TORONTO (miningweekly.com) – Despite a growing sense of cautious optimism that things in the junior mining industry have taken a turn for the better, traditional avenues of financing still remain beyond the reach for many juniors with weak projects.

However, for those cash-strapped juniors with precious metals projects that had made it to the prefeasibility to preliminary economic assessment stages of moving up the value curve, the world’s largest precious metals-focused streaming firm Silver Wheaton might have a new financing solution designed to dovetail with its primary business model, albeit at a smaller scale.

Speaking to Mining Weekly Online on the sidelines of the Prospectors and Developers Association of Canada’s (PDAC's) yearly mining convention in Toronto, Silver Wheaton CEO Randy Smallwood explained that the company’s new business model was exemplified by the early deposit gold stream agreement struck with Sandspring Resources in November, for the Toroparu project, located in Guyana.

Under the agreement, Silver Wheaton advanced $13.5-million to Sandspring to enable it to deliver a bankable definitive feasibility study, after which Silver Wheaton would be able to choose whether it would proceed with buying the gold stream.

“Only serious miners need apply,” he said, adding that this model provided Silver Wheaton with longer term – yet riskier – growth prospects than when compared with its primary ‘big deal’ metals streaming business model.

“Despite the early deposit model providing for longer-term growth than our other agreements, it provides very attractive financing for small companies at no dilution to shareholders. For Silver Wheaton, it provides more potent upside, which offsets the increased risk,” he said.

Indeed many of the juniors that exhibited at the PDAC convention could benefit from this type of funding model.

He noted that the model was not much different from equity investments the company used to enter into, which it had now stopped altogether in favour of this new financing model.

RELATIVE INSULATION

The past year was characterised by several significant mining projects stalling, and soaring project costs. The year saw several billion-dollar project write-downs and impairment charges, mainly driven by significant decreases in long-term metal price assumptions following the sharp declines in spot gold and silver prices in the period.

Some of the top-of-mind examples included gold major Barrick Gold’s roughly $8.5-billion Pascua-Lama gold mine project, straddling the Argentine/Chilean border, where the Chilean environmental regulator suspended the controversial investment last year.

Smallwood argued that the company was more insulated from price fluctuations owing to its methodology of only investing in high-grade, high-margin projects, which promoters were motivated to complete.

He said the company focused on the lowest half of the cost curve, giving it leeway in a low-price environment.

Silver Wheaton also structured its deals to provide for compensation, should projects face delays or other troubles. Pascua-Lama was one such example, where the company had agreed to amend its silver purchase agreement to extend the company’s entitlement to all the production from three of Barrick’s currently producing mines by one year until the end of 2016, and to extend the completion test deadline for the project by an additional year to the end of 2017.

“The company really only focuses on the high-quality, high-margin projects. But inevitably, if projects fail to come on line, the company would lose money. If Barrick does not get Pascua Lama on line by 2016, Silver Wheaton expects to start losing money, despite the compensation deals,” Smallwood said.

However, he also noted that in some instances, when the company becomes aware that a certain project was experiencing problems, it could, and had done so in the past, provide support.

“The happier our partners are, the happier we are. We’ve paid for project reviews and optimisations in the past, which benefits both partners,” he said.

He also noted that Silver Wheaton limited its exposure to projects to a maximum of 20% of any given project's expected revenue.

2014 OUTLOOK

Smallwood revealed that Silver Wheaton was currently in negotiations with about three companies that could result in at least one deal this year in excess of $1-billion.

He noted that there is a sense of optimism in the air, which, coupled with potentially rising precious metals prices, could lessen the likelihood of more deals.

“We will wait for the right timing to conclude deals. The projects tend to not go away,” he quipped.

Asked whether he saw upside potential for precious metals prices this year, Smallwood conceded that his expectation of relatively flat metals price growth for the first two months of the year were wrong. Prices continued to put pressure on the fourth-quartile producers.

The company currently has a $1-billion revolving credit facility available at low interest rates, while it was also producing significant free cash flows each quarter, giving it a combined purchasing power of about a billion dollars with which to pursue potential deals.

Other than concluding new streaming deals, he said that he would have liked to see the company’s partners spend more on exploration, which ultimately adds to the company’s reserve base.

While company’s projects were generally not materially impacted by geopolitical risk, Smallwood noted a trend where governments tended to want to renegotiate project agreements, seeking to increase taxes and government revenues.

“Governments have in general not been fiscally prudent in recent times, and many are now trying to make up for bad decisions by seeking higher revenues from resource extraction,” he said.

Silver Wheaton will report its fourth-quarter and full-year results on March 20.