Wheaton to extend Primero debt guarantee

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Friday, November 10, 2017

Wheaton Precious Metals said it will extend a guarantee to lenders of cash-strapped Primero Mining, which faces a looming debt payment.

Wheaton, a streaming company with a deal for Primero's San Dimas gold-silver mine in Mexico, provided the guarantee to lenders under Primero's US$75mn revolving credit facility in March.

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The loan facility was extended by six months to November 23 following Wheaton's guarantee.

Toronto-based Primero, which has fully drawn the facility, had US$12mn of cash as of August 31. The company has since completed the sale of its Black Fox mine in Canada, for which it will receive US$27.5mn in cash.

"We continue to be supportive working with Primero. We have been pretty clear that as long as progress is being made toward a solution that we will extend that guarantee [to lenders]," Wheaton CEO Randy Smallwood told the company's latest earnings call.

Primero has faced a string of operational and labor challenges at San Dimas, culminating in a two-month strike which ended in April.

The restart and ramp up following the strike has also fallen behind schedule, in part due to equipment reliability issues.

Under the streaming deal, San Dimas contributed 1.04Moz silver to Wheaton in Q3 at US$4.32/oz, down from 1.26Moz in the same quarter last year.

Primero is considering selling San Dimas, its sole producing asset, to meet its debt obligations.

STREAMING DEALS

Financing constraints in the mining sector are continuing to provide opportunities for new streaming deals for Wheaton, Haytham Hodaly, senior VP of corporate development, told the call.

Vancouver-based Wheaton, whose global portfolio includes streaming agreements at mines in Mexico, Brazil, Peru and Argentina, is targeting new deals valued in the US$50-500mn range, he added.

In particular, the company is considering opportunities for streams with miners seeking to raise funds to advance projects through feasibility or development, and for expansions and possible acquisitions.

"We continue to be very proactive in this very challenged equity environment. There are definitely companies looking at alternative sources of capital, including streaming," Hodaly said.

The company is currently working on a number of potential deals that could be completed in the coming six months, he added.

RESULTS

Wheaton's streaming deals produced 7.60Moz silver in Q3, compared to 7.65Moz in the same period last year.

In addition to San Dimas, Goldcorp's Peñasquito mine in Mexico and the Antamina copper-zinc operation in Peru were the biggest contributors of silver to Wheaton, at 1.64Moz and 1.73Moz, respectively, up from 1.49Moz and 1.47Moz in 3Q16.

Wheaton reported gold output of 95,897oz, down from 113,008oz. The biggest contributor was Vale's Salobo mine in Brazil, at 72,980oz, up from 68,168oz.

Wheaton posted Q3 net earnings of US$66.6mn, down from US$83.0mn, with sales of US$203mn from US$233mn on lower silver and gold production and prices.