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As mining companies suffer through rough market conditions, their royalty and streaming counterparts are taking advantage and striking the biggest deals in their history.
“We are busier than we’ve ever been,” said Randy Smallwood, chief executive of Silver Wheaton Corp. “And what’s more important is the quality of the assets that are being brought forward to us is better than I’ve seen in the past.”
This week, Vancouver-based Silver Wheaton announced a US$1.9-billion acquisition of gold streams from mining giant Vale SA of Brazil. It is by far the largest metal streaming deal ever done, surpassing the US$1-billion transaction between Franco-Nevada Corp. and Inmet Mining Corp. that was reached less than six months ago. The Vale deal also includes 10 million Silver Wheaton warrants.
Miners are turning to companies such as Silver Wheaton and Franco-Nevada for financing for a couple of reasons: issuing equity is extremely difficult and dilutive in this market, and capital cost pressures have made it more important than ever to share the financing risk on large projects. The fact that an enormous company such as Vale is giving up future cash flow to secure capital shows how challenging it is for the industry right now.
It wasn’t always this way for Mr. Smallwood. When he took over as CEO in April 2011, Silver Wheaton could not get a deal done with anyone. Precious metal prices were soaring at the time, and companies were demanding far too much money in exchange for their future gold and silver output.
“At that time, they just had better sources of capital available,” he said.
When markets deteriorated and traditional financing sources dried up, miners became much more willing to part with their byproduct gold and silver in exchange for some precious cash.
But while Franco and Silver Wheaton were large and well-known companies for years, the recent billion-dollar transactions are game-changers that have elevated their industry to a new level. The metal streaming business did not even exist until Silver Wheaton was created in 2004.
For the rest of this article, please go to the National Post website: http://business.financialpost.com/2013/02/06/silver-wheaton-vale-deal/