Silver Wheaton (WPM 0.50%) is placing a bet on gold. It has reached an agreement with a key subsidiary of Hudbay Minerals (HBM 6.28%) to acquire 50% of the life of mine gold production from the latter's Constancia project in Peru, both companies announced in separate press releases. The initial price is $135 million in either cash or Silver Wheaton shares, contingent upon $1.35 billion in capital expenditure being spent by Hudbay on the project. Following that, Silver Wheaton is obligated to make ongoing payments of $400 per ounce of gold, or the prevailing market price per ounce of gold delivered, whichever is the lesser.
The deal is an extension of a silver stream purchase agreement reached between the two companies in August 2012. That gave Silver Wheaton the right to 100% of the life of mine silver production from Constancia.
According to Silver Wheaton, forecast annual attributable gold production from the project is roughly 35,000 ounces over the first five years, and 18,000 ounces thereafter.
The mine life of the project is estimated at approximately 16 years.
