BC Business
Peter Barnes
The tough thing about being a silver company is that the world has almost no real silver mines, with most of the metal derived as a scant byproduct from other mining operations.
So the founders of Silver Wheaton Corp. invented a novel business plan to overcome this limitation: giving upfront cash to base-metal miners for the future silver they’ll unearth as they dig for other metals. The risk is that if those mines fail, the silver supply stops and Silver Wheaton doesn’t get its money back. And yet the model seems to work, at least well enough to spawn competing imitators such as Vancouver’s Silverstone Resources Corp. With hard-hit miners around the world now desperate for cash, Silver Wheaton CEO Peter Barnes is set on winning more silver-supply contracts – despite his company’s own recession beating. Silver Wheaton’s acquisition of Silverstone in May, in an all-stock deal worth about $180 million, is likely the first of many deals to come, Barnes tells BCB.
About three years ago, a company called Capstone asked us if we wanted to buy silver byproduct from their mine in Mexico. When we said no, they said, “OK, then we’ll set up our own company to copy your model and do it ourselves.” And that’s exactly what they did, creating Silverstone. They said, “One day you guys will buy us out.” And we said, “Yeah, yeah, yeah . . .” And then last fall, two mines that they were getting silver from shut down, and that hurt their share price. We approached them about putting our companies together. But they said, “We just think we’re undervalued right now.” And then a fellow from Canaccord Capital came to us early this year and said it made sense to put the two companies together. I told him they weren’t really interested, and he said, “Well, let me talk to them.” Sometimes it takes somebody from the outside to bridge expectations, kind of like a marriage counsellor. Last year was a bit of a perfect storm for us, in terms of share price: the stock went from close to $20 to $3; silver prices went from $20 to $9. Our shareholders were about 30 per cent hedge funds in the start of 2008, and they were all forced to sell. But I would say this is the best time we have ever seen to grow the company. Base-metal prices are still very low right now, and mining companies don’t have a lot of cash anymore; it’s increased the buying opportunities for us very significantly. And in February of this year, we issued equity, so we’re now sitting with US$430 million available to do new deals. Silverstone was a good acquisition for us, but we think we can do some fairly significant deals over the next 12 or 24 months that will transform the company. There aren’t many people nowadays who are doing anything other than trying to get through 2009, so it’s pretty exciting to go into work when everyone is excited about what your company can accomplish in the next year or two.
And then last fall, two mines that they were getting silver from shut down, and that hurt their share price. We approached them about putting our companies together. But they said, “We just think we’re undervalued right now.”
And then a fellow from Canaccord Capital came to us early this year and said it made sense to put the two companies together. I told him they weren’t really interested, and he said, “Well, let me talk to them.” Sometimes it takes somebody from the outside to bridge expectations, kind of like a marriage counsellor.
Last year was a bit of a perfect storm for us, in terms of share price: the stock went from close to $20 to $3; silver prices went from $20 to $9. Our shareholders were about 30 per cent hedge funds in the start of 2008, and they were all forced to sell. But I would say this is the best time we have ever seen to grow the company. Base-metal prices are still very low right now, and mining companies don’t have a lot of cash anymore; it’s increased the buying opportunities for us very significantly. And in February of this year, we issued equity, so we’re now sitting with US$430 million available to do new deals.
Silverstone was a good acquisition for us, but we think we can do some fairly significant deals over the next 12 or 24 months that will transform the company. There aren’t many people nowadays who are doing anything other than trying to get through 2009, so it’s pretty exciting to go into work when everyone is excited about what your company can accomplish in the next year or two.