Mining executive Randy Smallwood got his start staking mineral claims in remote areas of British Columbia.
But the most valuable claim he ever staked was as a cofounder of Silver Wheaton, which pioneered the “streaming” business model for mine finance.
Streaming gives mining firms upfront cash in exchange for a future supply of byproduct metal at a low fixed cost (for example, US$4/oz. for silver), often for the life of the mine. It allows the miner, typically a gold or copper producer, to monetize non-core metals while avoiding the dilution of issuing equity and the perils of debt.
Silver Wheaton sells its silver and gold at market prices and uses the difference to pay a dividend and fund future growth.
“Mining is an industry that constantly depletes its own resources and needs money to go back into the ground, to expand, to explore, to develop new assets, to keep moving forward,” Smallwood said during a speech at a recent Association for Mineral Exploration-B.C. event.
In the 10 years since Silver Wheaton was born as a Wheaton River/Goldcorp side project, an increasing number of miners have opted for streaming. That has transformed Silver Wheaton into the world’s largest precious metals streamer, with a market capitalization of $8.8 billion and deals with global mining giants including Glencore, Vale and Barrick Gold.
Not bad for a decade’s work.
The stock has been a win for shareholders over the past 10 years, far outpacing the S&P/TSX composite index, the silver spot price and various miners’ indexes. But it hasn’t been a smooth ride — shares trade in the $24 range after soaring above $40 and dipping below $4 during the height of the financial crisis.
And Smallwood’s speech to a mining exploration crowd came during one of the toughest mining markets in decades.
Junior mining companies with no revenues and beaten-down share prices are particularly vulnerable, because issuing equity means diluting existing shareholders at or near 52-week lows.
Enter Silver Wheaton’s new early deposit structure for development-stage miners, a new financing option for the juniors.
The company’s first deal of this kind was with Sandspring Resources, whose stock has plummeted from 44 cents to below 10 cents. Sandspring is developing its Toroparu gold project in Guyana, which has a proven and probable mineral reserve of 4.1 million ounces of gold.
The Sandspring deal is also different because Silver Wheaton will be acquiring a stream of gold, the mine’s primary metal.
In the Sandspring deal, Silver Wheaton will pay US$148.5 million for the right to purchase 10 per cent of life-of-mine gold production from Toroparu for a fixed cost of $400 an ounce. However, the upfront payment is just US$13.5 million, with the balance paid out once Sandspring has completed feasibility, permitting and financing. If Sandspring is unable to deliver, Silver Wheaton gets US$11.5 million back.
“There’s no dilution, that’s the key thing,” Smallwood said. “All the juniors, their share prices are so low it’s painful to issue shares in these markets.”
Smallwood’s mining career began when he was offered a claim-staking job after a detour in computer science studies.