Gold bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich.MICHAEL DALDER/Reuters
Silver Wheaton Corp. heard the call for for capital coming from mining companies of all sorts, and now it's stepping in to help.
Last summer, Randy Smallwood, the royalty streaming company's chief executive officer, said more miners were looking for alternative ways to finance their operations. Silver Wheaton buys royalties and streams of future silver (and sometimes gold) production from large miners. In many cases these big firms can't raise funds through new equity, so they turn to companies like Silver Wheaton to help fund operations immediately.
The struggle was that there weren't a lot of high-quality assets available to his company, Mr. Smallwood said. And that was a problem, since he has described his business as seeking "management-proof projects" only.
"The quality seems to be thinning out," he told The Globe and Mail. "One of the challenges we have right now is that we have a lot of assets coming through the door looking for financing, but there is not a lot of quality assets."
But the company's latest deal shows that, for the right project, Silver Wheaton is willing to step in. Sometimes twice.
Silver Wheaton said Monday that it would buy 25 per cent of the gold produced by Vale SA's Salobo mine in Brazil, agreeing to pay $900-million in cash. This brings the company's total ownership in the mine up to 50 per cent, after the initial stake it bought in 2013.
Salobo, which is primarily a copper mine with the largest deposit in Brazil, has performed well for Silver Wheaton so far. The project reached record production levels in the company's most recent quarter, as the mine continued to ramp up its expansion.
"Salobo is certainly one of the best assets we have ever seen and one that readily lends itself to streaming," Mr. Smallwood said in a statement on Monday. He added that Silver Wheaton is still focused on its namesake commodity, but that it had an appetite for gold investments "when the right opportunity presents itself."
As part of this most recent deal, Silver Wheaton is selling 38.9 million common shares at $20.55 (U.S.) through a team of underwriters led by Scotia Capital. The offering can be extended up to $920-million with the sale of more shares in the next 30 days.
Before this announcement, Canadian miners had already raised more than $1-billion in equity in 2015. The flood string of bought deals came through as gold prices climbed, cresting at $1,300 earlier this year.
The new share offering is the largest bought deal in the mining sector since Lundin Mining Corp. raised $674-million (Canadian) in October last year. It's also the largest streaming deal since Franco-Nevada Corp. raised $500-million (U.S.) to fund gold acquisitions in August, 2014.
And so far, investors have shown a willingness to step up and support bought deals that are used to help finance acquisitions.