(Kitco News) - An early deposit agreement between Silver Wheaton (NYSE, TSX: SLW) and junior miner Sandspring Resources is an “exciting” deal for the metals streaming company, said Randy Smallwood, chief executive officer for Silver Wheaton.
“It has a good, strong technical team, a very impressive resume in terms of an operations team and the projects built in the past…. We just saw a situation where the asset itself, we see as one of the better gold projects out there,” Smallwood said in an interview with Kitco News.
Under the terms of an early deposit agreement, Silver Wheaton has the right to purchase 10% of the life of mine gold production from the Toroparu project, located in Guyana, for a total cash consideration of $148.5 million, plus an ongoing production payment of the lesser of $400, subject to a 1% annual inflation adjustment starting in the fourth year after the completion test is satisfied, and the prevailing market price. Silver Wheaton will advance $13.5 million to Sandspring once customary conditions have been met and at the closing of the agreement.
Smallwood said in the past Silver Wheaton has used equity investments as a way to get exposure to earlier stage projects, but “it’s always tough to turn an equity investment into a stream.”
With the Toroparu project, Silver Wheaton was able to “structure the streaming agreement around some of these earlier stage projects,” Smallwood said.
He added the investment is small and it gives Sandspring time to finish its feasibility study, and if that comes in as expected, “we see this as a project we like to do complete-to-stream on. It gives us the exposure for very little money now and we don’t have to commit to it right now.”
Silver Wheaton also recently announced a deal with Hudbay Minerals (NYSE, TSX: HBM) on 50% of the life of mine gold production for the Constancia project in southern Peru.
Since Silver Wheaton already bought 100% of the mine silver production, the new agreement “was really an add on” to the original deal.
“We recognized it was there when we did the original transaction with Hudbay to do the gold stream, but they had to do some additional work on the gold because most of the gold is in the Pampacancha deposit, which is a higher grade starter-type deposit,” Smallwood said.
The drop in metals prices changed how Silver Wheaton goes about looking for new streams, Smallwood said, with the biggest difference being how much the firm pays.
“The lower spot price means we’re paying less for streams than we were a year ago on a per-ounce basis. It definitely has an impact there,” he said.
Additionally, Smallwood said they continue to look for assets in the lowest half of the respective cost curve. If the project meets these cost parameters, “then we’re confident… the project will have enough strength to survive fluctuations in commodity prices. So that’s a very important aspect of our due diligence,” Smallwood said and added that he believes commodity prices are in the “bottom half of their price cycle.”