Hudbay Minerals Inc. (“Hudbay”) owns the Constancia project, which is located in an established mining district in the province of Chumbivilcas in southern Peru. Constancia is forecast to be a large, low-cost and long-life open pit mine, producing copper, molybdenum, silver and gold. In August 2012, Silver Wheaton entered into an agreement with Hudbay to acquire 100% of the life of mine silver and gold production from Hudbay’s 777 mine, as well as 100% of the silver production from its Constancia Project.
With key environmental permits in place, and engineering and design work essentially complete, first production at Constancia is anticipated in late-2014 with full production in mid-2015. Capital expenditures are estimated at US$1.7 billion and the mine plan currently contemplates an annual production rate of 85,000 tonnes of copper with molybdenum, silver and gold by-products. Constancia has more than a 15 year mine life and will become Hudbay’s largest mine, once in production. Considerable exploration potential exists, as was evidenced by an initial resource at the higher-grade Pampacancha satellite deposit, which was announced by Hudbay in April of 2012. Significant exploration drilling at Constancia is ongoing, and Hudbay believes that there is the potential to yield additional higher grade mineralization in satellite deposits.
Silver Purchase Agreement
On August 7, 2012, Silver Wheaton entered into an agreement with Hudbay to acquire 100% of the life of mine silver and gold production from Hudbay’s 777 mine, as well as 100% of the silver production from its Constancia Project. Silver Wheaton’s share of gold production at 777 will remain at 100% until the later of the end of 2016 or the satisfaction of a completion guarantee relating to the Constancia Project, after which it will be reduced to 50% for the remainder of the mine life.
Silver Wheaton will pay Hudbay total cash consideration of US$750 million, of which US$500 million is payable upon closing, with a further payment of US$125 million to be made once US$500 million in capital expenditures has been incurred at Constancia, and a final payment of US$125 million to be made once US$1 billion in capital expenditures has been incurred. In addition, Silver Wheaton will make ongoing payments of the lesser of US$5.90 per ounce of silver and US$400 per ounce of gold (both subject to an inflationary adjustment of 1% beginning in the fourth year) or the prevailing market price per ounce of silver and gold delivered. Silver Wheaton will not share in any ongoing capital or exploration expenditures at the various mines.
Hudbay has provided Silver Wheaton with a completion guarantee, requiring them to complete the Constancia processing plant to at least 90% of expected throughput and recovery by December 31, 2020. If Hudbay fails to satisfy the requirements of the completion guarantee, Silver Wheaton would be entitled to a proportionate return of the upfront cash consideration relating to Constancia.
Gold Purchase Agreement
On November 4, 2013, Silver Wheaton entered in to an agreement with Hudbay to acquire 50% of the life of mine gold production from Hudbay's Constancia mine.
Silver Wheaton will pay Hudbay an initial consideration of US$135 million once US$1.35 billion in capital expenditure has been incurred on Constancia. Silver Wheaton has the option to make the initial consideration in either cash or Silver Wheaton shares. In addition, SIlver Wheaton will make ongoing payments of the lesser of US$400 per ounce gold (subject to an inflationary adjustment of 1% beginning in the fourth year) or the prevailing market price per ounce of gold delivered.
The gold stream on the Constancia Project is subject to the same completion guarantee as the initial silver transaction completed on August 7, 2012.
For further information about the Constancia project, please visit Hudbay Minerals Inc.’s website at www.hudbayminerals.com.
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