Barrick Gold Corporation’s (“Barrick”) 100% owned Pascua-Lama gold-silver project (“Pascua-Lama) straddles the border of Chile and Argentina and is one of the largest silver deposits in the world. In addition to being a key growth asset for Barrick, Pascua-Lama significantly increases Silver Wheaton’s long term growth profile and will be a cornerstone asset for years to come. Silver Wheaton’s 25% share of the estimated average annual silver production for the first full five years is nine million ounces.
Pascua-Lama hosts 676 million ounces of contained silver within Barrick’s reported proven and probable gold reserves, with an additional 185 million ounces of contained silver within Barrick’s reported measured and indicated gold resources. Average annual production in the first full five years is forecast at approximately 800,000 – 850,000 ounces of gold and 35 million ounces of silver. Total cash costs over this period are negative US$225 – $275 per ounce of gold1, which would make Pascua-Lama one of the largest and lowest-cost gold mines in the world. Pascua-Lama is a long-life asset with an expected mine life in excess of 25 years. Forecast life of mine silver production is expected to average between 20-25 million ounces per year.
1. Assuming a silver price of US$25 per ounce
Silver Purchase Agreement
On September 8, 2009, Silver Wheaton entered into an agreement with Barrick to acquire an amount equal to 25% of the life of mine silver production from its Pascua-Lama project which is located in Chile and Argentina, as well as 100% of the silver production from its Lagunas Norte mine and Pierina mine, which are both located in Peru, and its Veladero mine which is located in Argentina until the end of 2013.
As per Barrick’s Q3 2013 MD&A, Barrick has decided to temporarily suspend construction activities at its Pascua-Lama project, except those required for environmental protection and regulatory compliance, and to place the project on care and maintenance. Barrick also stated that the decision to re-start construction activities will depend on improved project economics such as go-forward costs, the outlook for metal prices, and reduced uncertainty associated with legal and other regulatory requirements. As a result of the suspension, Barrick no longer expects production by mid-2016.
As part of the original agreement, Barrick provided Silver Wheaton with a completion guarantee, requiring Barrick to complete Pascua-Lama to at least 75% of design capacity by December 31, 2015, which was subsequently extended to December 31, 2016. During 2014 and 2015, Silver Wheaton was to be entitled to the silver production from the currently producing mines to the extent of any production shortfall at Pascua-Lama, until Barrick satisfies the completion guarantee. As a result of Barrick’s decision to temporarily suspend construction activities at Pascua-Lama, the Company has amended its silver purchase agreement with Barrick. The amendment entails Silver Wheaton being entitled to 100% of the silver production from Barrick’s Lagunas Norte, Pierina and Veladero mines until the end of 2016 - an extension of one year. In addition, Silver Wheaton has agreed to extend the completion test deadline an additional year to the end of December 31, 2017. If the requirements of the completion guarantee have not been satisfied by the revised outside completion date, the agreement may be terminated by Silver Wheaton. In such an event, Silver Wheaton will be entitled to the return of the upfront cash consideration of $625 million less a credit for silver delivered up to that date.
Once in production, Pascua-Lama is forecast to be one of the largest and lowest cost gold mines in the world with an expected mine life in excess of 25 years. In its first full five years of operation, Silver Wheaton’s silver production attributable to Pascua-Lama is expected to average 9 million ounces annually.
For more information about Pascua-Lama, please visit Barrick Gold's website at www.barrick.com.
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