TORONTO (miningweekly.com) – Delays in completing the massive Pascua-Lama copper/gold project, straddling the Argentina/Chile border, have prompted the world’s largest precious metals streaming firm Silver Wheaton to amend the silver streaming agreement with project promoter Barrick Gold to extend both the completion test date and the silver production entitlement from other Barrick mines.

Barrick halted the development of Pascua-Lama in October 2013 after spending more than $5-billion. Since then, Silver Wheaton has been entitled to production, through the end of 2016, from three of Barrick's currently producing mines – Lagunas Norte and Pierina, in Peru, and Veladero, in Argentina – to make up the production shortfall at Pascua-Lama until Barrick had satisfied the completion test.

As part of the newly revised agreement with Barrick, Silver Wheaton would now be entitled to production from the three Barrick mines until March 31, 2018.

The original contract with Barrick provided Silver Wheaton with a completion test, requiring Barrick to complete Pascua-Lama to at least 75% of the design capacity by December 31, 2015. The contract had been amended several times and currently had a completion test deadline of December 31, 2017.

In exchange for extending the entitlement of the output from Barrick's other mines, Silver Wheaton had agreed to extend the completion test deadline to June 30, 2020.

According to the silver purchase agreement, if the requirements of the completion test had not been satisfied by the amended completion date, the agreement could be terminated by Silver Wheaton. In such an event, Barrick would have to return the upfront cash payment of $625-million less a credit for any silver delivered up to that date.

As of September 30, Silver Wheaton had received about 12-million ounces of silver from Barrick's other mines, generating cumulative operating cash flow of about $275-million. As a result, the cash obligation owed to Silver Wheaton, should Barrick not satisfy the completion test, was about $350-million as of September 30.

"The extension of the completion test deadline gives Barrick additional time to develop the world-class Pascua Lama project and Silver Wheaton [will] receive 15 months of additional production from Barrick's other mines. This is the most beneficial outcome for both Silver Wheaton and Barrick shareholders, and we look forward to continuing to work with Barrick in advancing this world-class asset,” Silver Wheaton's president and CEO Randy Smallwood said on Monday.

STREAM TERMINATED
Silver Wheaton  on Monday also announced that it had agreed with Nyrstar Mining and certain of its affiliates to cancel the silver stream on Nyrstar’s Campo Morado mine, in Mexico, in exchange for $25-million in cash by the end of the month.

As part of this agreement, Silver Wheaton would be entitled to 75% of the silver contained in concentrate produced at the Campo Morado mine on or prior to December 31 and would be granted a five-year right of first refusal on any silver streaming or royalty transaction in relation to any Nyrstar group property, globally.

Nyrstar explained in its third-quarter interim management statement that there had been a continuing decline in ore grades at the Campo Morado mine, as the G9 orebody neared exhaustion and the mine started treating the remaining orebodies, which had lower overall grades than G9.

"We have a great deal of confidence in Nyrstar, but considering the lower grades of the future deposits at the Campo Morado mine, we have determined in conjunction with Nyrstar that this agreement is the best outcome for both Silver Wheaton and the Campo Morado mine," Smallwood explained, adding that the right of first refusal also provided Silver Wheaton with an ongoing opportunity to work with Nyrstar on additional assets, especially in the lead and zinc sectors.

Silver Wheaton noted in its third-quarter management discussion and analysis that it valued its silver interest at the Campo Morado mine at $25-million. As at September 30, the company had received about 4.4-million ounces of silver related to the Campo Morado mine under the silver purchase agreement, generating cumulative operating cash flows of about $94.1-million. This, when combined with the $25-million payment for this settlement, had generated a “reasonable “rate of return on the company's original upfront cash payment of $79.3-million, Silver Wheaton commented.

The settlement would also cancel the delivery liability of about $80-million on Nyrstar's balance sheet, which was fair-valued at the time of the Campo Morado acquisition in January 2011.

"With the conclusion of the silver stream, we are able to capture the full value in our mine. We intend to fund the buy-out of the stream with a silver pre-pay arrangement based on the expected silver production profile from Campo Morado," Nyrstar acting CEO Heinz Eigner said, noting that at the current silver price, such a pre-payment liability would be less than two years.

MEXICO TENSION
Meanwhile, Nyrstar also on Monday reported that it had temporarily suspended Campo Morado mining and milling operations for two weeks in November/December owing to industrial action.

While operations restarted in early December, further industrial action could not be ruled out as negotiations continued. Over the last three weeks, those negotiations had continued without a satisfactory conclusion and as a result the industrial relations and related security situation had deteriorated, the miner pointed out.

Nyrstar said it continued to work towards a satisfactory resolution, but warned that another temporary suspension of mining and milling activities remained possible.