customers at a mark-up.
The deal gives Barrick funds for the construction of the Pascua-Lama mining project and significantly boosts the size of Silver Wheaton. Silver Wheaton has already made an initial payment of $212.5 million and will pay another $137.5 million annually for the next three years.
Barrick will receive $3.90 for each ounce of silver delivered under the agreement, which covers the life of the mining project, expected to be about 25 years. For Silver Wheaton, the deal will generate 9 million ounces of silver annually over the first 5 years at the Pascua-Lama mine, raising its output to 40 million ounces by 2013. Barrick expects production at Pascua-Lama in the range of 750,000 ounces to 800,000 ounces of gold and 35 million ounces of silver in the first 5 years.
Located on the Chile–Argentina border, Pascua-Lama is one of the richest deposits of precious metals in the world. It is expected to be one of the world’s largest and lowest-cost gold mines and has one of the biggest global silver deposits. Barrick started the project in May this year.
Until Pascua-Lama begins production sometime in 2014, Silver Wheaton will receive 100% of silver produced from three other Barrick mines – the Lagunas Norte and Pierina mines in Peru and the Veladero mine in the south of Pascua-Lama in Argentina.
Barrick will retain total control of gold production at all mines and 75% of the silver at Pascua-Lama. While the deal provides Barrick with a source for financing its Pascua-Lama project, it significantly expands Silver Wheaton’s reserves.
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