Silver Wheaton


In its five year existence Silver Wheaton Corporation has become the largest silver streaming company in the world. ‘Forecast 2009 sales are 16 to 18 million ounces of silver and 17,000 ounces of gold, for total sales of 17 to 19 million silver equivalent ounces, growing to approximately 30 million ounces of silver and 20,000 ounces of gold, for total sales of approximately 31 million silver equivalent ounces, by 2013’ their website reveals.

Steve Barnes, Silver Wheaton’s President and CEO, joined Wheaton River Resources as Chief Financial Officer eight years ago when Silver Wheaton had not yet been created.

“At the time they were a one asset mining company with a market value of about $250 million dollars and that was the most exciting time of my life until recently. In less than four years we have made several significant acquisitions. We’ve merged with Gold Corp and we’ve risen to a $14 billion dollar market value; one of the best growth stories ever in the history of mining I think” he says.

“It was during that time that we created Silver Wheaton as a new business model, not just in mining but anywhere. We created it not trying to become the largest silver company, but simply in trying to create value for Gold Corp/Wheaton River Gold Corp shareholders and it worked out very well. What we did when we created Silver Wheaton is we took our silver by-product and put it into Silver Wheaton. We had paid about $50 million dollars for that about 10 years ago and Gold Corp have now sold all of their shares in that and got about $1.8 billion so it was an amazing deal for them.”

Silver Wheaton’s Astonishing Growth
Barnes recalls the first couple of years when Silver Wheaton had no full-time employees. Wheaton was not looking to grow this new model and instead ran it part-time alongside their Gold Corp senior positions.

“A couple of deals came to us because they liked the model and about three and a half years ago now I said to Ian Telfer (Director) “Ian we had better put a full-time team in here, I think that this company could really do something” so it went from almost being a passive value creation model to “let’s try and build something significant here” and I think that we have accomplished that. Over the last three years we’ve put a full-time team in place and we’ve had what I think is some of the best growth in the industry for that time period” Barnes says.

“We started the company five years ago and now we have 12 long sale agreements covering 11 operating mines and four development projects.”

Barnes says that over 60 per cent of Silver Wheaton’s revenue for this year will come from just three mines; the Luismin mine in Mexico, owned by Gold Corp, the Yauliyacu mine in Peru, owned by Glencore International AG (the largest base metal trading company in the world) and the Zinkgruvan mine in Sweden, owned by Lundin Mining.

“The amazing thing is that each of those mines is a true world-class asset and each has been going for over 100 years continuously and they’re still all amongst the lowest cost mines in the world in their particular industries and they’ll all still be going 50 years from now so they really are amazing assets to have as our foundations” Barnes says.

But Silver Wheaton’s new cornerstone asset is yet to come.

Silver Wheaton and the Peñasquito mine
Gold Corp’s Peñasquito is a polymetallic deposit in Mexico. Barnes explains that it is Silver Wheaton’s new cornerstone asset and it is Gold Corp’s cornerstone asset too.

They’re going to get as much value out of it as they can which is good for us. The silver portion alone at Peñasquito is the largest silver deposit in the world already” he says.

“The mine is only just starting to come into operation now and that’s going to drive huge growth for us over the next five years. Compared with 2008 we’re predicting that our sales should almost triple over the next five years and it’s primarily due to Peñasquito coming on stream.”

Barnes explains that the global economic downturn does not necessarily spell difficulty for Silver Wheaton.

“One of the unique things about silver is that over half of the silver that’s produced in the world isn’t from silver mines, it’s from lead zinc copper mines.  A lot of the companies mining lead zinc copper nowadays have a lot less cash flow and a lot smaller market value than they had a year ago/two years ago and yet they still have a lot of insignificant debt on their books which they’re trying to deal with which I think gives us a great opportunity in the next six, 12, 18 months to give one of them some cash upfront so that they can use that to pay down debts or make an acquisition, whatever they want to do, and we can get some of their silver by product from some very high quality mines” he says.

“We’re seeing more opportunities now than we’ve ever seen and some very good ones. Again our focus is not on quantity of deals, it’s on quality and we see some good ones out there.”

Silver Wheaton: The Next Step
“We have delivered on growth, we did a deal in May where we took out the only other silver streaming company in the world which gave us a significant increase in current production and current cash flow and it was very agreeable for our shareholders. Our real focus right now is adding another cornerstone asset to Silver Wheaton” Barnes says.

In fact, he explains that there are three key factors in the future plans at Silver Wheaton.

“One is silver prices. We have some of the best leverage to silver prices of any company. My personal belief is that silver prices are going to increase very significantly over the next few years. We’re not building the company on saying that is going to happen, but when it does we do tend to outperform any other silver company in a rising price environment” he says.

“Secondly in terms of delivering growth, Peñasquito coming on stream is our core effort and Gold Corp’s core effort. Even if silver prices stay where they are it should result in an almost tripling of sales and almost tripling of cash flows over the next few years if we do no more acquisitions.”

His third factor is the potential for Silver Wheaton to find that next cornerstone asset.

I think we’re seeing more good opportunities than we’ve ever seen to not just grow the company but I think that we can continue to transform it. Again an ideal situation is to add another cornerstone asset or two to our portfolio which will continue to transform the company and add significant shareholder values. I think we can deliver on that over the next six, 12 months.”

Raising shareholder value is a commitment Barnes holds very strongly. Silver Wheaton has grown, developed and surpassed all competitors at an incredible rate and shows no signs of slowing. This market adaptable, asset-rich and forward-focused company has accomplished everything it has set out to do to date and looks certain to carry on strong.