Metal Rout Tempts Silver Wheaton With $5 Billion Streaming Feast

  • Smallwood says Glencore should seek financing in streaming
  • CEO calls potential mining assets among best he's ever seen

The commodity meltdown that’s left miners such as Glencore Plc and Barrick Gold Corp. fighting to reduce debt and trim production is leaving one precious-metal company ready to pick up the slack.

Silver Wheaton Corp., which gives miners upfront payments in exchange for the right to precious metals it later sells, is actively pursuing $5 billion in deals as tumbling metal prices pressure other producers into selling. Some of these opportunities are at the earliest stages of investigation while others are near completion.

The potential deals include some of the most attractive assets that have ever been on the market, Chief Executive Officer Randy Smallwood said Monday on the sidelines of the Denver Gold Forum.

“This is probably the best portfolio of assets that we’ve ever seen,” Smallwood said in an interview.

The Vancouver-based company is seeing demand for streaming capital that exceeds the supply of available financing amid the current commodities downturn, he said.

Slumping Prices

Streaming companies are taking advantage of efforts by miners to strengthen their finances amid slumping metals prices and relatively high debt levels. Barrick announced last month an arrangement with a unit of Royal Gold Inc. for $610 million upfront, plus continuing payments, for metal delivered under the deal. Production was linked to the Pueblo Viejo mine in the Dominican Republic.

Still, not all miners are turning to streaming. Goldcorp Inc. owns
40 percent of Pueblo Viejo and didn’t enter into the arrangement with Royal Gold.

“Just philosophically, we don’t like selling a gold stream on a gold mine,” Goldcorp’s Chief Executive Officer Chuck Jeannes said in an interview in Denver. “We’re a gold company, and we’re primarily valued by our investors as providing them leverage to the gold price.”

Glencore Assets

Smallwood says Silver Wheaton is interested in bidding on streams that Glencore may want to sell. Earlier this month, the Baar, Switzerland-based commodities trader unveiled a $10 billion plan to cut debt that included selling assets and issuing new shares.

Glencore should move quickly on selling its streams to secure financing, Smallwood said.

Smallwood, who is also one of the company’s founders, said last month that Silver Wheaton is in a “great position” to fund new deals with cash it generates from operations and $1.4 billion in credit line capacity.

In Denver, he made it clear that the company can afford to walk away from deals if the terms aren’t good enough.

Silver Wheaton said last week it had started a so-called normal course issuer bid to purchase as many as 20.2 million common shares over a period of 12 months.

“Our shares are trading at such a discount to where we think they should be, that may be our chosen method of growth and we’ll consider that,” Smallwood said in the Monday interview. “It’s something that competes against adding new assets.”

Silver Wheaton fell 1.2 percent to C$16.15 at the close in Toronto on Monday. The shares have tumbled 32 percent this year.

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