Silver Wheaton expands precious metal stream on the Constancia Project to include gold

VANCOUVER, Nov. 4, 2013 /CNW/ – Silver Wheaton Corp. ("Silver Wheaton" or the "Company") (TSX: SLW) (NYSE: SLW) is pleased to announce that it has agreed to acquire from Hudbay Minerals Inc. ("Hudbay") (TSX:HBM) (NYSE:HBM) 50% of the life of mine gold production from its Constancia Project ("Constancia"), located in southern Peru, for US$135 million. Silver Wheaton's August 2012 silver stream purchase agreement ("Original Agreement") for 100% of the life of mine silver production from Constancia has now been amended to include 50% of the life of mine gold production ("New Agreement").

TRANSACTION HIGHLIGHTS

Adds to Silver Wheaton's growth profile

  • Silver Wheaton will receive 50% of the life of mine gold production from Constancia.
  • Forecast average annual attributable gold production1 from Constancia is anticipated to be approximately 35,000 gold ounces over the first five years, and 18,000 ounces life of mine. The mine life is currently estimated at around 16 years.

Aligns the interests of both companies

  • Hudbay will retain 50% of gold production.
  • Timing of the upfront payment is linked to Constancia's capital expenditures.

Maintains conservative balance sheet       

  • Silver Wheaton has the option to make the initial upfront payment in either cash or Silver Wheaton shares, calculated at the time the payment is made2.

Updating production guidance

  • Silver Wheaton has revised 2017 guidance to reflect recent developments.  2017 guidance is now forecast to be 42.5 million silver equivalent ounces3 including 210 thousand ounces of gold.
  • 2013 silver equivalent production is still expected to exceed 33.5 million ouncesincluding 145 thousand ounces of gold.

"We are very encouraged by Constancia's development and the inclusion of Pampacancha into the mine plan," saidRandy Smallwood, Silver Wheaton's President and Chief Executive Officer. "Given the higher gold grades present in the Pampacancha deposit, we see this gold stream as an economic opportunity for both parties. Hudbay has proven to be a strong partner both in Canada and in Peru, where we believe they are setting the standard for building strong social license in South America. This gold stream, our second precious metal stream on Constancia, clearly demonstrates the win-win nature of our agreements and further endorses the competitiveness of Silver Wheaton's streaming model."

1 Forecast gold production attributable to Silver Wheaton is based on fixed recoveries as defined in the New Agreement and the most recent mine plan but before payable gold terms.
If Silver Wheaton shares are used, the number of common shares will be calculated based on the volume weighted average trading price of the Company on the Toronto Stock Exchange for the ten consecutive trading days immediately prior to the date the consideration is payable.
3Silver equivalent production forecast assumes a gold/silver ratio of 53.3:1.

TRANSACTION DETAILS

Silver Wheaton, through its wholly owned subsidiary Silver Wheaton (Caymans) Ltd., has agreed to acquire 50% of the life of mine gold production from Hudbay's Constancia Project, which includes the recently delineated Pampacancha deposit. The Company will pay a wholly owned subsidiary of Hudbay an initial consideration ofUS$135 million once US$1.35 billion in capital expenditure has been incurred at Constancia. Silver Wheaton has the option to make the initial consideration in either cash or Silver Wheaton shares, calculated with the number of shares determined at the time the payment is made1. In addition, Silver Wheaton will make ongoing payments of the lesser of US$400 per ounce of gold2 (subject to an inflationary adjustment of 1% beginning in the fourth year after completion is achieved) or the prevailing market price per ounce of gold delivered.

Recovery rates for gold have been fixed given the early nature of the metallurgical test work on gold recoveries from the Pampacancha deposit. Recoveries will be set at 55% for the Constancia deposit and 70% for the Pampacancha deposit until the Company's portion of gold reserves3 has been delivered to Silver Wheaton, after which actual recoveries will be applied.

The gold stream will be subject to the existing completion test that was laid out in the Original Agreement. The Constancia completion test requires Hudbay to complete the Constancia processing plant to at least 90% of expected throughput and silver recovery by December 31, 2016. If Hudbay fails to satisfy the requirements of the completion test, Silver Wheaton will be entitled to continued delivery of 100% of the gold production from Hudbay's 777 mine.  If the completion test has not been satisfied by December 31, 2020, Silver Wheaton will be entitled to a proportionate return of the upfront cash consideration relating to Constancia. In addition, Silver Wheaton will be entitled to additional compensation in respect of the gold stream should there be a delay in achieving completion or mining the Pampacancha deposit beyond the end of 2018.

1 If Silver Wheaton shares are used, the number of common shares will be calculated based on the volume weighted average trading price of the Company on the Toronto Stock Exchange for the ten consecutive trading days immediately prior to the date the consideration is payable.
Ongoing payment reset after 40 years to $550 per ounce of gold, increasing by 1% per year thereafter.
3 In the New Agreement, recoveries will be fixed until Silver Wheaton receives 265 thousand payable ounces of gold.

UPDATED PRODUCTION GUIDANCE

Silver Wheaton is revising its five year production guidance given recent developments. In 2017, annual attributable production is anticipated to increase by 45% compared to 2012 levels, growing to approximately 42.5 million silver equivalent ounces1, including 210,000 ounces of gold. This is a decrease of 13% from previous 2017 production guidance primarily due to a delay at Barrick Gold Corp.'s Pascua-Lama project partially offset by the additional gold forecast to be received from Constancia.

2013 silver equivalent production is still expected to exceed 33.5 million ounces.

Production guidance is "forward-looking information". See "Cautionary Note Regarding Forward-Looking Statements" for material risks, assumptions and important disclosure relating to such guidance.

ABOUT CONSTANCIA PROJECT

Constancia is located in an established mining district in the province of Chumbivilcas in southern Peru. It is forecast to be a large, low-cost and long-life open pit mine, producing copper, molybdenum, silver and gold. With key environmental permits in place, strong community support, and engineering and design work essentially complete, first production is anticipated in the second half of 2014 and full production in 2015. Forecast average annual gold production attributable to Silver Wheaton2 from Constancia is anticipated to be approximately 35,000 gold ounces over the first five years and 18,000 ounces life of mine. The mine life is currently estimated at around 16 years.

Read the full news release here along with tables