Toronto-based miner HudBay Minerals on Wednesday announced that it had entered into a metals streaming transaction with Silver Wheaton to help fund construction of its $1.5-billion Constancia copper mine, in Peru.
Under the agreement the streaming company would pay $750-million in upfront deposit payments for all of the gold and silver produced from HudBay’s operating 777 zinc mine, in Canada, as well as all of the silver produced from the Constancia mine once it is operational.
The streaming transaction would be valid until 2016 or the completion of Constancia. HudBay also said its board had approved the the start of construction of the copper mine, which will produce silver and molybdenum as byproducts.
Silver Wheaton will thereafter receive half of all payable gold and all of the silver from 777's remaining mine life, along with all of the payable silver from Constancia over its mine life.
The terms of the transaction also stated that Silver Wheaton would reimburse HudBay $400/oz of gold and $5.90/oz of silver.
The deal is expected to close during the third quarter, upon which $500-million of the upfront payments would be paid. The remaining $250-million would be due in two equal installments, triggered by development milestones at Constancia.
The mine is expected to start production late in 2014, with full production expected to start in the
second quarter of 2015.
"The precious metals stream transaction is a nondilutive source of capital and reflects attractive valuations relative to conventional base metal valuations of Hudbay's gold and silver reserves.
“This transaction provides immediate cash flow, is accretive on all short- and long-term metrics, and maintains our policy of investing in low-cost, high-quality assets. It also solidifies one of the strongest growth profiles in the precious metals industry," HudBay CEO David Garofalo told an investor and analyst conference call.
“Hudbay has a history of mining success spanning decades, and as flagships in their asset portfolio, we are confident that 777 and Constancia will deliver significant long-term value to both groups of shareholders,” Silver Wheaton CEO Randy Smallwood said.
Further, Hudbay was also arranging a $600-million, four-year credit facility with a syndicate of Canadian and international banks comprising a $400-million term loan and a $200-million revolving credit facility to help fund its significant development projects.
These include the Lalor and Reed projects, in Canada, as well as Constancia, which Hudbay expected to fund with a combination of $710-million in cash on hand, operating cash flow and the funds received under the stream transaction and credit facility.
Silver Wheaton’s stock rose 4.88% on Wednesday to trade at C$30.08 apiece, and HudBay stocks traded down 1.22 % at C$8.91, both companies listed on the Toronto-bourse.
Source Creamer Media Reporter