|Term of Stream: Life of Mine
|Stream Parameters: 75% of gold production
|Upfront Consideration: US$3,055M (US$3,030M cash and 10 million warrants repriced to US$43.75 plus payment for potential expansion beyond 28 Mtpa)
|Cost Quartile: 1st
|Primary Metal: Copper
Vale’s Salobo mine (“Salobo”) is the largest copper deposit ever discovered in Brazil. The low-cost copper-gold mine began operating in May 2012 with a design throughput capacity of 12 million tonnes per annum ("Mtpa"). Vale has subsequently completed a second phase of construction to expand the mine to 24 Mtpa of mill capacity. Salobo is an integrated operation of open pit mining, mineral processing beneficiation, concentrate loading and transportation. The copper concentrate is transported by road from the mine to Vale's existing rail terminal in Parauapebas, from where it is carried by the Carajás railroad to the Ponta da Madeira maritime terminal located in Sao Luis.
The deposit is considered to be an example of an iron oxide copper-gold (“IOCG”) deposit. Global examples include Olympic Dam in Australia, Candelaria-Punta del Cobre in Chile, and Sossego in Brazil. Mineralization at the Salobo deposit is hosted by upper-greenschist-to-lower-amphibolite-metamorphosed rocks of the Igarapé Salobo Group. The Igarapé Salobo Group consists of iron-rich sediments, quartzites and gneisses, metamorphosed to amphibolite facies and is associated with copper–gold and copper–gold–silver mineralization. The major host units are biotite and magnetite schists.
Vale has outlined a conceptual third phase of expansion, which would include a new concentrate plant with additional throughput of 12 Mtpa. In addition, mineralization remains open at depth and additional exploratory drilling has been scheduled to follow up on prospective gravity modelling.
Silver Wheaton's consolidated production from Salobo is expected to average 180,000 ounces per year over the first 30 years, with higher production expected in the earlier years.
Precious Metal Purchase Agreement
On August 2, 2016, Silver Wheaton announced that it had agreed to acquire an additional amount of gold equal to 25% of the life of mine gold production from the Salobo mine. This acquisition was in addition to the 50% of the Salobo gold production that Silver Wheaton was entitled to. Silver Wheaton paid upfront cash consideration of US$800 million for the increased gold stream and the 10 million Silver Wheaton common share purchase warrants previously issued to a subsidiary of Vale were amended to reduce the strike price from US$65 to US$43.75 per common share. In addition, Silver Wheaton will make ongoing payments of the lesser of US$400 (subject to a 1% annual inflation adjustment now commencing in 2019 on the entire 75% stream) and the prevailing market price for each ounce of gold delivered under the agreement.
Gold deliveries for the entire 75% gold stream will be the obligation of a wholly owned subsidiary of Vale, but will be guaranteed by Vale and the direct holder of Salobo, Salobo Metais S.A.
Mill throughput at the Salobo mine is currently 24 Mtpa. If throughput capacity is expanded within a predetermined period and depending on the grade of material processed, Silver Wheaton will be required to make an additional payment to Vale, relative to the 75% stream, that now ranges from US$113 million if throughput is expanded beyond 28 Mtpa by January 1, 2036, up to US$953 million if throughput is expanded beyond 40 Mtpa by January 1, 2021. For example, if Salobo is expanded to 36 Mtpa between 2021 and 2025, the expansion payment would range between US$514 million and US$692 million.
To view the December 2015 Salobo technical report, please click here or visit www.sedar.com. For further information about the Salobo mine, please visit Vale S.A.'s website at www.vale.com. Cost quartile information is sourced from Wood Mackenzie byproduct cost curves for gold, zinc/lead, copper, nickel, and silver mines.
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