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DENVER — Barrick Gold Corp., the world's biggest gold producer, on Tuesday agreed to sell silver reserves from four of its mines to Silver Wheaton Corp. in a deal worth $625 million.
The transaction will provide Toronto-based Barrick with a source of financing for its Pascua-Lama mining project which is under construction on the border between Argentina and Chile while it significantly boosts the size of the 5-year-old Silver Wheaton.
The Vancouver, British Columbia-based company agreed to pay $625 million in cash over three years.
Under the terms, it will make a cash deposit of $212.5 million on the first when the transaction closes, expected by Sept. 22. The remaining payments will be about $137.5 million per year.
The company also will make ongoing production payments in cash for each ounce of delivered silver. Those payments will be either the prevailing market price or $3.90 per ounce, whichever is the lesser amount.
The key mine in the deal is Pascua-Lama. Silver Wheaton will receive 25 percent of the silver production over the life the mine, expected to be at least 25 years.
Until Pascua-Lama begins production sometime in 2014, Silver Wheaton will receive 100 percent of silver produced at three other Barrick mines, two in north-central Peru and a third in the San Juan province of Argentina.
Barrick will retain 100 percent of the gold production at all mines and 75 percent of the silver at Pascua-Lama.
Jefferies & Co. Inc. research Michael Dudas said the sale was a "smart move" for Barrick, which will reduce development and capital risk to the Pascua-Lama project.
"Historically, these types of transactions have proven helpful to the base or gold-oriented producers as the market appreciates the potential volatility of the cost structure and value created from non-producing assets," he wrote.
In a telephone call with analysts, Silver Wheaton Chief Executive Officer Peter Barnes said it was the biggest deal in the company's history and will "propel it to the next level."
Silver Wheaton said it will finance the deal with $70 million in cash and proceeds from the sale of 22.5 million shares of common stock to a group of underwriters for $250 million.
The agreement, on a bought deal basis, calls for the syndicate of underwriters to pay $11.10 per share.
Barrick said Pascua-Lama production should be between 750,000 ounces and 800,000 ounces of gold and 35 million ounces of silver in the first five years.
Silver Wheaton will be entitled to the return of the upfront cash consideration if Barrick does not satisfy the terms of the agreement.
Shares of Barrick Gold slipped 14 cents to $39.89 in afternoon trading after rising to a 52-week high of $42.10 earlier in the day.
Shares of Silver Wheaton rose 24 cents, or 2.1 percent, to $11.83 in afternoon trading after rising to a 52-week high of $12.10 earlier in the day.
