Vale Sells $800 Million of Future Gold Output to Ease Debt Load

  • Accord boosts Silver Wheaton’s gold share in Salobo to 75%
  • Vale looking to reduce debt to $15 billion from $27 billion

Vale SA sold more of its future gold output to Silver Wheaton Corp. as the Brazilian miner strives to lighten a $27 billion-plus net debt load, the industry’s biggest after Glencore Plc’s.

The Rio de Janeiro-based company will sell the rights to 25 percent of the Salobo mine’s gold production to Vancouver-based Silver Wheaton, expanding a 2013 streaming deal for 50 percent of output, the companies said in separate statements Tuesday. Vale will get $800 million upfront.

Chief Executive Murilo Ferreira flagged the new arrangement with Silver Wheaton on Thursday when he said the company had one transaction to announce this week and another two by year-end.

The biggest iron-ore exporter’s efforts to lower debt to $15 billion have been constrained by low prices, building a new mine and a lack of major asset sales. Now, spending on the $14 billion S11D iron-ore project is coming to an end just as prices of the steelmaking ingredient are back above $60 a metric ton as concern over slowing Chinese demand eases. That’s giving Vale hope of retaining its credit ratings.

Shares in Silver Wheaton rose 2.9 percent to $29.41 at 9:56 a.m. in New York. Vale gained 1.7 percent in Sao Paulo.

Silver Wheaton estimates the Salobo copper and gold mine to have a 50-year life and says the deal will immediately increase its consolidated production and cash flow.

“The Salobo mine is a cornerstone asset for Silver Wheaton and should be for generations to come,” Silver Wheaton Chief Executive Officer Randy Smallwood Tuesday said in a statement.

Streaming companies give upfront cash payments to miners in exchange for a discounted share of production over a fixed period, often the life of the mine. The Salobo mine in Para state, Brazil’s largest copper deposit, is ramping up an expansion and expects to reach capacity later this year. It is forecast to produce an average of about 300,000 ounces of gold in the next five years, Silver Wheaton said.

Financing Details

The streaming company said it will fund the deal using cash on hand and proceeds from its $2 billion revolving credit line. In addition, the strike price on 10 million warrants previously issued by Silver Wheaton to Vale will be lowered to $43.75 a share from $65, Silver Wheaton said. The warrants give Vale the right to buy Silver Wheaton shares.

The deal is expected to boost Silver Wheaton’s attributable gold production to 305,000 ounces in 2016 -- up from a previous forecast of 265,000 -- and will average about 330,000 ounces in the five years through 2020.

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