Silver Wheaton (NYSE: SLW ) announced in a press statement Tuesday that it has entered into an agreement with a subsidiary of Brazilian mining company Vale (NYSE: VALE ) to purchase 25% of the lifetime gold production from Vale's Salobo Mine in Brazil, along with 70% of gold production from the company's Sudbury Mines in Canada over a 20-year term.
Silver Wheaton will pay Vale $1.9 billion in cash consideration as well as 10 million Silver Wheaton warrants with a term of 10 years and a strike price of $65. The company will also pay ongoing allotments of $400 or the market price, whichever is cheaper, for each ounce of gold delivered.
Silver Wheaton expects the move to add 110,000 ounces of gold a year over the next 20 years (5.9 million silver equivalent ounces), and believes both mine locations offer strong expansion possibilities. In the press release, Silver Wheaton said the agreement will boost company revenues derived from gold from a previous average of around 12% to a peak of around 25% for the next five years.
"Vale has a history of mining success spanning decades, and we are confident that Salobo and Sudbury will deliver substantial long-term value to both companies' shareholders. These gold streams will significantly increase Silver Wheaton's overall growth profile, which, given our unique dividend policy, should also translate directly into dividend growth," Silver Wheaton CEO and President Randy Smallwood was quoted as saying in the press statement.