Thursday February 21, 2013
by Adrian Day, editor The Global AnalystSilver Wheaton (
SLW) which has long been our preferred silver investment, has acquired a new streaming vehicle from two Vale mines in a $1.9 billion transaction, making it the largest streaming deal ever, by far. The surprise, however, is that these are gold streams.
The new royalty streams involve 25% of the gold from the Salobo (Brazil) copper mine and 75% of the gold from the Sudbury nickel mines, Silver Wheaton’s first ever pure gold stream.
Silver Wheaton has long emphasized its intention to grow, and these deals, involve reasonable assets, while by no means inexpensive. Even at a $1,900 gold price, the returns are around 7%, so we need a higher gold price for this to be a particularly attractive deal.
The larger concern is that the stream is gold, since this dilutes Silver Wheaton’s unique space. If the company adds more gold and is no longer seen as pure silver company, then it could lose the sensitivity to silver’s higher beta.
As a precious metals royalty company it would compete with other precious metals royalty companies, both in the marketplace and for investor dollars.
One assumes that other royalty companies, including Franco, were bidding on this transaction, one reason the pricing is not so generous. Though SLW has a very strong balance sheet, the deal was financed largely by a credit facility and one- year bridge loan.
The vast majority of the company’s revenue continues to come from silver, but additional non-silver royalties could change the perception faster than the reality. We still like Silver Wheaton, and it remains our preferred silver investment.
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