Pan American and Silver Wheaton team up for Navidad

Vancouver – Two successful silver companies have joined forces to tackle the Navidad project in Argentina, one of the largest undeveloped silver deposits in the world. In what has now become a familiar deal structure, Silver Wheaton (SLW-T, N) will provide upfront capital to the project while the owner, this time Pan American Silver (PAA-T, PAAS-Q), will be responsible for bringing the deposit to production.

Silver Wheaton will pay US$32.5 million for 12.5% of life-of-mine silver production from the Loma de la Plata zone of the Navidad project. The company will pay the lesser of US$4 or the prevailing market price per oz. of silver delivered. The Loma de la Plata zone contains roughly 25% of the measured and indicated silver at the deposit. Silver Wheaton will not have to contribute any further funds.

“It is very exciting to have a silver stream on one of the top five silver deposits in the world to be developed by Pan American, a leading North American silver company,” said Peter Barnes, chief executive officer of Silver Wheaton in a statement. “This now gives Silver Wheaton a stake in the production from three of the world’s five largest silver deposits, a considerable achievement for a company that was formed just over five years ago.”

The resource contained in the Loma de la Plata deposit stands at 29.1 million indicated tonnes grading 169 grams silver per tonne and 1.3 million inferred tonnes grading 76 grams silver.

The deal is a big boost for Pan American as well, after only acquiring control of the Navidad deposit earlier this year. Pan American secured the project after buying Aquiline Resources in an all-share deal valued at $626 million.

The deal with Silver Wheaton comes at a high time for Pan American, which just came out of its best-ever quarter. Silver production was up 30% to 6 million oz., gold production was up 425% to 26,600 oz. and the company earned US$27.8 million for the quarter ending Dec. 31. The company also announced its first dividend, of $0.025 per share.

The Navidad project is located in the Province of Chubut, Argentina. It is made up of seven zones amenable to open pit mining. The use of open-pit mining and cyanide are currently banned in Chubut but Pan American believes it is well positioned to try to change the laws and develop Navidad due to its strong history in the area.

The two companies expect to finalize the terms of the deal by the end of the year.

Silver Wheaton’s share price was up 47¢ on the news to close at $15.85. The company’s 52-week share price range is between $7.26 and $18.36, with 342 million shares outstanding.

Pan American Silver’s share price was up 83¢ on the day to close at $22.48. The company has a 52-week share price between $16.19 and $28.73, with 107 million shares outstanding.