An Economic and Financial Deconstruction of the Commodity

AN ECONOMIC AND FINANCIAL DECONSTRUCTION OF THE COMMODITY

STREAMING BUSINESS MODEL

Daniel Victor DiFilippo

A thesis submitted to the Robert M. Buchan Department of Mining

In conformity with the requirements for

the degree of Master of Applied Science

Queen’s University

Kingston, Ontario, Canada

January 2015

Abstract

The objective of this thesis is to evaluate the viability of the commodity streaming business model, both as a standalone enterprise and as a financing service for exploration and mining companies. A silver streaming company, Silver Wheaton, was chosen as the subject of a case study to accomplish this and nine silver streams that it acquired in its first eight years from 2004-2012 were analysed and evaluated.

Using publicly available technical data, cash flow models were developed for all of the mines and development projects with which Silver Wheaton made agreements during this time period. Subsets of these cash flows were isolated to represent the positions of both Silver Wheaton and its operating partners in each transaction. The Capital Asset Pricing Model and its associated economic metrics were employed and calculated for all of the isolated stream cash flow models to evaluate the expected financial gain or loss to each party for every deal.

Cash flow models were developed using two silver price series; one conservative and one bullish price series. These were compiled through the aggregation of price forecasting data from mining equity research reports published in the months leading up to each transaction.

It was found that the business model resulted in poor financial outcomes for Silver Wheaton and excellent financial outcomes for its operating partners in over 50% of the transactions it concluded, when evaluated at conservative silver prices. Conversely, when evaluated at bullish silver prices it resulted in excellent financial outcomes for Silver Wheaton and extremely poor financial outcomes for its operating partners in every instance.

Given that today silver is produced primarily as a by-product to gold and base metals, the business model has a uniquely large target market when focusing on silver and has been replicated to varying degrees of success by other companies, both with silver and other commodities. It provides a viable alternative to traditional financing avenues for exploration and mining companies during all periods of the mining business cycle and is positioned to grow in significance as a form of mine and project financing.

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Acknowledgements

The success of this thesis and associated studies has been achieved with the help and guidance of many individuals.

Firstly, I would like to thank my two supervisors, Professors Jim Martin and Jeffrey Davidson, for their invaluable advice, guidance, criticism, and encouragement throughout the development of this thesis’ concept and writing. Special thanks is due to Prof. Davidson for his patience throughout the writing and re-writing process; without his sound understanding of academic writing I surely would not have improved this document to a satisfactory calibre.

I would like to thank Dundee Capital Markets and those with whom I worked in Fall 2011: Bob Sangha,

Sandeep Singh, Brad Ralph, and particularly Stanley Iu, Michael Spencer, Alexandra Cowie, and Olga

Ivleva. The experience and guidance I received during my time as a mining investment banking intern were integral to my understanding of how financial and economic concepts are practically employed during transactional and enterprise analysis and evaluation in the mining capital markets.

Thank you to my parents, David and Mary Jo, for their constant support and guidance throughout my schooling and life. Special thanks is due to my father for his interest in Silver Wheaton and its operating model when I was a young undergraduate student; his fascination with the metal streaming concept became mine, as well.

Finally, thank you to my fiancée, Catherine. Her love, support, and belief in me and my abilities have been deeply motivating throughout this academic journey and beyond.

Table of Contents

Abstract ...... ii

Acknowledgements ...... iv

Table of Contents ...... v

List of Figures ...... xiv

List of Tables ...... xv

List of Abbreviations ...... xxvii

Chapter 1 ...... 1

Introduction ...... 1

Chapter 2 ...... 6

The Silver Streaming Model as exemplified by Silver Wheaton ...... 6

2.1 Problem statement ...... 9

2.2 Scope ...... 10

2.3 Thesis organization ...... 11

Chapter 3 ...... 14

Basic Concepts in Project Evaluation: A Review of Relevant Concepts and Literature ...... 14

3.1 Basic concepts in project evaluation ...... 14

3.1.1 The cash flow concept ...... 14

3.1.2 Discounted cash flows ...... 15

3.1.3 Capital Asset Pricing Model and beta factors ...... 17

3.1.4 Economic evaluation metrics ...... 19

3.1.5 Minimum acceptable rate of return and discount date selection ...... 20

3.1.6 Inflation ...... 22

3.1.7 Consensus price estimate methodology in mining finance ...... 23

Chapter 4 ...... 26

Application of Concepts to the Evaluation of the Silver Streaming Business Model ...... 26

4.1 Methodology and research plan ...... 26

4.1.1 Data sources ...... 26

4.1.2 Case study: Silver Wheaton Corp. and its operating partners ...... 27

4.1.3 Selection of streams to be evaluated ...... 28

4.1.4 Explanation of enterprise analysis and silver price stress test ...... 30

4.1.5 Analysis of value addition or reduction to development project economics ...... 31

4.2 Calculation of WACC ...... 31

4.3 Calculation of estimated silver stream cash flows ...... 33

4.3.1 Calculation of cash flows for mines utilizing silver streams ...... 33

4.3.2 Calculation of silver stream cash flows for operating partners ...... 36

4.3.3 Calculation of silver stream cash flows for Silver Wheaton ...... 36

4.3.4 Treatment of outdated capital and operating cost estimates ...... 36

4.3.5 Silver price series used in silver stream cash flow models ...... 37

4.4 Limitations and assumptions ...... 39

4.4.1 Sample size ...... 40

4.4.2 Deterministic cash flow modelling ...... 40

4.4.3 Quality of index data used in calculation of corporate WACC ...... 41

4.4.4 Calculation method of corporate WACC ...... 41

4.4.5 Qualitative silver price forecast for 2012+...... 41

4.4.6 Escalation of capital and operating costs ...... 42

4.4.7 Omission of working capital ...... 42

4.4.8 Mine closure/ramp-down and metal sales ...... 42

4.4.9 Treatment of upfront payment ...... 43

Chapter 5 ...... 44

Sample Calculation of Discounted Cash Flows for a Silver Stream ...... 44

5.1 Sample calculation of beta and WACC ...... 44

5.2 Sample calculation of silver stream cash flow model ...... 51

5.2.1 Calculation of mine cash flow model...... 51

5.2.2 Calculation of silver stream cash flows for the stream seller ...... 54

5.2.3 Calculation of silver stream cash flows for the stream buyer ...... 56

Chapter 6 ...... 57

Commodity and Mining Finance Review ...... 57

6.1 Silver commodity review ...... 57

6.1.1 Demand and demand elasticity ...... 57

6.1.2 Supply ...... 63

6.1.3 Relevance to analysis of silver streaming business model ...... 65

6.2 Mining finance review ...... 66

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Chapter 7 ...... 68

Case Study: Silver Wheaton Perspective ...... 68

7.1 Initial financing of Silver Wheaton Corp...... 68

7.2 Results of isolated stream financial analysis ...... 70

7.2.1 Financial analysis at consensus silver price forecasts ...... 72

7.2.2 Financial analysis at bullish silver price forecasts ...... 74

7.3 Sensitivity analysis ...... 75

7.4 Estimation of tolerable silver price floors ...... 80

7.5 Discussion ...... 82

7.5.1 Base case vs. bullish stream cash flows ...... 82

7.5.2 Stream life and general comments on portfolio diversity ...... 83

7.5.3 Silver purchase agreement terms ...... 85

7.5.4 Sustainability of silver streaming business model as an enterprise ...... 85

7.5.5 Risk mitigation through completion guarantees ...... 85

Chapter 8 ...... 87

Case Study: Silver Wheaton Operating Partner Perspective ...... 87

8.1 Results of isolated stream financial analysis ...... 87

8.1.1 Financial analysis at consensus silver prices forecasts ...... 88

8.1.2 Financial analysis at bullish silver price forecasts ...... 89

8.2 Sensitivity analysis ...... 90

8.3 Value of silver streams to development projects ...... 93

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8.4 Internal drivers for opting for stream financing ...... 95

8.5 Discussion ...... 98

8.5.1 Isolated stream economics ...... 98

8.5.2 Financial sensitivity of streams to operating partners ...... 99

8.5.3 Sustainability of silver streaming business model as a financing service ...... 100

Chapter 9 ...... 101

Comparison of Silver Streaming to Traditional Financing Methods ...... 101

9.1 Debt financing overview ...... 101

9.2 Equity financing overview ...... 102

9.3 Debt and equity financing in mineral exploration and mining...... 103

9.4 Comparison of silver streaming to debt and equity ...... 105

Chapter 10 ...... 108

Conclusions and Discussions ...... 108

10.1 Summary ...... 108

10.2 Conclusions and general discussion ...... 110

10.2.1 Silver streaming as an enterprise...... 110

10.2.2 Silver streaming as a quasi-financing service ...... 111

10.2.3 Disproportionate risk profile of silver streaming ...... 111

10.2.4 Potential to stream commodities other than silver ...... 112

10.3 Conditions for the existence of the silver streaming business model ...... 114

10.4 Replication of Silver Wheaton experience and potential for new market entrants ...... 115

10.5 Risk elements for the silver streaming business model ...... 116

10.6 Future work and recommendations ...... 118

10.6.1 Future work ...... 118

10.6.2 Recommendations ...... 119

Bibliography ...... 121

Appendix A ...... 140

Data Used in Beta Factor and WACC Calculations...... 140

Silver Wheaton Data ...... 140

Yauliyacu transaction ...... 140

Stratoni transaction ...... 142

Penasquito transaction...... 145

Mineral Park transaction ...... 148

Campo Morado transaction ...... 150

Keno Hill transaction ...... 152

Pascua-Lama transaction...... 155

Rosemont transaction ...... 158

Operating Partner Data ...... 161

Lundin and the Zinkgruvan transaction ...... 161

European Goldfields and the Stratoni transaction ...... 163

Goldcorp and the Penasquito transaction ...... 165

Mercator and the Mineral Park transaction ...... 168

Farallon and the Campo Morado transaction ...... 171

Alexco and the Keno Hill transaction ...... 173

Barrick and the Pascua-Lama transaction ...... 176

Augusta and the Rosemont transaction ...... 178

Appendix B ...... 182

Cash Flow Models for Silver Streams and Underlying Mines ...... 182

Zinkgruvan ...... 182

Yauliyacu ...... 186

Stratoni ...... 189

Penasquito ...... 193

Mineral Park ...... 200

Campo Morado ...... 205

Keno Hill ...... 210

Pascua-Lama ...... 216

Rosemont ...... 222

Appendix C ...... 227

Consensus Metal Price Estimates Used in Cash Flow Models ...... 227

Zinkgruvan ...... 227

Yauliyacu ...... 229

Stratoni ...... 232

Penasquito ...... 234

Mineral Park...... 236

Campo Morado ...... 238

Keno Hill ...... 242

Pascua-Lama ...... 244

Rosemont ...... 246

Appendix D ...... 249

Calculation of Silver Wheaton Stream Cash Flows for 2012, Going Forward ...... 249

Keno Hill ...... 250

Mineral Park...... 251

Zinkgruvan ...... 253

San Dimas ...... 256

Loma de la Plata...... 257

Rosemont ...... 259

Yauliyacu ...... 261

Cozamin ...... 262

Minto ...... 264

Pascua-Lama ...... 266

Penasquito ...... 269

Stratoni ...... 273

Campo Morado ...... 273

Neves-Corvo ...... 277

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Aljustrel ...... 279

Los Filos ...... 280

Appendix E ...... 282

Pertinent Background Information of Silver Wheaton's Operating Partners ...... 282

Lundin Mining ...... 282

Glencore ...... 282

European Goldfields Limited ...... 283

Goldcorp ...... 283

Mercator Minerals ...... 284

Farallon ...... 284

Alexco ...... 284

Barrick...... 285

Augusta ...... 285

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List of Figures

Figure 1: Cumulative market capitalization of commodity streaming companies, 2004-2011. Sources:

TSX and SEDAR ...... 3

Figure 2: Share price performance of major commodity streaming firms, 2004-2011. Source: TSX ...... 5

Figure 3: Net Present Value at various discount rates ...... 16

Figure 4: Fabrication demand for silver, 2002-2011. Source: The Silver Institute ...... 58

Figure 5: Supply and demand of silver, 2002-2011. Source: The Silver Institute ...... 59

Figure 6: Real prices of gold and silver, 1980-2011. Source: LBMA ...... 60

Figure 7: Gold to silver price ratio from 1980-2011. Source: LBMA ...... 61

Figure 8: Cumulative investment demand volume vs. value, 2002-2011. Source: The Silver Institute;

Scotia Mocatta ...... 62

Figure 9: Total silver mine supply-primary vs. by product output, 2002-2011. Source: Scotia Mocatta .. 64

Figure 10: Silver output by mine type, 2011. Source: The Silver Institute...... 65

Figure 11: NPV sensitivity of all analyzed streams to long-term silver price, base case Silver Wheaton perspective ...... 76

Figure 12: NPV sensitivity of all analyzed streams to upfront payment, base case Silver Wheaton perspective ...... 77

Figure 13: NPV sensitivity of all analyzed streams to changes in silver production, base case Silver

Wheaton perspective ...... 79

Figure 14: NPV sensitivity of all analyzed streams to years of continuous production delay, base case

Silver Wheaton perspective ...... 80

Figure 15: NPV sensitivity of all analyzed streams to long-term silver price, base case operating partner perspective ...... 91

Figure 16: NPV sensitivity of all analyzed streams to upfront payment, base case operating partner perspective ...... 92

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Figure 17: NPV sensitivity of all analyzed streams to changes in silver production, base case operating partner perspective ...... 93

Figure 18: Total value of global mining equity financings (C$ billions), 1999-2012. Source:

PricewaterhouseCoopers ...... 105

List of Tables

Table 1: Summary of silver stream agreements made by Silver Wheaton Corp...... 8

Table 2: Consensus silver price estimates for the Pascua-Lama silver stream, US$/oz ...... 24

Table 3: Silver streams selected for inclusion in Silver Wheaton case study ...... 30

Table 4: Summary of consensus commodity price series used in silver stream cash flow models ...... 38

Table 5: Summary of bullish commodity price series used in silver stream cash flow models ...... 38

Table 6: Input data for sample calculation of beta factor ...... 45

Table 7: Sample calculation of beta factor ...... 45

Table 8: Real annual return of S&P/TSX Composite Index, 1988-2007 ...... 47

Table 9: Sample calculation of cost of equity capital ...... 48

Table 10: Sample calculation of WACC ...... 49

Table 11: Example of effective tax rate computation ...... 50

Table 12: Calculated beta and WACC values for Silver Wheaton and its operating partners at the time of each deal ...... 50

Table 13: Calculation of expected NSR for Keno Hill polymetallic mine ...... 52

Table 14: Calculation of Keno Hill polymetallic mine annual cash flow ...... 53

Table 15: Silver stream cash flow calculation for Keno Hill mine, operating partner perspective ...... 55

Table 16: Silver stream cash flow calculation of Keno Hill mine, Silver Wheaton perspective ...... 56

Table 17: Cash flow models for Stratoni silver stream, consensus price scenario ...... 70

Table 18: Cash flow models for Stratoni silver stream, bullish price scenario ...... 71

Table 19: Calculation of WACCs used to discount Stratoni silver stream cash flows ...... 71

Table 20: Summary of key input parameters for the analyses of Silver Wheaton's silver stream deals ..... 72

Table 21: Results of base case silver stream financial analysis, Silver Wheaton perspective ...... 73

Table 22: Results of bullish silver stream financial analysis, Silver Wheaton perspective ...... 74

Table 23: Summary of base case values used in silver stream sensitivity analyses ...... 75

Table 24: Minimum tolerable silver price values for Silver Wheaton at various levels of 2012 capital commitment ...... 81

Table 25: Lives of Silver Wheaton streams at deal times ...... 84

Table 26: Results of base case silver stream financial analysis, operating partner perspective ...... 88

Table 27: Results of bullish case silver stream financial analysis, operating partner perspective ...... 89

Table 28: Summary of base case values used in silver stream sensitivity analyses ...... 90

Table 29: Effect of silver stream sale on development project economics ...... 94

Table 30: Financings and balance sheet condition of operating partner companies surrounding stream financings ...... 96

Table 31: Details of Silver Wheaton-Vale gold purchase agreement, February 28, 2013 ...... 113

Table 32: Share price and index data used to calculate the Beta factor for Silver Wheaton at the time of the Yauliyacu stream deal ...... 140

Table 33: Calculation of Beta factor for Silver Wheaton at the time of the ...... 141

Table 34: Market return data used in the calculation of Silver Wheaton Ke at the time of the Yauliyacu stream deal ...... 141

Table 35: Calculation of Silver Wheaton Ke at the time of the Yauliyacu stream deal ...... 142

Table 36: Calculation of WACC for Silver Wheaton at the time of the Yauliyacu stream deal ...... 142

Table 37: Share price and index data used to calculate the Beta factor for Silver Wheaton at the time of the Stratoni stream deal ...... 143

Table 38: Calculation of Beta factor for Silver Wheaton at the time of the ...... 143

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Table 39: Market return data used in the calculation of Silver Wheaton Ke at the time of the Stratoni stream deal ...... 144

Table 40: Calculation of Silver Wheaton Ke at the time of the Stratoni stream deal ...... 144

Table 41: Calculation of WACC for Silver Wheaton at the time of the Stratoni stream deal ...... 145

Table 42: Share price and index data used to calculate the Beta factor for Silver Wheaton at the time of the Penasquito stream deal ...... 145

Table 43: Calculation of Silver Wheaton Ke at the time of the Penasquito stream deal ...... 146

Table 44: Market return data used in the calculation of Silver Wheaton Ke at the time of the Penasquito stream deal ...... 146

Table 45: Calculation of Silver Wheaton Ke at the time of the Penasquito stream deal ...... 147

Table 46: Calculation of cost of debt, Kd, for Silver Wheaton at the time of the Penasquito stream deal 147

Table 47: Calculation of WACC for Silver Wheaton at the time of the Penasquito stream deal ...... 147

Table 48: Share price and index data used to calculate the Beta factor for Silver Wheaton at the time of the Mineral Park stream deal ...... 148

Table 49: Calculation of Silver Wheaton Ke at the time of the Mineral Park stream deal ...... 148

Table 50: Market return data used in the calculation of Silver Wheaton Ke at the time of the Mineral Park stream deal ...... 149

Table 51: Calculation of Silver Wheaton Ke at the time of the Mineral Park stream deal ...... 149

Table 52: Calculation of WACC for Silver Wheaton at the time of the Mineral Park stream deal ...... 150

Table 53: Share price and index data used to calculate the Beta factor for Silver Wheaton at the time of the Campo Morado stream deal ...... 150

Table 54: Calculation of Silver Wheaton Ke at the time of the Campo Morado stream deal ...... 151

Table 55: Market return data used in the calculation of Silver Wheaton Ke at the time of the Campo

Morado stream deal ...... 151

Table 56: Calculation of Silver Wheaton Ke at the time of the Campo Morado stream deal ...... 152

Table 57: Calculation of WACC for Silver Wheaton at the time of the Campo Morado stream deal ...... 152

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Table 58: Share price and index data used to calculate the Beta factor for Silver Wheaton at the time of the Keno Hill stream deal ...... 153

Table 59: Calculation of Silver Wheaton Ke at the time of the Keno Hill stream deal ...... 153

Table 60: Market return data used in the calculation of Silver Wheaton Ke at the time of the Keno Hill stream deal ...... 154

Table 61: Calculation of Silver Wheaton Ke at the time of the Keno Hill stream deal ...... 154

Table 62: Calculation of cost of debt, Kd, for Silver Wheaton at the time of the Keno Hill stream deal . 155

Table 63: Share price and index data used to calculate the Beta factor for Silver Wheaton at the time of the Pascua-Lama stream deal ...... 156

Table 64: Calculation of Silver Wheaton Ke at the time of the Pascua-Lama stream deal ...... 156

Table 65: Market return data used in the calculation of Silver Wheaton Ke at the time of the Pascua-Lama stream deal ...... 157

Table 66: Calculation of Silver Wheaton Ke at the time of the Pascua-Lama stream deal ...... 157

Table 67: Calculation of WACC for Silver Wheaton at the time of the Pascua-Lama stream deal ...... 158

Table 68: Share price and index data used to calculate the Beta factor for Silver Wheaton at the time of the Rosemont stream deal ...... 158

Table 69: Calculation of Silver Wheaton Ke at the time of the Rosemont stream deal ...... 159

Table 70: Market return data used in the calculation of Silver Wheaton Ke at the time of the Rosemont stream deal ...... 159

Table 71: Calculation of Silver Wheaton Ke at the time of the Rosemont stream deal ...... 160

Table 72: Calculation of cost of debt, Kd, for Silver Wheaton at the time of the Rosemont stream deal . 160

Table 73: Calculation of WACC for Silver Wheaton at the time of the Rosemont stream deal ...... 160

Table 74: Share price and index data used to calculate the Beta factor for Lundin at the time of the

Zinkgruvan stream deal ...... 161

Table 75: Calculation of Lundin Ke at the time of the Zinkgruvan stream deal ...... 161

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Table 76: Market return data used in the calculation of Lundin Ke at the time of the Zinkgruvan stream deal ...... 162

Table 77: Calculation of Lundin Ke at the time of the Zinkgruvan stream deal ...... 162

Table 78: Calculation of WACC for Lundin at the time of the Zinkgruvan stream deal ...... 163

Table 79: Share price and index data used to calculate the Beta factor for European Goldfields at the time of the Stratoni stream deal ...... 163

Table 80: Calculation of European Goldfields Ke at the time of the Stratoni stream deal ...... 164

Table 81: Market return data used in the calculation of European Goldfields Ke at the time of the Stratoni stream deal ...... 164

Table 82: Calculation of European Goldfields Ke at the time of the Stratoni stream deal ...... 165

Table 83: Calculation of WACC for European Goldfields at the time of the Stratoni stream deal ...... 165

Table 84: Share price and index data used to calculate the Beta factor for Goldcorp at the time of the

Penasquito stream deal ...... 166

Table 85: Calculation of Goldcorp Ke at the time of the Penasquito stream deal ...... 166

Table 86: Market return data used in the calculation of Goldcorp Ke at the time of the Penasquito stream deal ...... 167

Table 87: Calculation of Goldcorp Ke at the time of the Penasquito stream deal ...... 167

Table 88: Calculation of Goldcorp's cost of debt, Kd, at the time of the Penasquito stream deal ...... 168

Table 89: Calculation of WACC for Goldcorp at the time of the Penasquito stream deal ...... 168

Table 90: Share price and index data used to calculate the Beta factor for Mercator at the time of the

Mineral Park stream deal ...... 169

Table 91: Calculation of Mercator Ke at the time of the Mineral Park stream deal ...... 169

Table 92: Market return data used in the calculation of Mercator Ke at the time of the Mineral Park stream deal ...... 170

Table 93: Calculation of Mercator Ke at the time of the Mineral Park stream deal ...... 170

Table 94: Calculation of WACC for Mercator at the time of the Mineral Park stream deal ...... 171

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Table 95: Share price and index data used to calculate the Beta factor for Farallon at the time of the

Campo Morado stream deal ...... 171

Table 96: Calculation of Farallon Ke at the time of the Campo Morado stream deal ...... 172

Table 97: Market return data used in the calculation of Farallon Ke at the time of the Campo Morado stream deal ...... 172

Table 98: Calculation of Farallon Ke at the time of the Campo Morado stream deal ...... 173

Table 99: Calculation of WACC for Farallon at the time of the Campo Morado stream deal ...... 173

Table 100: Share price and index data used to calculate the Beta factor for Alexco at the time of the Keno

Hill stream deal ...... 174

Table 101: Calculation of Alexco Ke at the time of the Keno Hill stream deal ...... 174

Table 102: Market return data used in the calculation of Alexco Ke at the time of the Keno Hill stream deal ...... 175

Table 103: Calculation of Alexco Ke at the time of the Keno Hill stream deal ...... 175

Table 104: Calculation of WACC for Alexco at the time of the Keno Hill stream deal ...... 176

Table 105: Share price and index data used to calculate the Beta factor for Barrick at the time of the

Pascua-Lama stream deal ...... 176

Table 106: Calculation of Barrick Ke at the time of the Pascua-Lama stream deal ...... 177

Table 107: Market return data used in the calculation of Barrick Ke at the time of the Pascua-Lama stream deal ...... 177

Table 108: Calculation of Barrick Ke at the time of the Pascua-Lama stream deal ...... 178

Table 109: Calculation of WACC for Barrick at the time of the Pascua-Lama stream deal ...... 178

Table 110: Share price and index data used to calculate the Beta factor for Augusta at the time of the

Rosemont stream deal ...... 179

Table 111: Calculation of Augusta Ke at the time of the Rosemont stream deal ...... 179

Table 112: Market return data used in the calculation of Augusta Ke at the time of the Rosemont stream deal ...... 180

Table 113: Calculation of Augusta Ke at the time of the Rosemont stream deal ...... 180

Table 114: Calculation of Augusta Kd at the time of the Rosemont stream deal ...... 181

Table 115: Calculation of WACC for Augusta at the time of the Rosemont stream deal ...... 181

Table 116: Silver price assumptions used in the cash flow models for the Zinkgruvan silver stream ..... 183

Table 117: Cash flow model of the Zinkgruvan mine ...... 184

Table 118: Cash flow model of the Zinkgruvan silver stream, Lundin perspective ...... 185

Table 119: Cash flow model of the Zinkgruvan silver stream, Silver Wheaton perspective ...... 185

Table 120: Silver price assumptions used in the cash flow models for the Yauliyacu silver stream ...... 186

Table 121: Cash flow model for the Yauliyacu mine ...... 187

Table 122: Cash flow model for the Yauliyacu silver stream, Glencore perspective ...... 188

Table 123: Cash flow model for the Yauliyacu silver stream, Silver Wheaton perspective ...... 188

Table 124: Smelter terms used in the Stratoni mine cash flow model ...... 190

Table 125: Operating costs used in the Stratoni mine cash flow model ...... 190

Table 126: European CPI data and resulting growth rates used in the Stratoni capital cost escalation calculation ...... 191

Table 127: Silver price assumptions used in the cash flow models for the Stratoni silver stream ...... 191

Table 128: Cash flow model for the Stratoni mine ...... 192

Table 129: Cash flow model for the Stratoni silver stream, European Goldfields perspective ...... 193

Table 130: Cash flow model for the Stratoni silver stream, Silver Wheaton perspective ...... 193

Table 131: Penasquito sulphide ore composition by lithology ...... 194

Table 132: Metal process recovery factors by lithology for Penasquito sulphide ore ...... 194

Table 133: Weighted average metal process recovery factors for Penasquito sulphide ore ...... 195

Table 134: Penasquito oxide ore tonnage by type ...... 195

Table 135: Penasquito oxide ore process recovery factors by ore type ...... 195

Table 136: Weighted average process recovery factors for Penasquito oxide ore ...... 196

Table 137: Life-of-mine operating, shipping, and smelting/refining costs for the Penasquito mine ...... 196

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Table 138: Capital cost estimates for the Penasquito mine ...... 196

Table 139: U.S. CPI data used in the escalation of capital costs for the Penasquito mine ...... 197

Table 140: Silver price assumptions used in the cash flow models of the Mineral Park silver stream .... 197

Table 141: Cash flow model for the Penasquito mine ...... 198

Table 142: Cash flow model for the Penasquito silver stream, Goldcorp perspective ...... 199

Table 143: Cash flow model for the Penasquito silver stream, Silver Wheaton perspective...... 199

Table 144: Recovery factors used in the Mineral Park mine cash flow model ...... 201

Table 145: Operating cost estimates used in the Mineral Park mine cash flow model ...... 201

Table 146: CPI data used in the escalation of Mineral Park capital costs ...... 202

Table 147: Silver price assumptions used in the cash flow models of the Mineral Park silver stream .... 202

Table 148: Cash flow model for the Mineral Park mine ...... 203

Table 149: Cash flow model for the Mineral Park silver stream, Mercator perspective ...... 204

Table 150: Cash flow model for the Mineral Park silver stream, Silver Wheaton perspective ...... 204

Table 151: Average smelter recovery factors for Campo Morado concentrate products ...... 205

Table 152: Metal refining costs for the Campo Morado project ...... 206

Table 153: Silver price assumptions used in the cash flow models of the Campo Morado silver stream 206

Table 154: Cash flow model for the Campo Morado project ...... 207

Table 155: Cash flow model for the Campo Morado silver stream, Farallon perspective...... 209

Table 156: Cash flow model for the Campo Morado silver stream, Silver Wheaton perspective ...... 209

Table 157: Metal process recoveries used in the Keno Hill cash flow model ...... 210

Table 158: Smelter terms for the Keno Hill mine ...... 211

Table 159: Operating cost estimates for the Keno Hill mine ...... 211

Table 160: Estimated metal penalties for the Keno Hill mine concentrate products ...... 212

Table 161: Silver price assumptions used in the cash flow models of the Keno Hill silver stream ...... 213

Table 162: Cash flow model for the Keno Hill mine ...... 214

Table 163: Cash flow model for the Keno Hill silver stream, Alexco perspective ...... 215

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Table 164: Cash flow model for the Keno Hill silver stream, Silver Wheaton perspective ...... 215

Table 165: Proven and probable reserves (Mt) for non-refractory ore, Pascua-Lama project ...... 216

Table 166: Given metal process recoveries for Pascua-Lama ore types ...... 217

Table 167: Weighted average metal recovery factors for Pascua-Lama oxide ore ...... 217

Table 168: Estimated smelter terms for Pascua-Lama concentrate at the time of the stream deal with

Silver Wheaton...... 218

Table 169: Estimated LOM operating costs for the Pascua-Lama project ...... 218

Table 170: Silver price assumptions used in the cash flow models of the Pascua-Lama silver stream .... 219

Table 171: Cash flow model for Pascua-Lama mine ...... 220

Table 172: Cash flow model for Pascua-Lama silver stream, Barrick perspective ...... 221

Table 173: Cash flow model for Pascua-Lama silver stream, Silver Wheaton perspective ...... 221

Table 174: Smelter terms for the Rosemont project ...... 223

Table 175: Expected LOM operating costs for the Rosemont project ...... 223

Table 176: Metal price assumptions used in the Rosemont mine and precious metals stream cash flow calculations ...... 224

Table 177: Rosemont project cash flow model ...... 225

Table 178: Cash flow model for Rosemont silver stream, Augusta perspective ...... 226

Table 179: Cash flow model for the Rosemont silver stream, Silver Wheaton perspective ...... 226

Table 180: Consensus silver price estimates at the time of the Zinkgruvan silver stream...... 227

Table 181: Consensus lead price estimates at the time of the Zinkgruvan silver stream ...... 228

Table 182: Consensus zinc price estimates at the time of the Zinkgruvan silver stream ...... 229

Table 183: Consensus silver price estimates at the time of the Yauliyacu silver stream ...... 229

Table 184: Consensus copper price estimates at the time of the Yauliyacu silver stream ...... 230

Table 185: Consensus lead price estimates at the time of the Yauliyacu silver stream ...... 231

Table 186: Consensus zinc price estimates at the time of the Yauliyacu silver stream ...... 231

Table 187: Consensus silver price estimates at the time of the Stratoni silver stream ...... 232

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Table 188: Consensus lead price estimates at the time of the Stratoni silver stream ...... 233

Table 189: Consensus zinc price estimates at the time of the Stratoni silver stream ...... 233

Table 190: Consensus silver price estimates at the time of the Penasquito silver stream ...... 234

Table 191: Consensus gold price estimates at the time of the Penasquito silver stream ...... 235

Table 192: Consensus lead price estimates at the time of the Penasquito silver stream ...... 235

Table 193: Consensus zinc price estimates at the time of the Penasquito silver stream ...... 236

Table 194: Consensus silver price estimates at the time of the Mineral Park silver stream ...... 237

Table 195: Consensus copper price estimates at the time of the Mineral Park silver stream ...... 237

Table 196: Consensus molybdenum price estimates at the time of the Mineral Park silver stream ...... 238

Table 197: Consensus silver price estimates at the time of the Campo Morado silver stream ...... 239

Table 198: Consensus gold price estimates at the time of the Campo Morado silver stream ...... 239

Table 199: Consensus copper price estimates at the time of the Campo Morado silver stream ...... 240

Table 200: Consensus lead price estimates at the time of the Campo Morado silver stream ...... 241

Table 201: Consensus zinc price estimates at the time of the Campo Morado silver stream ...... 241

Table 202: Consensus silver price estimates at the time of the Keno Hill silver stream ...... 242

Table 203: Consensus lead price estimates at the time of the Keno Hill silver stream...... 243

Table 204: Consensus zinc price estimates at the time of the Keno Hill silver stream...... 243

Table 205: Consensus silver price estimates at the time of the Pascua-Lama silver stream ...... 244

Table 206: Consensus gold price estimates at the time of the Pascua-Lama silver stream ...... 245

Table 207: Consensus copper price estimates at the time of the Pascua-Lama silver stream ...... 245

Table 208: Consensus silver price estimates at the time of the Rosemont silver stream ...... 246

Table 209: Consensus gold price estimates at the time of the Rosemont silver stream ...... 247

Table 210: Consensus copper price estimates at the time of the Rosemont silver stream ...... 247

Table 211: Consensus molybdenum price estimates at the time of the Rosemont silver stream ...... 248

Table 212: Economic smelter terms for Keno Hill concentrates ...... 250

Table 213: Cash flow model for the Keno Hill mine from 2012 going forward ...... 251

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Table 214: Cash flow model for the Mineral Park mine from 2012 going forward ...... 252

Table 215: Silver mineral reserves by ore type at the Zinkgruvan mine ...... 253

Table 216: Silver mineral resources by ore type at the Zinkgruvan mine ...... 253

Table 217: Remaining reserves at the Zinkgruvan mine in 2012 ...... 254

Table 218: Ag recovery by ore type at the Zinkgruvan mine ...... 254

Table 219: Cash flow model for Zinkgruvan mine from 2012 going forward ...... 255

Table 220: Cash flow model for the San Dimas mine from 2012 going forward ...... 256

Table 221: Cash flow model for the planned Loma de La Plata mine ...... 258

Table 222: Economic smelter terms for the Rosemont mine ...... 259

Table 223: Cash flow model for the Rosemont mine from 2012 going forward ...... 260

Table 224: Cash flow model for the Yauliyacu mine going forward...... 262

Table 225: Ag recoveries by concentrate type for the Cozamin mine ...... 263

Table 226: Economic smelter terms for the Cozamin mine ...... 263

Table 227: Cash flow model for the Cozamin mine from 2012 going forward ...... 264

Table 228: Metal recovery to concentrate for the Minto mine ...... 265

Table 229: Economic smelter terms for the Minto mine concentrate ...... 265

Table 230: Cash flow model for the Minto mine from 2012 going forward ...... 266

Table 231: Cash flow model for the planned Pascua-Lama mine from 2012 going forward ...... 268

Table 232: Ore composition and silver recovery to concentrate at the planned Penasquito mine ...... 269

Table 233: Weighted average silver recovery to concentrate from sulphide ore at the Penasquito mine . 270

Table 234: Silver recovery from oxide ore at the Penasquito mine ...... 270

Table 235: Proven & probable oxide ore reserves at the Penasquito mine ...... 270

Table 236: Cash flow model for the Penasquito mine from 2012 going forward ...... 272

Table 237: Cash flow model for the Stratoni mine from 2012 going forward ...... 273

Table 238: Proven & probable reserves at the planned Campo Morado mine ...... 274

Table 239: Measured & indicated resources at the planned Campo Morado mine ...... 274

xxv

Table 240: Mill processing rates at the planned Campo Morado mine ...... 274

Table 241: Approximate LOM calculation for the planned Campo Morado mine ...... 275

Table 242: Cash flow model for the planned Campo Morado mine from 2012 going forward ...... 276

Table 243: Proven & probable mineral reserves at the Neves-Corvo mine ...... 277

Table 244: Silver recoveries to concentrate at the Neves-Corvo mine ...... 277

Table 245: Cash flow model for the Neves-Corvo mine from 2012 going forward ...... 278

Table 246: Proven & probable silver reserves at the Aljustrel mine from 2012 going forward ...... 279

Table 247: LOM calculation for the Aljustrel mine...... 279

Table 248: Cash flow model for the Aljustrel mine from 2012 going forward ...... 280

Table 249: Silver reserves at the Los Filos mine and approximate LOM calculation ...... 281

Table 250: Cash flow model for the Los Filos mine from 2012 going forward ...... 281

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List of Abbreviations

CAD: Canadian dollars. Currency used in Canada.

CPI: Consumer Price Index.

ETF: exchange-traded fund, a financial security whose value is derived from and meant to replicate that of an index or physical commodity.

ER: equity research.

FX rate: foreign exchange rate.

FY: fiscal year for a public corporation, generally defined as January 1st to December 31st of a given year.

FYE: fiscal year end. Final day of a defined fiscal year for a public corporation, usually December 31st of a given year.

H1 or H2: first or second half of a fiscal year, respectively. Refers to the first or last 6 month period of a fiscal year and typically defined as January 1st to June 30th or July 1st to December 31st, respectively.

IRR: internal rate of return.

LOM: life of mine.

MARR: minimum acceptable rate of return or hurdle rate.

NPV: net present value

NI 43-101: National Instrument 43-101, Standards of Disclosure for Mineral Projects. A code of guidelines and standards for the reporting of technical and financial data relating to a mineral project that is owned and operated by a publicly traded corporation in Canada.

NSR: net smelter return.

Operating partner: referred to as OP.

xxvii

PVR: present value ratio.

First, second, third, or fourth quarter of a fiscal year: referred to as Q1, Q2, Q3, and Q4, respectively, followed by the fiscal year in question (e.g Q1 2010). Generally refers to the following defined periods:

January 1st to March 31st (Q1), April 1st to June 30th (Q2), July 1st to September 30th (Q3), and October 1st to December 31st (Q4).

SEDAR: System for Electronic Document Analysis and Retrieval. Repository of publicly available information and data issued by publicly traded corporations in Canada.

SLW: Silver Wheaton Corporation.

TSX: Toronto Stock Exchange. The largest stock exchange in Canada, which lists and trades the largest proportion of the world’s public mining companies.

TSXV: TSX Venture Exchange. A stock exchange that primarily lists and trades junior companies whose market capitalization and assets are too small to be listed on the TSX.

USD: United States Dollars. Currency used in the United States of America.

WACC: weighted average cost of capital.

xxviii

Chapter 1

Introduction

“Royalty streaming” or “commodity streaming” is a business model that was first employed by Franco-

Nevada Mining Corporation in 1986. It has become an increasingly important and significant form of alternate mine financing as well as an accepted and particularly successful method of doing business.

Within the last decade, several companies have emerged whose sole business focus is “commodity streaming”, with their source of income being the sale of product or receipt of royalties resulting from these deals. This business model is now being used within both the hard rock mining and hydrocarbon extraction industries.

The commodity streaming model is simple in nature. A “commodity stream” is effectively an option to purchase a fixed percentage or volume of a commodity that may be produced in the future from an exploration property or that is currently being produced by an operating mine. The streaming company

(streaming firm or stream buyer) strikes a deal (commodity stream or commodity purchase agreement) with a mining/energy exploration or extraction company (miner, operating partner, or stream seller) exploring for or mining the commodity of interest. The deal always involves an upfront cash payment to the miner or stream seller which is advanced by the stream buyer. These advance payments have ranged from the tens to hundreds of millions of dollars. In exchange for advancing money, the stream buyer receives the right to purchase a percentage of the miner’s production from a particular operation over a set term and at a pre-established price. The term typically extends over the commercial life of the operation, and the price ultimately paid to the stream seller or miner (referred to as the “transfer price”) is the lesser of a pre-established fixed price (e.g. $3.90/oz of silver) or the prevailing spot market price of the commodity at the time that the option to purchase is exercised. A streaming firm’s operating income is

1 then the difference between the market price of the commodity at the time of sale and the transfer fee it paid to acquire the commodity, which will either be lower or equal to the market price at the time of transfer of ownership.

Alternatively, some companies involved in the streaming business have chosen to take a royalty position or “royalty stream” on all or some of the mine/project’s future profit, instead of holding an option to purchase the physical commodity at a fixed price. For example, Franco-Nevada Corp. and Royal Gold

Inc. derive the majority of their revenues not from streaming, but from royalties. The royalty, a fixed percentage, is applied to net revenues, usually the Net Smelter Return (NSR) and would be paid out on an incremental basis (i.e. semi-annually or annually), although this is not always the case. It is this type of streaming that Franco-Nevada first employed as a main aspect of its business model in the mid-1980s. It is worth noting that royalty streams and commodity streams are distinct and separate deal types; the streaming market was dominated by the former until the early 2000s when the latter began to gain in popularity.

Prior to the early 2000s, there existed only a few companies engaged in royalty/commodity streaming activities, Franco-Nevada being chief among them (Careaga, 2012). From the years 2004-2012, the quantity and value of royalty/commodity streaming firms1 and the deals they completed increased significantly. For illustrative purposes, the cumulative market capitalization of the four major streaming firms2 from 2004-2011 is presented in Figure 1.

1 Defined as a business entity whose only source of revenue is through royalty and/or commodity streams on hard rock mining or hydrocarbon extraction operations. 2 Franco-Nevada Corp., Royal Gold Inc, Sandstorm Gold Ltd, and Silver Wheaton Corp.

Cumulative Market Capitalization of Commodity Streaming Companies 25

10 2011 USD USD 2011billions

0 2004 2005 2006 2007 2008 2009 2010 2011

Figure 1: Cumulative market capitalization of commodity streaming companies, 2004-2011.

Sources: TSX and SEDAR

Commodity and royalty streaming firms have performed well financially and grown significantly over the past 8-10 years, as royalty and commodity streams have become increasingly popular as a means of alternative financing for advanced exploration and mine development projects.

The companies that have done financings through stream sales to commodity and royalty streaming firms own and operate various sizes and types of operations ranging from single property advanced exploration to multi-mine production, are of various sizes, and are in various states of financial health. This it to say

3 that mining and energy companies of all types have sought stream and royalty financing over the past decade and there is no single profile that describes companies seeking these types of financing.

In the current economic environment of rising capital and operating costs, ever-volatile commodity prices, poor equity markets, and the decreasing availability of high quality projects (i.e. higher risk ventures), mining and energy firms are being forced to seek alternative and creative forms of financing.

As mining and energy companies attempt to find the most economically efficient methods of project and enterprise financing, it is expected that there will be an industry-wide move away from the use of traditional financing methods alone to a combination of methods; this is a trend that is already happening in the mining industry. Royalty/commodity streaming is expected to grow in popularity as a niche financing vehicle in the extractive industries, and in this case, so too would the quantity, value, and size of firms that offer this product. (Careaga, 2012)

While several companies have established businesses around the royalty/commodity streaming model,

Silver Wheaton Corp. (“Silver Wheaton”) has been particularly successful since its inception in 2004.

Figure 2 shows the stock price performance over 2004-2011 of four major commodity streaming companies: Silver Wheaton (SLW), Franco-Nevada Corp. (FNV), Royal Gold Inc. (RGL) and Sandstorm

Gold Ltd. (SSL). As can be seen in the figure, Silver Wheaton has appreciated significantly in value and size in a short period of time while outperforming its peers.

1100%

900%

700%

SLW FNV 500% RGL SSL

Share PricePerformance 300%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -100%

Figure 2: Share price performance of major commodity streaming firms, 2004-2011. Source: TSX

Unlike Franco-Nevada with its asset mix of both royalties and commodity streams, Silver Wheaton has pioneered the commodity streaming business model specifically and has proven to be the first corporation to date that has achieved widespread recognition and success solely from stream-derived revenue.

Furthermore, Silver Wheaton has achieved this success by focussing its streams primarily on a single commodity, silver, with very little exposure to gold. Due to its success, its relative youth, diverse asset mix (both base metal and gold mines/projects), and the excellent public availability of the necessary and relevant financial and technical data, Silver Wheaton is used in this thesis as the case study for understanding the viability of the commodity streaming business model, and evaluating the conditions necessary for its future sustainability.

Chapter 2

The Silver Streaming Model as exemplified by Silver Wheaton

Since its inception in late 2004, Silver Wheaton has grown to a market capitalization of C$11 billion as of

April 14, 20123 (TMX Group Incorporated) through the acquisition of fourteen silver purchase agreements and two precious metal purchase agreements. While part of Silver Wheaton’s success can be attributed to the favourable silver price environment of the years 2004-2012, much can also be attributed to the ability of its management to generate accretive transactions and expand its asset portfolio.

Silver Wheaton Corp. was formally incorporated under the Business Corporations Act (Ontario) on

December 17, 2004, and prior to this, the company operated briefly as Chap Mercantile Inc. In June

2002, a company called Wheaton River Minerals Ltd. purchased the Luismin4 group of mines in Mexico for approximately US$100 million. The revenue mix from the Luismin mines was split evenly between gold and silver. Wheaton River was an emerging mid-tier gold producer that was not receiving a

‘precious metal valuation’ by the market due to the company’s copper exposure from their 37.5% ownership of the Alumbrera mine in Argentina; management and shareholders believed the company to be undervalued due to this exposure. Thus, several key managers and executives sought to unlock the value from the significant silver production at the Luismin mines by transferring ownership of it to a purely precious metals company, Chap Mercantile Inc., which was a spin-off entity that was to eventually become Silver Wheaton5. In October 2004, Wheaton River entered into a silver purchase agreement with the newly created Chap Mercantile Inc. whereby Wheaton River sold forward 100% of the silver

3 The cut-off date or end date of analysis in this thesis. 4 At the time of its acquisition, Luismin owned three precious metal mining operations located in Mexico: San Dimas, La Guitarra, and San Martin. The most significant of the three, San Dimas, was comprised of three operating mines: the Tayoltita, Santa Rita, and San Antonio mines. 5 Chap Mercantile Inc. changed its name to Silver Wheaton Corp. soon after beginning operation.

6 production from the Luismin mines in exchange for 540 million newly-issued Chap Mercantile shares and a $36.7 million upfront payment. This afforded Chap Mercantile (effectively, Silver Wheaton) the right to purchase all silver production from the San Dimas mine (part of the Luismin mines) at a price that was the lesser of $3.90/oz or the prevailing market price. In April 2005, Goldcorp Inc. acquired Wheaton

River and all of its assets and Silver Wheaton continued to operate as a standalone corporation, using the same business model that it uses to the present time (Silver Wheaton Corp., 2010a). Silver Wheaton and the silver streaming business model were not created with the intention of propagating a viable business but rather as a spin-off entity that was to serve a very specific strategic purpose. With the purchase of

Wheaton River by Goldcorp, Silver Wheaton had to establish its own purpose, identity, and financial viability as an independent business venture.

Between 2006 and 2012, Silver Wheaton wrote “silver streaming” contracts with 11 additional companies tied to 18 specific mining and advanced exploration operations. All of Silver Wheaton’s silver purchase agreements, current as of April 16, 2012, are outlined below, in Table 1.

Table 1: Summary of silver stream agreements made by Silver Wheaton Corp.

Attributable Attributable Ag Attributable Au Date of Location of Annual Ag Term of Silver and Gold Interests Owner Production to be Production to be Contract Mine Production Agreement Purchased Purchased (mm/dd/yyyy) (oz) San Dimas Primero Mexico 100% 5,000,000 LOM 10/15/2004 Zinkgruvan Lundin Sweden 100% 2,000,000 LOM 12/08/2004 Yauliyacu Glencore Peru 100% 4,750,000 20 yrs 03/23/2006 Penasquito Goldcorp Mexico 25% 7,000,000 LOM 07/24/2007 Minto Capstone Canda 100% 100% 200,000 LOM 12/01/2008 Cozamin Capstone Mexico 100% 1,500,000 10 yrs 04/04/2007 Pascua-Lama Barrick Chile/Argentina 25% 9,000,000 LOM 09/08/2009 Lagunas Norte Barrick Peru 100% 500,000 4 yrs 09/08/2009 Pierina Barrick Peru 100% 1,000,000 4 yrs 09/08/2009 Veladero Barrick Argentina 100% 1,000,000 4 yrs 09/08/2009 Los Filos Goldcorp Mexico 100% 200,000 25 yrs 10/15/2004 Keno Hill Alexco Canada 25% 500,000 LOM 10/02/2008 Mineral Park Mercator USA 100% 300,000 LOM 03/17/2008 Neves-Corvo Lundin Portugal 100% 500,000 LOM 06/05/2007 European Stratoni Greece 100% 1,000,000 LOM 04/23/2007 Goldfields Campo Morado Nyrstar Mexico 75% 1,000,000 LOM 05/13/2008 Aljustrel I'M SGPS Portugal 100% 100,000 LOM 06/05/2007

Pan American Not yet Loma de La Plata Argentina 13% 1,000,000 LOM Silver Corp finalized Augusta Rosemont USA 100% 100% 2,400,000 LOM 02/11/2010 Resources

Today, Silver Wheaton’s income is generated primarily from the sale of silver, acquired by exercising its purchase options. Silver Wheaton has no mines of its own. Silver Wheaton continues to occupy a particular market niche, as a capital provider to junior and major mining companies. Silver Wheaton’s silver purchase agreements are not, however, considered to be traditional financing (i.e. bank debt or an equity offering). Indeed, Silver Wheaton provides a quasi-financing service to both gold and base metal mining companies, and the dynamics of its business make it suitable as a case study for the commodities streaming business model. Additionally, the data required to perform such a case study is both readily- available and public in nature due to Silver Wheaton’s youth relative to other comparable companies.

2.1 Problem statement

The questions of why the silver streaming business model has been so successful and whether it is sustainable remain largely unanswered. Due to its income being generated from silver sales on close to a

100% basis, Silver Wheaton has been examined in the past as if it were identical in nature to a primary silver mining company. In the mining finance industry, it is consistently compared directly to primary silver producers on all of its key enterprise and financial metrics. From this superficial perspective, the successful employment of the silver streaming business model by Silver Wheaton in the past and future seems to be entirely reliant on the price of silver and silver market fundamentals alone.

In reality, Silver Wheaton’s silver purchase agreements are with mines and mining companies that produce a variety of primary products: doré, base metal concentrates, and base metal/precious metal concentrate blends. In fact, Silver Wheaton receives income from only one primary silver mine out of its entire portfolio of streams. As 70% of global silver production is generated as a by-product of gold or base metals (Thomson Reuters GFMS, 2012), Silver Wheaton’s ability to generate new business is therefore largely reliant on its ability to provide value to potential operating partners who produce these different commodities. However, the subject of the sustainability of Silver Wheaton’s business model is rarely discussed or analysed in such a way; there is a limited understanding of the drivers behind the success of a business such as Silver Wheaton’s.

The viability and sustainability of the silver streaming business model appear to be reliant on several factors, including the state of metal commodity markets, the state of mining equity markets, and the value that the model can provide to potential operating partners. The streaming business model must be evaluated as an enterprise in its own right and on its own terms in order to explain its success as a

9 business and as an investment vehicle. Similarly, the value that the streaming model provides to potential operating partners as a quasi-financing service must be well understood.

This thesis will endeavour to define the conditions and parameters that must exist for both the silver streaming business model to prosper and for mining companies to pursue stream sales in addition to or instead of traditional financing methods. To do this, established methods of project and financial evaluation will be employed to quantify the value-add or value-reduction to each party in typical silver stream deals, using Silver Wheaton’s silver stream assets as a case study. Since the purpose of the analysis is to simulate deals that occurred during the time period of 2004-2011, silver price projections at the time of each deal are used for the base case evaluation. This treatment is meant to simulate as closely as possible the financial outcomes that the parties to each deal would have forecasted themselves at the times of the deal-making. A second evaluation is undertaken using a bullish price projection that reflects actual prices for comparative purposes.

Furthermore, the question of whether the silver streaming business model can be replicated successfully will be addressed, both as it is and with other commodities. The macroeconomic and microeconomic conditions that contributed to the success story that is Silver Wheaton Corp. will be examined and discussed in order to comment on the likelihood of other companies entering the marketplace in the future.

2.2 Scope

The scope of the analysis in this thesis is limited to the hard rock mines, projects, and companies with which Silver Wheaton has done business. Analysis and subsequent discussion within this thesis are

10 directed at one example of a commodity streaming business model and should not necessarily be taken as a method by which all similar business models can be analysed. Several assumptions that are both financial and technical in nature have been made to facilitate cash flow modelling (see Chapter 4). Where appropriate, omissions of certain events in Silver Wheaton’s business history have been made to allow for the direct comparison of silver purchase agreements.

2.3 Thesis organization

The following is a brief summary of the work presented in each chapter of this thesis.

Chapter 3 – Basic Concepts in Project Evaluation

The analysis of Silver Wheaton’s silver streaming business model is undertaken using standard economic evaluation methods, mainly Discounted Cash Flow (DCF) methods, and associated profitability criteria.

The companies’ minimum acceptable rates of return are set using the Capital Asset Pricing Model

(CAPM). The methods and criteria used are described as they apply to the evaluation of Silver

Wheaton’s silver stream deals from the perspectives of both the seller and buyer of the streaming service.

Consensus commodity price estimates are used for the evaluation; this approach is also explained in detail. The analysis is undertaken on a constant dollar basis, without considering the effects of inflation.

Other non-conventional economic metrics that are used in the evaluation of the silver stream deals are also defined and justified.

Chapter 4–Application of Concepts to the Evaluation of the Silver Streaming Business Model

A research plan is outlined, in which a brief description of each phase of analysis and its relevance to the problem statement is provided. Sources of data are identified and the subset of streams included in the thesis analysis are reviewed. Detailed descriptions for calculation of the Weighted Average Cost of

Capital (WACC) and silver stream cash flow series are provided to establish the thesis methodology.

Lastly, limitations of the methodology and any assumptions are identified.

Chapter 5 – Sample Calculation of Discounted Cash Flows for a Silver Stream

Sample calculations for WACC and silver stream cash flows are reviewed in detail to exhibit the methodology that was employed using an actual case that is included in the thesis.

Chapter 6 – Commodity and Mining Finance Review

A historical and current discussion of silver market fundamentals is presented, including supply, demand, and demand elasticity. Aspects of silver economic fundamentals that are particularly relevant to the discussion of silver streaming are emphasized. A brief review of the state of the mining finance marketplace is discussed to provide necessary context.

Chapter 7 – Case Study: Silver Wheaton Perspective

Several of Silver Wheaton’s silver purchase agreements are analysed and used as a case study of the financial success of the silver streaming business model. Silver Wheaton’s stake in each silver stream is evaluated based on the established criteria. Sensitivity analyses are undertaken to illustrate the sensitivity of economic outcomes to model input parameters. Lastly, an assessment of the silver price floors that the silver streaming business model can withstand, using Silver Wheaton as an example, is laid out.

Chapter 8 – Case Study: Silver Wheaton Operating Partner Perspective

Several of Silver Wheaton’s silver purchase agreements are analysed and used as case studies of the financial value that silver streams provide to operating partners. Representative silver streams are analysed, and results are presented in the form of economic metrics. Using established economic criteria, the financial success of the operating partner in a silver stream deal is discussed. A sensitivity analysis of economic outcomes with respect to model input parameters is conducted. A discussion of the motivating factors for the pursuit of silver stream sales in favour of traditional financing follows.

Chapter 9 – Comparison of Silver Streams to Traditional Financing Methods

A qualitative and quantitative comparison of silver stream sales to debt and equity financing is examined, in a financial context.

Chapter 10 – Conclusions and Discussions

The final chapter summarizes the research results, discusses the major conclusions garnered from the research, and recommends future areas of work to further develop thesis concepts and ideas.

Chapter 3

Basic Concepts in Project Evaluation: A Review of Relevant Concepts and

Literature

A number of basic concepts that will be applied in this thesis for the evaluation of investment opportunities are described in this chapter.

3.1 Basic concepts in project evaluation

3.1.1 The cash flow concept

The cash flow for any given time period is the net value of all cash inflows and outflows. Cash inflow is a positive value that can be produced from three general sources: (1) financing (i.e. the proceeds of a loan or an equity issuance), (2) operational revenues, or (3) returns on an investment. Cash outflow is a negative value that can be attributed to two general items: (1) operational expenses/costs and (2) investment costs.

Generally speaking, the future cash flows of a project or investment opportunity must be estimated and analyzed in order to evaluate its potential economic viability. The determination of future cash flows must take into account several factors including but not limited to revenue, direct operating costs, initial capital expenditures, sustaining and working capital costs, taxation, depreciation, and financing costs.

The forecasting of these items must also take into account the projection of several macroeconomic items such as the rate of inflation, interest rates, currency exchange rates, and commodity prices.

Once the necessary items have been forecasted for a given time period, the cash flow projection can then be accomplished simply by summing the appropriate positive and negative values for each time increment within the overall time period of interest. Cash flows are typically calculated on an annual, semi-annual, or quarterly basis but can be set to any meaningful increment of time for the enterprise in question.

3.1.2 Discounted cash flows

In a discounted cash flow analysis, a discount rate is applied to each element of a cash flow series to create a common point of reference for the evaluation of the project’s profitability (Doggett, et al., 2009 p. 112). This point of reference is usually time zero or the present. A typical cash flow scenario begins with one or a series of up-front cash outflows, followed by a longer series of net cash inflows. Each of the cash flow elements in the series is discounted by the selected interest or discount rate, and the summation of the discounted cash flow elements is the Net Present Value (NPV) of the cash flow. A cash flow’s NPV can be calculated using the following formula (see Equation (1) ), where 퐶푛 is the net cash flow at time period 푛, 푑 is the discount rate, and 푁 is the final time period of the cash flow. An end- of-year convention on annual cash flows is usually used.

푁 퐶 푁푃푉 = ∑ 푛 (1) (1 + 푑)푛 푛=1

Net Present Value at Varying Discount Rates $16,000

$14,000

$12,000

$10,000

$8,000

$6,000

$4,000 NetPresent Value $2,000

$0 0% 5% 10% 15% 20% 25% 30% ($2,000) Discount Rate

Figure 3: Net Present Value at various discount rates

Figure 3 illustrates the impact of the selection of the discount rate on the NPV for a simple scenario where there are outflows of $1,500 for the first two years and positive inflows of $1,000 for years three to 20.

The calculated NPV of the project decreases as the discount rate increases.

The selection of a discount rate is critical to the valuation of a mineral project. The determination of an appropriate discount rate is most often based on a company’s Weighted Average Cost of Capital (WACC)

(2). This metric reflects the makeup of a company’s capital structure (made up of equity and debt sources of funds) and establishes the bottom line for determining whether a new investment opportunity makes economic sense, (i.e. is sufficient to cover the company’s cost of money). (Smith, 2002).

Theoretically, a company’s WACC is also the interest rate at which it can acquire new money. A simplified approach to calculating a company’s WACC is represented by the following formula.

퐸 퐷 푃 = 퐾 × + 퐾 × × (1 − 푇) (2) 푊퐴퐶퐶 푒 (퐸 + 퐷) 푑 (퐸 + 퐷)

where 푃푊퐴퐶퐶 is the weighted average cost of capital expressed as a percentage, 퐾푒,푑 are the costs of equity and debt expressed as a percentage, 퐸 is the book value of the company’s equity, D is the book value of the company’s debt, and 푇 is the company’s effective income tax rate.

3.1.3 Capital Asset Pricing Model and beta factors

Capital Asset Pricing Model.

A common way of estimating a company’s cost of equity capital is the use of the Capital Asset Pricing

Model (CAPM) (3). The cost of equity capital is estimated by factoring in a comparison of a company’s stock return to that of the stock market in general.

퐾푒 = 푟푓 + 훽(푟푚 − 푟푓) (3)

where 퐾푒 is the expected return of a company’s common stock, 푟푓 is the risk-free return, 훽 is the beta factor for the common stock at a particular point in time, and 푟푚 is the expected return of the market at large. The beta factor is an expression of the variability of a company’s common stock return to that of the market, with the beta of the market being set to 1.

Beta factor

The beta factor for a given company is expressed in Equation (4), below.

퐶표푣(푅푐, 푅푀) 훽 = 2 (4) 휎 (푅푀)

where 퐶표푣(푅푐, 푅푀) is the covariance between the company’s historical return 푅푐 and that of the market at

2 large 푅푀, and 휎 (푅푀) is the variance of the market historical return. In order to carry out this calculation for a company at a particular point in time, two sets of data must be collected over the same time period: price history for the stock in question and price (value) history for a representative index of the exchange on which the stock trades. A sample calculation of the beta factor for Silver Wheaton is available in

Section 5.1.

The calculation of 퐾푒 in Equation (3) then requires the estimation of both 푟푓 and 푟푚. For the purpose of this analysis, the risk-free return will be taken as the 1-year Canadian Federal Treasury Bill rate, as published on the date of each deal’s announcement. In the absence of a reliable source for consensus expected market return values, the expected market return will be taken as the real average annual rate of return of the S&P/TSX Composite Index for a period of at least 20 years prior to each deal’s announcement.6

6 The S&P/TSX Composite Index was chosen as the representative index for calculation of the market return because the TSX and TSXV list the majority of the world’s mining and exploration companies (TMX Group Incorporated).

3.1.4 Economic evaluation metrics

In order to evaluate a project’s economic potential, a number of specific metrics are typically calculated, based on the project cash flow model. The NPV metric presented in Section 3.1.2 is commonly used as a measure of a mining project’s value and is frequently used for decision-making purposes with regards to a given project. Using the company’s WACC as the discount rate, the calculated NPV must be greater than zero for a project to be economically feasible (Doggett, et al., 2009).

Similarly, the internal rate of return (IRR) is a related metric that is frequently used in project economic analysis. IRR is defined as the effective discount rate, 푑, at which the project NPV is equal to zero

(Doggett, et al., 2009 p. 121). It can be thought of as the rate of return on the initial investment that the project will potentially generate. In practice, a given project rarely achieves its projected IRR. However, projects with high IRR values are more likely to achieve profitability than those with marginally acceptable projected rates of return. For a project to be considered worthwhile, its IRR value must exceed the company’s WACC (see Equation (2) and related discussion, above) (Doggett, et al., 2009).

Logically, it follows that if a project does not generate enough cash flow to cover the cost of the money invested in the project, then it is not a project that is worth pursuing. Similarly, if a project’s calculated

IRR is less than the prevailing cost of equity or cost of debt available to the company, it is not viable

(Doggett, et al., 2009). Some cash flow series can produce a negative IRR, which can arise when the sum of the present values of all forecasted cash flows is less than the present value of the initial investment at time zero. This is a clear indication that the project or investment in question is not economically sound.

Additionally, some cash flow series can produce multiple IRR values when there is more than one change of sign throughout the series (i.e. change from positive to negative cash flow or vice versa from one time increment to the next).

A third decision-making criterion is sometimes used in the industry. This is the present value ratio (PVR) which measures the relationship between profit and investment (Doggett, et al., 2009). Defined as the net present value per unit of investment capital, PVR is best represented by Equation (5) below.

푁푃푉 푃푉푅 = 퐶 (5) ∑푝 푡 푡=0 (1 + 푑)푡

where p is the pre-production investment period, 퐶푡 is the absolute value of investment cash flow for a given pre-production time period (year), and d is the discount rate. The minimum criterion for a project to be economically feasible is that its PVR is greater than zero (Doggett, et al., 2009). The three metrics

NPV, IRR, and PVR will be used in conjunction to evaluate the investments Silver Wheaton has made in several of its silver purchase agreements.

3.1.5 Minimum acceptable rate of return and discount date selection

In order to evaluate the viability of a project or investment opportunity, a minimum acceptable rate of return (MARR) must be established. The MARR is the minimum rate of return at which a business entity will invest in a project. The MARR for a project can be established in different ways, including by determination of an arbitrary, desired value. However, more often than not a MARR is determined using quantitative analysis and qualitative reasoning.

Historically, the MARR for a project/potential investment is chosen with the enterprise’s calculated

WACC value in mind. It is generally accepted that the the enterprise WACC itself may be used as the

MARR, but in many cases the WACC is used as a base value for the MARR to which premiums are

20 added for various risk factors, both external and internal. In this thesis the enterprise WACC of the project operator will be taken as the MARR for every project both for simplicity and to avoid any subjectivity (Fraser, et al., 2011).

Once a MARR has been established, the expected return of a project or investment can then be compared to the MARR to evaluate its economic viability at a basic level. The IRR of the cash flows of a project or investment is typically compared to the MARR to serve this purpose. Generally speaking: (1) if the IRR for a project is equal to or greater than the MARR it is considered to be a desirable project; and (2) if the

IRR is less than the MARR it is considered to be undesirable (Fraser, et al., 2011). However, when the

WACC of the enterprise is taken as the MARR for a project with an IRR that is equivalent to the MARR, the project may be only marginally feasible. This is because the project would generate an expected return that is equivalent to the cost at which the enterprise can raise capital.

A discount rate must be selected and applied to a forecasted cash flow series in order to calculate the NPV of the series. In a survey of mineral industry participants conducted circa 2005, Smith (2010) illustrates that the use of WACC as a method for discount rate selection is considered to be the most important and commonly used. In this thesis, enterprise WACC at the time of each stream deal will be used as the discount rate to evaluate the forecasted cash flows and expected financial outcomes of the silver stream to both Silver Wheaton and the operating partner. A full sample calculation of WACC for Silver Wheaton is carried out in Section 5.1.

3.1.6 Inflation

Inflation is the term used to describe the decrease in the purchasing power of a currency over the course of time. A cash flow that includes inflation in its computation is deemed to be in “current” dollars, while a cash flow that does not include inflation in its computation is deemed to be in “constant” or “real” dollars. (Smith, 1987)

A cash flow calculation that has been completed in constant dollars of the time will retain a constant value throughout the extent of the cash flow and values can be compared from year to year. Cash flows computed in current dollars, however, yield values that cannot be compared from year to year as inflation is included in the cash flow projection, and the final evaluation must be undertaken using an inflation adjusted discount rate or by deflating current dollar bottom line cash flows using projected inflation rates.

A valuation of a mineral project using the Discounted Cash Flow (DCF) method can be correctly carried out in constant money terms and without regard to inflation when undertaken on a before-tax basis

(Heath, et al., 1974). When modelling after-tax cash flows, depreciation allowances and tax expenses are widely accepted to be incurred in current dollars of the time and thus cannot be modelled without accounting for inflation (Thuesen and Fabrycky , 2001). There are then two acceptable options to evaluate forward cash flows: (1) perform the analysis on before-tax cash flows; or (2) account for inflation in the analysis of after-tax cash flows by one of two methods mentioned above (Bilodeau, 2003).

Both after-tax cash flow approaches require the assumption of some forward inflation rate or rates in their methodologies (Bilodeau, 2003).

Smith (1999) argues that a “bare bones” base case for the valuation of a mineral project is preferable, whereby constant commodity prices are assumed as well as no debt and zero inflation. This effectively reduces a project to its essential characteristics and allows it to be more readily compared to other

22 projects. This is an acceptable treatment because it removes assumptions about parameters that have drastic effects on primary project economic evaluation metrics such as net present value and internal rate of return.

All DCF analyses carried out in this thesis are carried out on a before-tax basis because the estimation of future inflation rates requires significant technical expertise, of which the author has none. As such, the credibility of any such forecasting in this thesis would be minimal, and in any case, any such attempt would be largely outside the scope of the thesis’ objectives (Gentry and O’Neil, 1984) (Torries, 1998).

3.1.7 Consensus price estimate methodology in mining finance

As part of the process of evaluating a potential deal or agreement, commodity price scenarios for the purpose of estimating potential revenue flows from an investment must be projected. Oftentimes, a company will turn to specialist consultants or commission the investment banking services of a financial firm to assist in investment analysis and deal structuring. With a production schedule in hand (typically generated as part of the feasibility study process), the price forecasts can be applied to the forecasted production of all the commodities to be produced to arrive at expected revenue values.

Equity research (ER) departments of financial firms develop commodity price forecasts using generally- accepted economic modelling practices. When necessary, these forecasts are included in reports on the equities that a given ER department analyses, follows, and reports on. These sets of price forecasts are colloquially termed “consensus price estimates” or “street consensus pricing”. On this topic, Sandeep

Singh7 comments that “street consensus pricing is used mostly as an independent [third] party reference.

[It] helps to avoid widely different views between buyers and sellers.” Singh goes on to state that although the use of consensus price estimates is unlikely to be found as a methodology in a publication of academic integrity, its use in mining finance is pervasive. Similarly, Stanley Iu8 states that

“Investment banks typically use [price] estimates that research analysts give them since they are driving the valuations/estimates. Hence when we do our analysis, we are inherently trying to get a valuation as close to them or comparable to them and as such use analyst consensus estimates in our models.” Table 2 below shows a sample table of consensus price estimates at the time of the Pascua-Lama silver stream deal in 2009 (one of the deals which was analyzed).

Table 2: Consensus silver price estimates for the Pascua-Lama silver stream, US$/oz

Financial Firm 2009 2010 2011 2012 2013 2014 LT Canaccord 14.10 16.50 15.50 14.50 14.00 14.00 14.00 Credit Suisse 16.14 17.80 11.67 11.67 11.67 11.67 11.67 JP Morgan 13.90 13.40 10.50 10.00 10.00 10.00 10.00 RBC 13.25 13.50 13.00 13.00 13.00 13.00 13.00 Morgan Stanley 14.04 14.63 15.17 15.82 15.90 13.94 13.43 Cormark 13.34 14.00 12.00 - - - - National Bank Financial 16.82 17.27 18.18 16.82 15.45 14.55 13.64 Median/Model Price 14.04 14.63 13.00 13.75 13.50 13.47 13.22

In effect, it is invalid for a given investment banking team to generate its own commodity price forecast for use with its clients. It must apply a completely arm’s length commodity price forecast to its deal evaluations. To accomplish this, it must maintain a database of commodity forecast data, mined from ER

7 Personal correspondence with Sandeep Singh, former Vice President of Mining Investment Banking at Dundee Capital Markets, dated April 16, 2012. 8 Personal correspondence with Stanley Iu, Vice President of Mining Investment Banking at Dundee Capital Markets, dated March 13, 2012.

24 reports that have been published by several different financial firms, and it must also update them on a continuing basis to account for revised forecasts from any particular ER department.

It should be noted that any forecast is uncertain by definition, and so are all of the forecasted price series in this thesis.

Chapter 4

Application of Concepts to the Evaluation of the Silver Streaming Business

Model

This chapter describes how the concepts reviewed in Chapter 3 were applied to the evaluation of the silver streaming business model for Silver Wheaton as the stream buyer, and for its client producing companies as stream sellers.

4.1 Methodology and research plan

The discounted cash flow methodology employed for evaluating the business model required that cash flows be developed for each mine with which Silver Wheaton entered into a contract, starting from the points in time when the contracts were finalized. Inflation was assumed to be zero in all cases and all discounted cash flows were computed in constant U.S. Dollars (USD) of the time of each deal, given that the functional currency of the company and many of its operating partners is USD.

4.1.1 Data sources

Data was drawn from a number of public sources, including the Silver Institute9 and the United States

Geological Survey (USGS)10, to compile a 10-year historical review of silver supply and demand.

9 The author accessed www.silverinstitute.org/site/ on several occasions from March-December 2012. 10 The author accessed www.minerals.usgs.gov/minerals/pubs/commodity/silver/ in December 2011-January 2012.

Historical values for the S&P/TSX Composite Index (S&P/TSX)11 were compiled and used to establish the market return for beta factor calculations.

Historical stock price data used for beta factor calculations was sourced from the TMX Group12, the owner and operator of the Toronto Stock Exchange.

Cash flow models in constant dollars for the mines and projects underlying nine of Silver Wheaton’s stream deals were developed using NI 43-101 compliant technical documentation that is publicly available on the System for Electronic Document Analysis and Retrieval (SEDAR) of Canada’s Securities and Exchange Commission13. SEDAR is the online repository for the filing of any material documents of public companies incorporated in Canada.

Equity research reports from which commodity price data was mined were accessed and downloaded from Thomson One, a well-known repository of stock market, commodity, and general financial securities data, news, and research. This service was accessed through the Queen’s University Library account, which is available for use by all students of the university.

4.1.2 Case study: Silver Wheaton Corp. and its operating partners

The reference point for these cash flow projections was taken to be the point in time at which the deals were announced in order to simulate the value to each deal participant as closely as possible. From the full mine cash flow projections, projected silver stream cash flows were isolated. Previously defined financial and economic evaluation metrics were computed for the isolated stream cash flows, and the defined criteria were used to evaluate them financially for both Silver Wheaton and its operating partners.

11 Sourced from https://ca.finance.yahoo.com/q/hp?s=%5EGSPTSE, which was accessed multiple times during April-May 2012. 12 Sourced from www.tmx.com, which was accessed multiple times during May-December 2012. 13 The author accessed www.sedar.com on multiple occasions from March 2012-April 2013.

Silver Wheaton’s source financing was reviewed in order to better understand how silver streaming companies can form. Furthermore, the silver streaming business model was stress-tested14 for silver price floors by forward modelling Silver Wheaton’s entire silver streams currently in place and establishing several silver price-to-minimum enterprise IRR relationships. This provided a sense of the extent to which the silver streaming business model is economically robust. Conclusions were drawn regarding the business success or lack thereof of the silver streaming business model.

Though the situations of each of Silver Wheaton’s operating partners were all unique at the times of each stream deal, necessary company background information was summarized and presented to provide context for and possibly justify the pursuit of stream financing over conventional means. This discussion, coupled with the aforementioned silver stream financial analysis, was used to draw conclusions on the value-add to operating partners of the quasi-financing service that the silver streaming business model provides.

4.1.3 Selection of streams to be evaluated

Silver Wheaton concluded 10 deals organically in the period 2004-2011 but some were excluded from the thesis analysis for the following reasons:

 Differing forms of consideration from Silver Wheaton (e.g. Silver Wheaton common stock in

addition to upfront cash payment);

 Obligation for Silver Wheaton to contribute a portion of capital expenditures;

14 A test to establish the lower limits of economic feasibility for an enterprise or investment with respect to one or multiple economic input parameters.

 Contract term that is less than the life of mine (LOM).

The San Dimas transaction differed in nature from the typical silver stream contract structure in all of the above ways partly because it was the deal that effectively created Silver Wheaton and served as the prototypical silver stream. As such, the San Dimas transaction was excluded for the purpose of silver stream comparison throughout this thesis. Included in this transaction were silver streams on the San

Dimas and Los Filos mines; both were omitted from the case study. Furthermore, the Cozamin, Minto,

Aljustrel, and Neves-Corvo streams were obtained in the acquisition of Silverstone Resources Inc. in

2009 and do not adhere to the same deal structure as Silver Wheaton’s organically-generated silver streams. As such, they too were omitted from the case study. The nine stream deals included in the

Silver Wheaton case study are bolded in Table 3 below. Note that the Lagunas Norte, Pierina, and

Veladero silver streams are bolded due to their inclusion in the Pascua-Lama silver purchase agreement.

Table 3: Silver streams selected for inclusion in Silver Wheaton case study

Attributable Attributable Ag Attributable Gold Date of Location of Annual Ag Term of Silver and Gold Interests Owner Production to be Production to be Contract Mine Production Agreement Purchased Purchased (mm/dd/yyyy) (oz) San Dimas Primero Mexico 100% 5,000,000 LOM 10/15/2004 Zinkgruvan Lundin Sweden 100% 2,000,000 LOM 12/08/2004 Yauliyacu Glencore Peru 100% 4,750,000 20 yrs 03/23/2006 Penasquito Goldcorp Mexico 25% 7,000,000 LOM 07/24/2007 Minto Capstone Canda 100% 100% 200,000 LOM 12/01/2008 Cozamin Capstone Mexico 100% 1,500,000 10 yrs 04/04/2007 Pascua-Lama Barrick Chile/Argentina 25% 9,000,000 LOM 09/08/2009 Lagunas Norte Barrick Peru 100% 500,000 4 yrs 09/08/2009 Pierina Barrick Peru 100% 1,000,000 4 yrs 09/08/2009 Veladero Barrick Argentina 100% 1,000,000 4 yrs 09/08/2009 Los Filos Goldcorp Mexico 100% 200,000 25 yrs 10/15/2004 Keno Hill Alexco Canada 25% 500,000 LOM 10/02/2008 Mineral Park Mercator USA 100% 300,000 LOM 03/17/2008 Neves-Corvo Lundin Portugal 100% 500,000 LOM 06/05/2007 European Stratoni Greece 100% 1,000,000 LOM 04/23/2007 Goldfields Campo Morado Nyrstar Mexico 75% 1,000,000 LOM 05/13/2008 Aljustrel I'M SGPS Portugal 100% 100,000 LOM 06/05/2007 Pan American Not yet Loma de La Plata Argentina 13% 1,000,000 LOM Silver Corp finalized Augusta Rosemont USA 100% 100% 2,400,000 LOM 02/11/2010 Resources

4.1.4 Explanation of enterprise analysis and silver price stress test

An additional analysis was undertaken to test the sustainability of a well-established silver streaming business on a company-wide basis (versus a deal-specific basis). The IRR of Silver Wheaton’s forecasted enterprise cash flows from 2012-2021 was evaluated for various hypothetical 2012 capital expenditures ranging from $600 million to $2 billion. In each instance, the silver price input was held constant throughout the forecast period and reduced until the enterprise IRR roughly matched the currently calculated corporate WACC of 4.11%. In order to calculate IRR, a negative cash flow in at least the first year is required, which is the only reason why a capital commitment in 2012 was assumed in this analysis. For a detailed explanation of the development of Silver Wheaton’s forecasted enterprise cash flows, refer to Appendix D.

4.1.5 Analysis of value addition or reduction to development project economics

Six of the nine silver streams selected for analysis were development projects that were less than five years from expected commercial production at the time of their respective deals with Silver Wheaton. To assess the value to the operating partner of the silver stream sale in these cases, an evaluation of the incremental value added or lost was undertaken. Two cash flow models were created for each project; one including the silver stream economics, and the other without (i.e. a cash flow model of the expected standalone mine). The differences in the NPV and IRR values for the two cash flow models were then computed to evaluate the effect of the silver stream on the development project.

In addition, two extra metrics were computed: percentage of expected construction capital funded and incremental value lost. The former is simply the proportion of expected construction capital that the upfront payment represented at the time of the silver stream transaction. The latter is a measure of a stream sale’s effect on annual metal revenue and is defined by Equation (6), below:

퐴푣푒푟푎푔푒 푎푛푛푢푎푙 푠푖푙푣푒푟 푟푒푣푒푛푢푒 푙표푠푡 푡표 푆퐿푊 퐼푛푐푟푒푚푒푛푡푎푙 푣푎푙푢푒 푙표푠푡 = 퐴푣푒푟푎푔푒 푎푛푛푢푎푙 푡표푡푎푙 푟푒푣푒푛푢푒 (6)

4.2 Calculation of WACC

Each of Silver Wheaton’s silver purchase agreements were examined as separate transactions. Therefore, the positions of both the buyer and seller for each transaction needed to be characterized and quantified

(i.e. Silver Wheaton’s position and that of its operating partner). This required that each risk perspective be simulated as closely as possible to what it would have been for each participant in each transaction at the relevant points in time. As such, the WACC was separately computed for Silver Wheaton and its operating partners in each instance and taken as the discount rate for the purpose of evaluating the

“profitability” of the respective participants’ investments in each transaction.

Silver Wheaton and the majority of its operating partners are listed on the Toronto Stock Exchange

(TSX). Consequently historical values for the S&P/TSX Composite Index (S&P/TSX) were used to determine the market return in all of the beta calculations. The respective closing price and value of the stock and index were taken in monthly intervals for one year prior to the deal’s announcement, with the last sample being taken from the trading day immediately preceding the deal’s announcement date. The

2 values of 퐶표푣(푅푐, 푅푀) and 휎 (푅푀) were then computed using functions that are built into Microsoft

Office Excel 2010.

Each respective WACC was then calculated using Equation (2). The values of total equity and total debt were derived from the balance sheet in the financial statements that were most recent to the deal date. In the case of Silver Wheaton, its effective tax rate 푇 is zero15. However, this is not so for its operating partners. As some of Silver Wheaton’s operating partners pay taxes in multiple jurisdictions, the effective corporate tax rate at the time of their deals with Silver Wheaton was estimated using Equation (7) for simplicity.

푎 푇 = (7) 푏

where 푎 is the value for income tax expense and 푏 is the value for earnings before tax, both retrieved from the company financial statements that were most recent to the date that the deal was announced.

Consensus silver price estimates were used for the evaluation of Silver Wheaton’s silver purchase agreements. The consensus price estimate for any given year was computed as the median of a set of at least seven estimates from separate firms that were released at most three months prior to the deal date.

15 Although Silver Wheaton is incorporated in Canada, it registers all of its income through a wholly-owned subsidiary, Silver Wheaton (Caymans) Ltd. As the corporate tax rate in the Cayman Islands is zero, Silver Wheaton effectively pays no income tax. A description of the legal structure that has allowed this to occur is outside the scope of this thesis.

4.3 Calculation of estimated silver stream cash flows

4.3.1 Calculation of cash flows for mines utilizing silver streams

In order to generate accurate cash flow models for each of the streams of interest, full cash flow models for the underlying mines were required. The development of mine cash flow models was based on data derived from NI 43-101 compliant technical reports that were most recent to the date of the completion of each silver stream deal, readily available on SEDAR. All of Silver Wheaton’s operating partners for the streams of interest maintain listings on Canadian stock exchanges and thus have documents available on

SEDAR, except for Glencore International AG (Glencore) which was a private company at the time of its deal with Silver Wheaton16. In three other cases (the Keno Hill, Pascua-Lama, and Penasquito silver streams), technical reports published from a few days to a few weeks after the deal announcements were used17. As most of the technical reports sourced in this thesis carried out economic analyses in USD, this currency convention was maintained in the thesis analyses unless otherwise specified within a technical report.

The next step in producing accurate cash flows for the streams was retrieving the necessary technical information and parameters from the technical reports. As Silver Wheaton is in the business of buying future silver production, the mining assets it targeted for stream deals were either previously operating mines or development projects with production start-up expected in the near to medium term. As such,

16 In the case of Glencore’s agreement with Silver Wheaton, Glencore was obliged to allow Silver Wheaton to conduct an independent third party review and prepare an NI 43-101 compliant report to support Silver Wheaton’s purchase of some silver production from its Yauliyacu mine in Peru. This report was published by Silver Wheaton after the deal’s announcement but was used in this thesis nonetheless as it represents the only available technical information for the Yauliyacu mine from the time period of interest. 17 The Keno Hill, Pascua-Lama, and Penasquito silver streams were development projects at the times of the deal announcements and previously available technical documents for them were outdated. It was assumed that Silver Wheaton would not have used outdated technical information for the purposes of evaluating ever-changing development projects and that the technical information released shortly after the deal dates was made available to Silver Wheaton prior to finalizing the purchase agreements.

33 all of the technical reports that were used contained some form of life of mine (LOM) production/mill throughput schedule, as well as expected metal mill head grades, metal processing recoveries, product details (i.e. concentrates and/or doré), and a concentrate tonnage production schedule, if applicable. For the purpose of this thesis, it was assumed that no closure or production ramp-down would occur for the entirety of the expected LOM at any mine or project underlying Silver Wheaton’s streams. Furthermore, it was assumed that all contained metal would be sold in the year in which it was produced. Contained metal in product was then calculated for each metal produced at the mine on an annual basis using

Equation (8) below.

퐶표푛푡푎푖푛푒푑 푀푒푡푎푙 = 푀𝑇 × 퐺 × 푅 × 퐶 (8)

where 푀𝑇 is ore throughput at the mill, 퐺 is mill head grade for a given metal, 푅 is the process recovery for a given metal, and 퐶 is a unit conversion factor. The unit conversion factor was employed for the purpose of facilitating the calculation of gross revenue further on in the cash flow calculation by converting the contained metal quantity to the most commonly used pricing unit (typically ounces for precious metals and pounds for base metals).

Revenue Estimation

Smelter terms and parameters were then retrieved and gathered for application to the gross revenue figure, to be described below. More often than not and as is typical of smelter contract terms, a deduction from the total contained metal in a given concentrate product was quoted in the corresponding technical report.

Application of this deduction yields the “payable metal” quantity, which is defined as the quantity of metal that the smelter will pay the mine for. Two assumptions were made regarding the payable metal line item:

 Silver Wheaton’s off-take percentage is based on the quantity of payable metal and not that of

total contained metal;

 All refining charges related to a given metal are based on the quantity of payable metal and

not that of total contained metal.

Gross revenue for all metal production was then calculated, simply by multiplying payable metal quantities contained in product by the commodity price forecast throughout the LOM.

Smelting/treatment, refining, and shipping costs were then applied and deducted from gross revenue, as detailed in the various technical reports. These parameters were often provided on a ‘per tonne of concentrate’ or ‘per ounce of precious metal’ basis. This yielded the Net Smelter Revenue (NSR), from which all further costs were deducted.

Estimation of operating costs

Operating cost parameters were taken from the technical reports and computed based on tonnes milled, tonnes mined, or both as the given parameters indicated. Capital costs (initial/construction, sustaining, etc.) were applied and deducted, as taken from the technical reports. Working capital considerations were not included in the cash flow calculations as these were deemed to be outside the scope of this thesis.

Operating costs were deducted from NSR to yield the operating profit. Finally, any applicable royalties and capital expenditures were deducted from operating profit to arrive at before-tax net cash flow for the underlying mine.

4.3.2 Calculation of silver stream cash flows for operating partners

Stream cash flows from the operating partner perspective were calculated in this thesis as follows. Cash in-flow is the upfront payment and any transfer fee received from Silver Wheaton, calculated as described above. Cash out-flow is silver revenue that is attributable to Silver Wheaton, calculated as described above. Given that Silver Wheaton’s cash flows are essentially before-tax and in light of the information presented to avoid the complicating inflation rate issues highlighted in Section 3.1.6, net cash flow for

Silver Wheaton’s operating partners was evaluated on a before-tax basis in this thesis.

4.3.3 Calculation of silver stream cash flows for Silver Wheaton

Stream cash flows from the perspective of Silver Wheaton were calculated in this thesis as follows.

Calculating the cash flow for a given stream began with isolating the payable silver (and in some cases, gold) quantities produced by the underlying mine that were assigned to Silver Wheaton. This quantity was multiplied by the silver price forecast and transfer fee to arrive at revenue and operating cost respectively. Subtracting operating cost from revenue yielded annual operating profit, as previously mentioned. The upfront capital payment was assumed to have been incurred in the year in which the deal took place, unless otherwise specified in the stream details. As Silver Wheaton registers all of its profits through subsidiaries and does not pay any Canadian income tax, the operating profit is effectively the net cash flow of the silver stream.

4.3.4 Treatment of outdated capital and operating cost estimates

In some cases, the most recent technical reports used to create the cash flow models for each mine were published greater than one year prior to the date of the stream deal. Cost estimates, both operating and capital, are generally provided in constant dollars of the time of publication in technical reports. In these

36 cases, it was therefore necessary to adjust the capital and operating cost estimates to constant dollars of the deal time using the U.S. Consumer Price Index (CPI) and Equation (9) below.

퐶푃퐼 퐷푒푎푙 푡푖푚푒 푐표푠푡 = 푂푟푖푔푖푛푎푙 퐶표푠푡 × ( 퐶) (9) 퐶푃퐼푃

where 퐶푃퐼퐶 is the CPI value for the year in which the deal was done and 퐶푃퐼푃 is the CPI value for the year in which the estimated cost figures were published.

4.3.5 Silver price series used in silver stream cash flow models

As outlined in Section 3.1.7, consensus price estimates were aggregated in this thesis as the “base case” silver price series and used to evaluate the silver production of several individual mines. To generate these base case silver price series, several price forecasts in equity research (ER) reports published in nine different time periods within the three months prior to the date of each silver stream deal were collected.

The median18 was taken from the forecast figures of seven or more separate financial firms to arrive at the final base case price series for each stream deal. Note that the base case price series used was different for each deal; this is because equity research departments continually update their price forecast models to reflect changing global economic conditions. For example, a price forecast published in July 2008 would be significantly different from one that was published in December 2008; the latest global economic recession began between those two dates. The purpose of this approach is to simulate as best as possible the method by which each stream deal would have been evaluated at the time by the market at large; the use of consensus price estimates achieves this.

18 Due to the relatively small sample sizes, the median was taken instead of the mean to omit the influence of outlying price estimates.

To provide contrast to the cash flow models generated from base case/conservative price forecasts, a bullish silver price forecast was also used to create a second cash flow model for each silver stream studied. It was decided that for the years 2004-2011, the actual end-of-year silver price would be used, because the actual silver price in this time period generally represented a bullish outlook on the price of silver at any point. For 2012 and beyond, a flat value of $30/oz of silver was chosen because it would generally represent a very optimistic or bullish silver price in constant 2012 dollars. Summaries of the commodity price series used to create the two sets of stream cash flow models are shown in Table 4 and

Table 5 below.

Table 4: Summary of consensus commodity price series used in silver stream cash flow models

Stream 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 LT Zinkgruvan 6.70 6.50 5.50 5.15 5.10 5.10 5.10 5.10 5.10 5.10 5.10 5.10 5.10 Yauliyacu - 8.90 9.00 8.63 8.50 8.25 7.50 7.50 7.50 7.50 7.50 7.50 7.50 Stratoni - - 13.40 13.00 12.50 11.00 10.50 10.50 10.50 10.50 10.50 10.50 10.50 Penasquito - - 13.29 13.38 12.80 11.00 11.00 9.00 9.00 9.00 9.00 9.00 9.00 Mineral Park - - - - 16.50 16.75 14.75 12.00 11.67 11.67 11.67 11.00 11.00 Campo Morado - - - - 17.25 16.25 15.75 14.53 13.95 13.83 13.72 13.00 13.00 Keno Hill - - - - - 17.50 16.04 14.40 14.00 14.00 14.00 14.00 14.00 Pascua-Lama - - - - 14.04 14.63 13.00 13.75 13.50 13.47 13.22 13.22 13.22 Rosemont (Ag) ------15.00 14.00 14.00 14.00 14.00 Rosemont (Au) ------950 900 900 875 875

Table 5: Summary of bullish commodity price series used in silver stream cash flow models

Stream 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 LT Zinkgruvan 7.31 11.19 12.60 13.60 16.09 26.29 30.49 30.00 30.00 30.00 30.00 30.00 30.00 Yauliyacu - 11.55 13.01 14.04 16.61 27.13 31.48 30.00 30.00 30.00 30.00 30.00 30.00 Stratoni - - 13.38 14.43 17.08 27.91 32.37 30.00 30.00 30.00 30.00 30.00 30.00 Penasquito - - 13.38 14.44 17.08 27.91 32.37 30.00 30.00 30.00 30.00 30.00 30.00 Mineral Park - - - - 17.73 28.98 33.62 30.00 30.00 30.00 30.00 30.00 30.00 Campo Morado - - - - 17.73 28.98 33.62 30.00 30.00 30.00 30.00 30.00 30.00 Keno Hill - - - - - 28.98 33.62 30.00 30.00 30.00 30.00 30.00 30.00 Pascua-Lama - - - - 17.67 28.88 33.50 30.00 30.00 30.00 30.00 30.00 30.00 Rosemont (Ag) ------30.00 30.00 30.00 30.00 30.00 Rosemont (Au) ------1400 1400 1400 1400 1400

The actual end-of-year values of the partially-realized/bullish silver price series were sourced from the

London Bullion Market Association (LBMA) website. As the LBMA silver prices from 2005-2011 are quoted in current dollars of these years, this portion of the partially-realized/bullish price series was required to be converted to constant USD of the years in which each deal was done. This was accomplished by using U.S. CPI data and Equation (10), below.

퐶푃퐼푦푒푎푟 푋 푃푟푒푎푙,푦푒푎푟 푋 = 푃푐푢푟푟푒푛푡,푦푒푎푟 푌 × ( ) (10) 퐶푃퐼푦푒푎푟 푌

where 푃푟푒푎푙,푦푒푎푟 푋 is the silver price in constant dollars of year X, 푃푐푢푟푟푒푛푡,푦푒푎푟 푌 is the silver price in current dollars of year Y, 퐶푃퐼푦푒푎푟 푋 is the average annual CPI value for year X, and 퐶푃퐼푦푒푎푟 푌 is the average annual CPI value for year Y.

4.4 Limitations and assumptions

Given the ever-changing business marketplace, a cut-off date of April 16, 2012 was applied to the analysis, that is, no information or actual data available after this date was considered or incorporated into the evaluation of cash flows or price forecasts. This means that any documents referenced in relevant discussions will be dated on or prior to the cut-off date. Similarly, any market or global economic events that are referenced would have taken place on or prior to the cut-off date. This is meant to provide a

“reference point” for discussions and specific financial analyses in this thesis. It should be noted that some of these discussions and analyses have been written and performed at points in FY 2012 that were after the cut-off date. Silver Wheaton’s common share price and commodity prices have continued to trade between the cut-off date and these points in time, effectively adding to portions of the data sets that

39 were meant to be forecasted from the cut-off date, going forward. The author has disregarded this ‘real’ data, so to speak. The data sets in question are forecasted over the course of 10+ years and it is the author’s belief that this small overlapping time period has no significant impact on the validity of the analyses or discussions in the thesis.

4.4.1 Sample size

An inherent limitation to the study of Silver Wheaton’s business model is the relatively small sample size of nine silver purchase agreements to evaluate that are sufficiently comparable. Confidence in the results of this thesis would be improved given more company history and more silver streams to evaluate. While nothing can be done to increase the sample size presently, a study of similar scope in another 8-10 years would likely yield results of higher confidence, assuming Silver Wheaton continues to do deals at the same rate or greater than that of the past eight years.

4.4.2 Deterministic cash flow modelling

The DCF model used in the analysis is the same type of modelling technique that is typically employed by mining finance professionals and corporate decision-makers. A potentially better approach to evaluation termed “real options” was not applied, as it is not widely used in the mining industry.

Traditional DCF models assume a single expected value for every forecasted input parameter, which results in a final cash flow figure for a given forecasted period or year. Such models do not take into account the value of future decision-making on the part of a mine operator to optimize cash flow in response to a change in any of the input parameters that was not forecasted or planned for.

As a result of this limitation, the deterministic cash flow modelling used in this thesis, while widely employed in the mining industry, may not necessarily represent the optimal analysis approach.

4.4.3 Quality of index data used in calculation of corporate WACC

Credible data for historical stock market index values was found to be unavailable in the public domain with the notable exception of Yahoo! Finance, which was sourced for use in this thesis. Ideally, data from a more recognized source would be used for the calculation of corporate beta and WACC, and the unavailability of such a source represents a limitation of this analysis.

4.4.4 Calculation method of corporate WACC

In each instance that a WACC value was calculated for either Silver Wheaton or its operating partners, a sample size of 12 monthly data points for share price and the S&P/TSX Composite Index were taken for the calculation of the beta factor. As the calculation of several beta factors was required, this approach was deemed sufficient for the scope of this thesis. However, this small sample size represents a limitation to the accuracy of the beta values calculated throughout this document. Ideally, a data set of share prices and index values taken weekly or daily and spanning several years would be used in the calculation of beta.

4.4.5 Qualitative silver price forecast for 2012+

The silver price forecasts used to evaluate Silver Wheaton’s production profile from 2012 going forward were based exclusively on a qualitative consideration of the current supply and demand situation for silver. No statistical analysis on past silver price data was performed to support the forecasts used, thereby representing a limitation to the validity of some of the thesis’ findings.

4.4.6 Escalation of capital and operating costs

As previously mentioned, in some cases the expected capital and operating costs were escalated to constant dollars of the deal time using CPI data from the U.S. Bureau of Labor Statistics. Though an acceptable means of escalating costs for the purposes and scope of this thesis, the CPI tracks the inflationary changes in the costs of consumer products and is generally not indicative of changes in producer costs such as energy, labor, and raw goods.

Upon a literature review, the author could not find a consensus regarding a more appropriate index to use for this purpose. Furthermore, the use of CPI for monetary escalation or de-escalation in mining technical reports was noted on several occasions in the course of working on this thesis. As such, the use of CPI was considered to be acceptable.

4.4.7 Omission of working capital

Working capital was not considered in any of the full LOM cash flow models developed for Chapter 5 and Chapter 6, as it is difficult to forecast and deemed to be outside the scope of this thesis.

4.4.8 Mine closure/ramp-down and metal sales

For the purpose of this thesis, it was assumed that no closure or production ramp-down would occur for the entirety of the expected LOM at any mine or project underlying Silver Wheaton’s streams.

Furthermore, it was assumed that all contained metal would be sold in the year in which it was produced.

4.4.9 Treatment of upfront payment

The upfront capital payment was assumed to have been incurred in the year in which the deal took place, unless otherwise specified in the stream details. Furthermore, it should be noted that not all of Silver

Wheaton’s operating partners have used the entire upfront payment for development of the project under contract with Silver Wheaton. To maintain consistency in this analysis, it was assumed that in all instances, the upfront payment was used exclusively for developing the asset meant to produce the streamed silver.

Chapter 5

Sample Calculation of Discounted Cash Flows for a Silver Stream

5.1 Sample calculation of beta and WACC

In order to illustrate the method used for the calculation of beta and WACC values in this thesis, a sample calculation of the actual WACC value for Silver Wheaton at the time of the Keno Hill silver purchase agreement is shown below.

To begin with, the closing values of the S&P/TSX Composite Index19 and Silver Wheaton’s share price19 were retrieved for October 1, 2008, the day prior to the deal date, and for 11 days preceding this date in monthly intervals. Outlined in Table 6, the index and share price values were both normalized20 to the respective values of the oldest date for which data was collected, which was November 1, 2007 in this instance.

19 In all instances of beta calculations, these values are sourced from (TMX Group Incorporated). 20 The normalization of a time series to a reference point is standard practice prior to its use in statistical analysis or computations.

Table 6: Input data for sample calculation of beta factor

Normalized Normalized Date S&P/TSX SLW S&P/TSX SLW 10/01/2008 11,715 8.96 0.82 0.58 09/02/2008 13,300 11.40 0.93 0.74 08/01/2008 13,497 13.00 0.94 0.84 07/02/2008 14,034 15.10 0.98 0.98 06/02/2008 14,814 14.60 1.03 0.95 05/01/2008 14,066 13.30 0.98 0.86 04/01/2008 13,441 15.60 0.94 1.01 03/03/2008 13,544 17.50 0.94 1.14 02/01/2008 13,318 15.30 0.93 0.99 01/02/2008 13,927 18.90 0.97 1.23 12/03/2007 13,657 15.40 0.95 1.00 11/01/2007 14,373 15.40 1.00 1.00

Using the normalized value series for this data, the beta factor parameters for Silver Wheaton at the date in question were calculated and are listed in Table 7. By using built-in functions in Microsoft Excel 2010, the variance of the market returns and the covariance between the market returns and Silver Wheaton stock returns were calculated. The beta factor was then computed by simply dividing the latter by the former, as outlined in Equation (4) and the resulting value is indicated in Table 7.

Table 7: Sample calculation of beta factor

Parameter Value 퐶표푣 푅 푊, 푅푀푎푟 푒푡 0.005 2 휎 (푅푀푎푟 푒푡) 0.003 1.75

The next step in calculating Silver Wheaton’s WACC at this point in time is to determine Silver

Wheaton’s cost of equity capital, Ke. As one of the parameters in the calculation of Ke is the long-term market return, source data was required to be collected. Given that Silver Wheaton trades on the TSX and that the TSX lists 58% of the world’s public mining companies (TMX Group Incorporated), the

S&P/TSX Composite Index was used for this purpose as it is considered to be a good indicator for this particular market. Unfortunately, the TMX Group Incorporated family of websites does not provide free access to historical index value data. The data for this portion of all WACC calculations was consequently sourced from (Yahoo! Finance)21. The long-term market return was taken as the real, pre- tax average annual return of the aforementioned index over a 20-year period prior to the year in which each silver stream deal took place. Looking at Table 8 below, it can be seen that the real, pre-tax average annual return of the S&P/TSX Composite Index for this example was calculated to be 6.15%, which was taken as the long-term market return.

21 No primary source of free index and market data could be found and as a result data from Yahoo! Finance, a secondary source, was used.

Table 8: Real annual return of S&P/TSX Composite Index, 1988-2007

Real Return Year (Pre-tax) 1988 14% 1989 -2% 1990 -16% 1991 4% 1992 -9% 1993 35% 1994 -12% 1995 21% 1996 21% 1997 8% 1998 -1% 1999 24% 2000 7% 2001 -20% 2002 -16% 2003 26% 2004 6% 2005 27% 2006 7% 2007 -1% Average 6.15%

Using Equation (3) and the parameters outlined in Table 9, Ke was then calculated. The risk-free rate was taken as the 1-year Canadian Federal Treasury Bill rate, as published on the day prior to each deal’s announcement (Bank of Canada).

Table 9: Sample calculation of cost of equity capital

Parameter Value Risk-free rate ( 푟 푓 ) 1.88% Market return (푟 푚 ) 6.15% Beta ( 훽 푊 ) 1.75 Cost of equity (K e) 9.35%

퐾푒 = 푟푓 + 훽(푟푚 − 푟푓)

퐾푒 = 1.88% + 1.75(6.15% − 1.88%) (3)

𝑲풆 = ퟗ. ퟑퟓ%

The final input parameter required for the calculation of WACC was the cost of debt capital, Kd, which was determined by computing the weighted average effective interest rate of any outstanding debt, where debt was taken as both bank debt and silver interest payments22 due in this case. The computation of this parameter was a matter of investigating the financial statements of the company in question that were most recent to the deal date and retrieving the necessary pieces of information, namely effective interest rates on debt. For this example, the necessary information was retrieved from pg. 31 of Silver Wheaton’s

Third Quarter Report for 2008 (Silver Wheaton Corporation, 2008). Silver Wheaton had no outstanding silver interest payments at the time and thus its Kd in this case was its reported effective interest rate of

4.88%.

22 Silver interest payments are portions of upfront payments due to any stream-selling entity in consideration of a silver stream purchase.

With the previously-calculated and additional parameters listed in Table 10, the WACC was then calculated for Silver Wheaton. The WACC is then calculated using the parameters outlined in Table 10 and Equation (2) below as well as total debt and shareholders’ equity values, which were retrieved from the balance sheet on pg. 22 of the aforementioned quarterly report (Silver Wheaton Corporation, 2008).

Table 10: Sample calculation of WACC

Parameter Value E 898.3

Ke 9.35% D 380

Kd 4.88% PWACC 8.02%

퐸 퐷 푃 = 퐾 × + 퐾 × × (1 − 푇) 푊퐴퐶퐶 푒 (퐸 + 퐷) 푑 (퐸 + 퐷)

898.3 380 (2) 푃 = 9.35% × + 4.88% × × (1 − 0) 푊퐴퐶퐶 (898.3 + 380) (898.3 + 380)

푷 푨푪푪 = ퟖ. ퟎퟐ%

Note that because Silver Wheaton effectively pays no income tax, the inclusion of this parameter in the

WACC calculation was unnecessary in each instance. For their operating partners, values from the relevant financial statements as defined and described in Equation (7) were utilized. Table 11 below shows the relevant values used in the calculation of effective tax rate for Goldcorp at the time of the

Penasquito deal.

Table 11: Example of effective tax rate computation

Parameter Value Income tax paid US$95.6 MM Pre-tax net income US$247.2 MM Effective tax rate 38.7%

Source: Goldcorp Second Quarter Report-2007, pg. 31

Calculations for the WACCs used for all of the deal analyses can be found in Appendix A and Table 12 summarizes the calculated beta and WACC values for Silver Wheaton and its operating partners at the times of each deal.

Table 12: Calculated beta and WACC values for Silver Wheaton and its operating partners at the

time of each deal23

Silver Wheaton Operating Partner Stream beta WACC beta WACC Zinkgruvan N/A 20.00% 4.79 13.28% Yauliyacu 6.49 9.44% N/A 10.00% Stratoni 1.57 6.38% 2.28 7.38% Penasquito 1.17 5.75% -0.20 4.81% Mineral Park -1.40 6.70% -0.53 5.83% Campo Morado 1.01 7.92% -1.61 6.70% Keno Hill 1.75 8.02% 1.90 9.98% Pascua-Lama 2.08 6.92% 0.34 2.27% Rosemont 2.37 10.77% 3.00 10.83%

23 Silver Wheaton was a new company at the time of the Zinkgruvan deal and there was therefore insufficient share price data to calculate a beta value for that time period. Similarly, Glencore was a private company at the time of the Yauliyacu deal and a beta value could not be computed due to the lack of publicly available share price information. In both instances, a corporate WACC value of 10% was assumed.

5.2 Sample calculation of silver stream cash flow model

For the purpose of this sample calculation, the Keno Hill mine and silver stream were used. Keno Hill is a poly-metallic project with two concentrate products: a zinc concentrate with minor but material quantities of silver and a lead/silver concentrate where the majority of the mine’s silver production is captured.

5.2.1 Calculation of mine cash flow model

The latest technical report regarding this mine, (Keller, et al., 2008), contains a detailed expected production schedule, inclusive of mill throughput, metal grades, metallurgical recoveries, and concentrate production tonnage. Furthermore, this technical report contains expected smelter terms, as outlined in the

NSR calculation for this mine, which is presented in Table 13. Forecasted metal prices were consensus estimates as aggregated at the time that the mine’s owner, Alexco, completed a silver purchase agreement with Silver Wheaton in late 2008. Using each year’s expected total mill throughput, grades, recoveries, and Equation (8), both contained and payable lead, zinc, and silver in each concentrate were computed.

From this point, payable metal sales were simply subtracted by all applicable freight, concentrate treatment, and silver refining charges for each product to arrive at NSR values by concentrate type. The two were summed to determine the forecasted annual NSR for the mine. Note that the forecasts only extend to 2014, as the LOM was projected to be five years at the time of the deal.

Table 13: Calculation of expected NSR for Keno Hill polymetallic mine

2008 2009 2010 2011 2012 2013 2014 Throughput Mt - - 0.09 0.09 0.15 0.15 0.14

Grades Pb % - - 16.6% 16.6% 16.6% 16.6% 16.6% Zn % - - 4.9% 4.9% 4.9% 4.9% 4.9% Ag g/t - - 1221.36 1221.36 1221.36 1221.36 1221.36

Recoveries to con Zn concentrate Zn % - - 90.2% 90.2% 90.2% 90.2% 90.2% Ag % - - 8% 8% 8% 8% 8% Pb/Ag concentrate Pb % - - 96.5% 96.5% 96.5% 96.5% 96.5% Ag % - - 87.1% 87.1% 87.1% 87.1% 87.1%

Concentrate Production Zn concentrate Mt - - 0.01 0.01 0.01 0.01 0.01 Pb/Ag concentrate Mt - - 0.02 0.02 0.04 0.04 0.04

Metal Prices Pb USD/lb - - 0.67 0.58 0.53 0.48 0.48 Zn USD/lb - - 0.91 0.91 0.82 0.78 0.78 Ag USD/oz - - 17.50 16.04 14.40 14.00 14.00

NSR-Zn concentrate Con produced Mt - - 0.01 0.01 0.01 0.01 0.01 Contained Zn MMlbs - - 8.9 8.9 14.2 14.2 13.5 Contained Ag Moz - - 0.3 0.3 0.5 0.5 0.4 Payable Zn factor % - - 85% 85% 85% 85% 85% Payable Ag factor % - - 65% 65% 65% 65% 65% Payable Zn MMlbs - - 7.5 7.5 12.1 12.1 11.5 Payable Ag Moz - - 0.2 0.2 0.3 0.3 0.3 Ag refining cost USD/oz - - 0.35 0.35 0.35 0.35 0.35 Concentrate treatment cost USD/dmt - - 225 225 225 225 225 Concentrate transportation cost USD/t - - 176.83 176.83 176.83 176.83 176.83 Smelter penalty cost USD/t - - 3.60 3.60 3.60 3.60 3.60 NSR USD millions - - 6.9 6.6 9.0 8.4 8.0

NSR-Pb/Ag concentrate Con produced Mt - - 0.023 0.023 0.037 0.037 0.035 Contained Pb MMlbs - - 32.1 32.1 51.6 51.6 49.1 Contained Ag Moz - - 3.1 3.1 5.0 5.0 4.8 Payable Pb factor % - - 95% 95% 95% 95% 95% Payable Ag factor % - - 90% 90% 90% 90% 90% Payable Pb MMlbs - - 30.53 30.53 48.98 48.98 46.63 Payable Ag Moz - - 2.80 2.80 4.49 4.49 4.28 Ag refining cost USD/oz - - 0.35 0.35 0.35 0.35 0.35 Concentrate treatment cost USD/dmt - - 140 140 140 140 140 Concentrate transportation cost USD/t - - 176.83 176.83 176.83 176.83 176.83 Smelter penalty cost USD/t - - 7.35 7.35 7.35 7.35 7.35 NSR USD millions - - 61.0 54.0 77.2 72.6 69.2

TOTAL NSR USD millions - - 68.0 60.6 86.2 81.0 77.2

Using the above NSR as well as the appropriate operating cost and capital expenditure parameters retrieved from the technical report, net cash flow was then calculated. Looking at Table 14 below, operating costs were modelled by using the given concentrate production and mill throughput figures from the previous table.

Table 14: Calculation of Keno Hill polymetallic mine annual cash flow

2008 2009 2010 2011 2012 2013 2014 NSR USD millions - - 68.0 60.6 86.2 81.0 77.2

Mill Throughput Mt - - 0.091 0.091 0.146 0.146 0.139

Operating Costs CAD/t milled - - 213 234 189 181 184 CAD millions - - 19.4 21.3 27.6 26.4 25.6 USD:CAD Rate - - 0.89 0.89 0.89 0.89 0.89 USD millions - - 17.3 19.0 24.6 23.5 22.8

Operating Profit USD millions - - 50.7 41.7 61.7 57.5 54.4

CapEx USD millions 11.1 40.6 6.7 5.1 3.2 0.2 -4.1

NSR Royalty @ 1.5% USD millions - - 1.0 0.9 1.3 1.2 1.2

NET CASH FLOW USD millions -11.1 -40.6 43.0 35.7 57.2 56.1 57.3

Note that in this case operating costs were quoted in the relevant technical report in CAD dollars and a constant exchange rate of 89% was assumed for their conversion to USD in the report’s cash flow model.

These same parameters were used in the above analysis.

Capital expenditures and the royalty expense were subtracted from operating profit to arrive at net cash flow for the mine.

5.2.2 Calculation of silver stream cash flows for the stream seller

The silver purchase agreement between Alexco and Silver Wheaton regarding the Keno Hill mine has the following terms: a capital payment of $57.5 million, a transfer fee of $3.90/oz for silver delivered under the contract subject to a 1% inflationary adjustment beginning in the third year following the transaction, and an off-take agreement of 25% of payable silver over the LOM. From Table 13 above, payable silver quantities and silver price were taken to be used in the silver stream cash flow calculation, which is outlined below. The isolated stream cash flow from the perspective of the operating partner and mine owner was then able to be calculated, as outlined in Table 15. Cash in-flow was simply the transfer fee over the LOM, with the upfront payment being added in the appropriate years. Cash out-flow was the monetary value of the silver being delivered to Silver Wheaton under the contract; this is effectively the on-going cost that the operating partner must incur in exchange for the upfront payment.

Table 15: Silver stream cash flow calculation for Keno Hill mine, operating partner perspective

2008 2009 2010 2011 2012 2013 2014 Payable Ag Moz - - 2.99 2.99 4.79 4.79 4.56

SLW off-take % - - 25% 25% 25% 25% 25%

SLW attributable Ag Moz - - 0.75 0.75 1.20 1.20 1.14

TRANSFER FEE USD/oz - - 3.90 3.90 3.90 3.90 3.90 USD millions - - 2.9 2.9 4.7 4.7 4.5 Adjustment 1.00 1.00 1.00 1.00 1.01

Capital Payment USD millions - 14.9 32.6 2.5

TOTAL CASH IN-FLOW USD millions - 14.9 35.5 5.4 4.7 4.7 4.5

Ag price USD/oz - - 17.50 16.04 14.40 14.00 14.00

TOTAL CASH OUT-FLOW USD millions - - 13.1 12.0 17.2 16.8 16.0

NET CASH FLOW USD millions 0.0 14.9 22.4 -6.6 -12.6 -12.1 -11.5

Net cash flow was calculated by subtracting cash out-flow from cash in-flow. The cash flow series in

Table 15 resulted in a NPV of -$4.15 million when discounted at a WACC of 9.98%.

5.2.3 Calculation of silver stream cash flows for the stream buyer

Looking at Table 16, stream revenue was simply calculated using payable silver and the forecasted silver price assumptions. The total transfer fee was calculated using payable silver and the per ounce, adjusted transfer fee. The upfront payment by Silver Wheaton was scheduled to occur in three installments as outlined below. Net cash flow was then computed by subtracting the transfer fee from revenue, less the upfront payment installments for the years in which they were set to occur. Note that no tax was incurred due to the fact that Silver Wheaton does not pay any.

Table 16: Silver stream cash flow calculation of Keno Hill mine, Silver Wheaton perspective

2008 2009 2010 2011 2012 2013 2014 Payable Ag Moz - - 2.99 2.99 4.79 4.79 4.56

SLW off-take % - - 25% 25% 25% 25% 25%

SLW attributable Ag Moz - - 0.75 0.75 1.20 1.20 1.14

Ag price USD/oz - - 17.50 16.04 14.40 14.00 14.00

REVENUE USD millions - - 13.1 12.0 17.2 16.8 16.0

TRANSFER FEE USD/oz - - 3.90 3.90 3.90 3.90 3.90 USD millions 2.9 2.9 4.7 4.7 4.5 Adjustment 1 1 1 1 1.01

Capital Payment USD millions 14.9 32.6 2.5

NET CASH FLOW USD millions - -14.9 -22.4 6.6 12.6 12.1 11.5

The economic evaluation metrics for this cash flow were then able to be computed. When discounted at a

WACC of 8.02%, the NPV of the cash flow series in Table 16 is -$2.9 million, the IRR is 5%, and the

PVR is -0.07.

Chapter 6

Commodity and Mining Finance Review

Silver is a unique commodity with a dual demand structure and the demand for silver generally tends to follow the demand for gold. Silver prices tend to move with gold prices and its price is characterized by the same volatile behaviour as is the case for gold. The unique nature of silver mine supply has significant implications for defining the target market for silver streaming, which is also linked to the current state of the mining finance industry. The role of silver streaming in mining capital markets is highlighted.

6.1 Silver commodity review

6.1.1 Demand and demand elasticity

As a commodity, silver is unique in that it is consumed in significant parts both as a precious metal or monetary/investment instrument and as an industrial metal, and thus has a dual demand structure. From

2002-2011, jewellery demand has been relatively uniform while demand in photography has decreased markedly with the popularization of digital photography (see Figure 4). Conversely, both industrial demand and demand for coins and bullion have increased steadily during this time. The net fabrication demand24 for silver has generally remained within the range of 800-900 Moz per annum during this time.

24 Fabrication demand is comprised of four sub-sectors: photography, jewellery and silverware, industrial, and coins & bullion.

Fabrication Demand 1000 900 800 700 600 500

400 MozSilver of 300 200 100 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Industrial Photography Jewellery and Silverware Coins and Medals

Figure 4: Fabrication demand for silver, 2002-2011. Source: The Silver Institute

The dual demand structure of silver is reflected in Figure 5 below where it can be seen that fabrication demand accounted for ~73% of total global demand, with investment demand accounting for the remainder. Fabrication demand remained fairly constant until 2008 when it dropped by 10.6% in 2009 and promptly recovered to approximate 2008 levels in 2010. Supply on the other hand followed fabrication demand until 2005 when it exceeded fabrication demand and continued to do so in the years that followed, effectively creating a growing supply surplus over fabrication demand.

Silver Supply and Demand 1200

1100

1000

Total Demand 900 Supply (Mine and Scrap)

Fabrication Demand (Excl. coins) MozSilver of 800

700

600 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Figure 5: Supply and demand of silver, 2002-2011. Source: The Silver Institute

The excess of supply over fabrication demand has been absorbed by the growing investment demand during the period of 2004-2012. This growth in total supply and demand for silver has supported the maintenance of strong silver prices during this period. The surge in investment demand roughly began with the implementation of Barclays’ Global Investors iShares Trust Exchange Traded Fund (ETF) in

April of 2006. This was the first in a new wave of investment products that provided individuals and institutions with the opportunity to invest in tradable funds that were backed by physical gold and silver.

The popularity of silver as an investment vehicle is related to its traditional classification as a precious metal and its direct relationship to fluctuations in the price of gold. The relationship between gold and silver prices is tracked in Figure 6 below. Due to this relationship and its dual demand structure, silver has traditionally been a very price-volatile commodity.

Gold vs. Silver Price 1,800 70 1,600 60 1,400 50 1,200 1,000 40

800 30

600 Gold Gold Price ($/oz) 20 Silver Price ($/oz) 400 10 200 0 0 1980 1985 1990 1995 2000 2005 2010

Gold Silver

Figure 6: Real prices of gold and silver, 1980-2011. Source: LBMA

Conversely, because of its rarity and relatively minimal use in industrial applications, gold has always existed and still does exist primarily as a store of value. Hence, gold has a one-dimensional demand structure and its demand is typically inelastic with respect to price. In other words, the demand for gold in general will be affected minimally by price fluctuations.

Perhaps the best way to describe silver’s demand elasticity is by comparing it to gold, historically. From

Figure 7 below, the fluctuations in the gold/silver ratio exhibit very clearly the relative changes in demand between each metal across the period presented. Impacts on monetary/investment demand for silver due to precious metal price movements have historically been much larger than impacts on the demand for gold, which is exhibited by greater fluctuations in the silver price.

Gold:Silver Price 100 90 80 70 60 50 40

Gold Silver Gold Price toRatio 30 20 1980 1985 1990 1995 2000 2005 2010

Figure 7: Gold to silver price ratio from 1980-2011. Source: LBMA

Silver supply and the price of silver have responded primarily to changes in monetary/investment demand for silver and much less so to changes in fabrication demand. Thus, it is an unfortunate truth for industrial consumers of silver that the price of this particular raw material will be driven almost entirely by precious metal demand, which stems mainly from the demand for gold as a store of monetary value.

Looking again at Figure 5 and Figure 6, when silver prices increased due to increased investment demand from 2004-2011, silver fabrication demand trended lower or remained relatively stagnant. Conversely, when investment demand for silver was relatively low in 2002-2003 and silver prices were depressed, fabrication demand was higher since silver was more affordable. Fabrication demand is relatively elastic with respect to price, and the silver price is affected primarily by monetary/investment demand, which is only one aspect of its dual demand structure.

Referring to Figure 8, one sees that the investment demand for silver has recently grown significantly both in volume and in value. The volume of silver in investment holdings grew from approximately

162.8 Moz in 2007 to about 674.6 Moz in 2011, representing an increase of over 400%. During the same time period, the value of those silver holdings grew from ~$700 million to ~$9.8 billion; an increase of over 1300%. With such large holdings of physical silver, if investors were to liquidate their holdings en masse this would certainly de-stabilize the market and likely result in a silver price collapse. The dramatic increase in volume and value of investment holdings beginning in 2008 reflects a phenomenon termed “safe-haven investing”. Safe-haven investing is the widespread investment of funds in securities or commodities that are generally accepted to be historically valuable, such as precious metals, in reaction to turbulent and uncertain global economic situations. Following the onset of the most recent global recession in 2008, this phenomenon is clearly observable with silver in Figure 8.

Cumulative Investment Demand- Volume vs. Value 800 12 700 10 600 8 500 400 6 300

MozSilver of 4

200 USD billions USD billions (current) 2 100 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cumulative Volume Value

Figure 8: Cumulative investment demand volume vs. value, 2002-2011. Source: The Silver

Institute; Scotia Mocatta

While silver is priced primarily as a precious metal, the maintenance of a strong silver price cannot be accomplished with investment demand alone as it is a volatile component of total demand. Indeed,

62 fabrication demand and its most important sub-sector, industrial demand, are essential to the long-term maintenance of strong silver prices. Perhaps the most important driver of future fabrication demand is the various new applications of silver in several industries, namely health, electronics, and renewable energy.

Many of these applications are in the manufacturing of nano-technologies, thus using minute per-unit amounts of silver. As such, widespread acceptance and use of these products are required before the impact on silver demand is realized. Other applications of silver such as in plasma displays and as solders in mobile electronics make use of much more silver but are luxury items whose demand is dependent on economic recovery. With safe-haven investment demand currently accounting for the growth of supply and supporting the silver price, growth in demand for these new products is essential to the future stability and strength of the silver market and prices.

6.1.2 Supply

Silver supply is comprised of two components – (1) mined production, and (2) secondary existing supplies (recycled metal). The majority of silver supplied by mining operations comes from mines whose primary product is not silver, but other metals, such as gold and copper. In other words, silver is most often a secondary product, that is a by-product or co-product of production targeting other commodities.

This is due to its widespread geological occurrence with economic minerals of both gold and base metals.

The significant implication of this is that the majority of mined silver supply is relatively insensitive to the silver price itself and thus characterized by price inelasticities.

Silver Mine Supply 900 800 700 600 500

Moz 400 300 200 100 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Primary Non-primary

Figure 9: Total silver mine supply-primary vs. by product output, 2002-2011. Source: Scotia

Mocatta

Approximately 58% of total silver mine output is as a by-product of base metals (Pb/Zn and Copper),

(see Figure 10). This is significant because it demonstrates the reliance of silver supply on base metal prices. It can be seen that the largest mine supply threat is driven by near-term base metal prices; if prices decrease enough to force production cutbacks globally, by-product silver output will also suffer. Thus, fabrication demand for silver does not necessarily drive silver supply and the price elasticity of supply is theoretically zero.

Silver Output by Mine Type

21% 29% Primary Gold Pb/Zn Copper 13% 37%

Figure 10: Silver output by mine type, 2011. Source: The Silver Institute

6.1.3 Relevance to analysis of silver streaming business model

The successful implementation of the silver streaming business model is reliant on two factors:

 The maintenance of a strong silver price;

 A large potential target market of silver metal producers, willing to sell their production forward

in exchange for advance payment.

Strong demand from fabrication and industrial uses establishes the foundation for a relatively stable silver metal market. Demand for physical silver as a store of monetary value typically increases during times of economic uncertainty and depression, resulting in an upward movement of prices. Prices and total demand have tended to remain stable during times of economic stability and prosperity.

Today, investment demand, irrespective of emerging new industrial applications, is the main driver behind an expanding market for physical metal and is the main support for the strong prices currently in play. New applications of silver can provide a buffer, fill part of the gap which would emerge should investors sell off significant amounts of their physical silver holdings, and mitigate to some extent the impact of any declines in investment demand.

On the supply side, since ~70% of silver mine output is as a by-product of other primary commodities, a large target market of potential clientele exists for silver streaming businesses. The majority of gold and base metal companies with silver output likely consider silver to be a non-core by-product of the processes required to extract their primary products. Furthermore, shareholders of gold and base metal companies are much less likely to object to the forward sale of non-core silver production. Thus, unlike with other metallic commodities, the majority of mining companies producing silver are probably more open to exploring such transactions as a means of accessing additional capital.

6.2 Mining finance review

The mining industry is facing a severe shortage of available financing due to several coinciding factors.

To begin with, depressed economic activity has been observed globally over Q1 2012, due primarily to an economic crisis in Europe and a lacklustre recovery from the recession that began in 2008. This negative economic outlook is being reflected in generally depressed commodity prices (particularly base metals) and has direct and negative effects on the valuations of both senior and junior mining companies, alike

(Ernst & Young, 2012). These depressed equity valuations are exacerbated by the widespread perception that the mining industry is not stable (Global Mining Finance Ltd., 2012). Depressed corporate valuations are generally not conducive to equity financings, given that completing such transactions at undervalued stock prices results in undesirable shareholder dilution and is generally viewed negatively by both stakeholders and the market. Further to this, banks have become increasingly reluctant to lend

66 capital to the mining industry (Turnbull, et al., 2012). This applies particularly to junior mining and exploration companies, who banks typically view as too risky for their strict risk constraints. All of the above factors are coinciding at a time when energy prices and the cost of labour are simultaneously increasing which have led to an increase in overall capital and operating costs (Ernst & Young, 2012).

This upwards capital cost pressure makes mining and exploration companies all the more desperate for financing as they attempt to bring major and complex development projects into commercial production and further develop earlier stage exploration projects (Chiu, et al., 2012). In summation, the mining industry is currently in short supply of financing through traditional means during a notable period of cost inflation and depressed commodity prices (Ernst & Young, 2012).

The quasi-financing service that the silver streaming business model provides might currently be an attractive financing option for junior and senior mining companies alike when put into the context of the current and short term mining finance environment. With the relative unavailability of debt funding and the significant dilution that equity funding would cause with depressed corporate valuations, selling a silver stream represents a method of gaining access to capital in a dismal financing environment.

Chapter 7

Case Study: Silver Wheaton Perspective

The original seed financing for Silver Wheaton will be reviewed and discussed to demonstrate the method by which silver streaming businesses can receive initial funding and to explore the rationale of financiers in providing funding. The results of a financial analysis of a representative set of silver streaming agreements owned by Silver Wheaton form the basis of a preliminary enterprise analysis of the business model. A sensitivity analysis highlights the variable factors that affect the value of silver streams the most. Finally, a simple analysis of Silver Wheaton’s financial future is carried out to ascertain various silver price floors that the enterprise should be capable of withstanding.

7.1 Initial financing of Silver Wheaton Corp.

Silver Wheaton was originally created as a spinoff business entity from a separate mining company for the specific strategic purpose of realizing market value from precious metal production that was previously not being recognized due to the company’s exposure to base metal production. In doing so,

Silver Wheaton undertook its first silver stream agreement with the operator of the San Dimas mine in

2004. This occurred concurrently with a succession of important equity financings. A private placement was completed in August 2004 for gross proceeds of CAD $70 million followed by a private placement in

November 2004 for gross proceeds of CAD $60.75 million. These financings were followed by a bought deal in December 2005 which raised another CAD $100 million25 (Silver Wheaton Corp., 2005). The

25 Underwritten by a syndicate led by GMP Securities L.P. and including Scotia Capital Inc., Haywood Securities Inc. and Fort House Inc. who purchased 15,625,000 units at a price of CAD$6.40 per unit. Each unit was comprised of one common share and one Series “B” common share purchase warrant; each whole warrant entitled the holder to purchase one common share at a strike price of CAD$10.00 with an exercise date of December 22, 2010.

68 genesis and inner workings of Silver Wheaton’s initial financing have not been made public and it is not possible to speculate on the rationale of the underwriter with regard to these initial financings.

Though these equity financings generated a significant amount of seed capital, the capital raised was not sufficient to underwrite the silver stream purchases that Silver Wheaton put in place over its first 3-4 formative years. Consequently, Silver Wheaton approached the commercial banks and by July 2007 had secured another USD $500 million in bank credit facilities in the form of a USD $200 million non- revolving term loan and a USD $300 million revolving term loan from the Bank of Nova Scotia and

BMO Capital Markets who were the co-lead arrangers and administrative agents under the agreement

(Silver Wheaton Corp., 2007).

During this time frame, Silver Wheaton had been working on finalizing a silver purchase agreement with

Goldcorp Inc. for the Penasquito polymetallic project. The deal was consummated on the same day as the bank credit facilities were announced in July 2007 for the advanced stage development project in Mexico, which was not yet a producing mine. From 2007-2010, Silver Wheaton was able to arrange deals with four junior exploration/mining companies, also with no production anticipated for a number of years at the time the deals were finalized. Junior exploration companies are generally deemed to be too high risk by commercial banks to qualify for loan capital.

As a start-up company, it would seem that Silver Wheaton should have been regarded by the banks to be as risky as their junior exploration/mining operating partners, yet banks still saw fit to finance this company. The explanation for such a discrepancy in risk tolerance can be explained by two primary factors. The first is that the debt financiers recognized that Silver Wheaton’s management team, largely composed of former geologists and mining engineers, was experienced enough to properly vet potential

69 operating partners in a way that was superior to what the lenders could do themselves. The second, more likely explanation, is that prior to the acquisition of the four stream acquisitions with “risky” companies,

Silver Wheaton had completed three stream acquisitions with established producing mines and had demonstrated increasing operating cash flows since its inception and incorporation in 2004.

7.2 Results of isolated stream financial analysis

A preliminary enterprise analysis of Silver Wheaton’s business model was undertaken. Financial metrics were calculated using a DCF model applied to each of nine individual silver streams. The NPV, IRR, and

PVR for each stream were calculated twice, using a consensus silver price forecast and a partially- realized/bullish silver price series for contrast. The isolated silver stream cash flows were discounted at the calculated WACC value of Silver Wheaton at the time of each deal. To illustrate the approach taken, the results of one of the stream purchases evaluated is reproduced below (see Table 17 and Table 18 for the estimated cash flows for the two price scenarios and Table 19 for the calculation of the WACC used to discount the cash flows).

Table 17: Cash flow models for Stratoni silver stream, consensus price scenario

2007 2008 2009 2010 2011 2012

Ag Price (US$/oz) 13.40 13.00 12.50 11.00 10.50 10.5

Stream Cash Flow

Silver Wheaton (US$ MM) -46.3 15.1 16.1 13.3 12.1 10.5

European Goldfields (US$ MM) 43.4 -19.0 -20.3 -16.7 -15.2 -13.2

Table 18: Cash flow models for Stratoni silver stream, bullish price scenario

2007 2008 2009 2010 2011 2012

Ag Price (US$/oz) 13.38 14.43 17.08 27.91 32.37 30.00

Stream Cash Flow

Silver Wheaton (US$ MM) -46.3 17.5 24.7 45.1 52.8 42.2

European Goldfields (US$ MM) 45.2 -19.3 -27.3 -49.8 -58.3 -46.6

Table 19: Calculation of WACCs used to discount Stratoni silver stream cash flows

Parameter Silver Wheaton European Goldfields 2 Stdev market 0.0050

covarmarket,share price 0.0078 0.0113 Beta 1.568 2.277 Risk-free rate 4.17% Market return 5.581%

Ke 6.4% 7.4% E 397 312

Kd not applicable not applicable D 0 0 T not applicable 37.9% PWACC 6.38% 7.38%

Detailed data and calculations covering the other eight stream purchases can be found in Appendices A and B. The input parameters used for each of the analyses are summarized in Table 20 below.

Table 20: Summary of key input parameters for the analyses of Silver Wheaton's silver stream

deals

Upfront Transfer WACC/MARR Term of Year of Attributable LOM at Stream Payment Fee Off-Take Deal Time Zero Ag (oz/yr) time of deal SLW Partner (US$ MM) (US$/oz) Zinkgruvan LOM 2004 50 3.90 100% 2,000,000 12 years 10.00% 13.28% Yauliyacu 20 years 2006 285 3.90 100% 4,750,000 20 years 9.44% 10.00% Stratoni LOM 2007 57.5 3.90 100% 1,000,000 5 years 6.38% 7.38% Penasquito LOM 2007 485 3.90 25% 7,000,000 25 years 5.75% 4.81% Mineral Park LOM 2008 42 3.90 100% 300,000 21 years 6.70% 5.83% Campo Morado LOM 2008 80 3.90 75% 1,000,000 7 years 7.92% 6.70% Keno Hill LOM 2008 50 3.90 25% 5,000,000 5 years 8.02% 9.98% Pascua-Lama LOM 2009 625 3.90 25% 9,000,000 25 years 6.92% 2.27% Rosemont (Ag) 3.90 2,400,000 LOM 2012 230 100% 21 years 10.77% 10.83% Rosemont (Au) 450 15,000

7.2.1 Financial analysis at consensus silver price forecasts

The financial analysis was first carried out using consensus silver price forecasts as the base case, as aggregated from and detailed within equity research reports from several firms published at most three months prior to the deal dates. The financial results for each of the analyses are presented in order from oldest to youngest by acquisition date and are detailed in Table 21, below. Note that a rating was assigned to each stream deal based on its financial performance with respect to the outlined criteria; good, marginal, or bad.

Table 21: Results of base case silver stream financial analysis, Silver Wheaton perspective

NPVWACC Stream (2011 USD IRR PVR WACC Comment MM) Zinkgruvan -35 -6% -0.59 20% Bad Yauliyacu -113 2% -0.35 9% Bad Stratoni 11 15% 0.17 6% Good Penasquito -98 4% -0.18 6% Bad Mineral Park 14 12% 0.32 7% Good Campo Morado -34 -9% -0.42 8% Bad Keno Hill -3 5% -0.07 8% Bad Pascua-Lama 14 7% 0.02 7% Marginal Rosemont 46 14% 0.20 11% Good

Using the more conservative consensus price series, expected base case financial results for Silver

Wheaton’s silver streams were for the most part found not to be financially positive or profitable. Four of the nine silver streams yielded positive NPV and PVR values and one of these four, Pascua-Lama, yielded an IRR value that was equal to Silver Wheaton’s calculated WACC at the time. Three of the four financially positive streams yielded NPV values that were relatively low. The remaining five silver streams yielded negative NPV and PVR values, as well as IRR values that were less than calculated

WACC values for the deal times26.

These results suggest that, when evaluated at base case silver prices, the silver streaming business model produced negative economic results more than 50% of the time. The majority of the streams that are economically feasible would be expected to generate relatively meagre returns. Particularly disappointing are the metrics resulting from the significant Pascua-Lama stream, a large scale polymetallic mining project that, as of the deal date, was expected to deliver an average of ~5.4 Moz per annum to Silver

Wheaton during its estimated commercial life. With a low NPV of USD $14 million and an IRR

26 Recall that a negative IRR value can arise when the NPV is less than the present value of the initial investment.

73 equivalent to Silver Wheaton’s WACC at the time, the Pascua-Lama stream acquisition barely satisfies the previously outlined criteria for economic feasibility. Generally, it can be concluded that Silver

Wheaton’s silver streams are not good investments when considered at conservative/base case silver price scenarios.

7.2.2 Financial analysis at bullish silver price forecasts

For contrast and comparison, the financial analysis was then carried out using bullish/partially-realized silver price series, as quoted by the LBMA. For an explanation of this price series, refer to Section 0 and

Appendix C. The financial results are presented in Table 22, below.

Table 22: Results of bullish silver stream financial analysis, Silver Wheaton perspective

NPVWACC Stream (2011 USD IRR PVR WACC Comment MM) Zinkgruvan 56 36% 0.94 20% Good Yauliyacu 30 12% 0.10 9% Good Stratoni 104 56% 1.66 6% Good Penasquito 76 8% 0.15 6% Good Mineral Park 121 35% 2.70 7% Good Campo Morado 7 11% 0.08 8% Good Keno Hill 51 58% 1.12 8% Good Pascua-Lama 1052 25% 1.87 7% Good Rosemont 365 33% 1.54 11% Good

Using the partially-realized/bullish case silver price series resulted in positive NPV and PVR values, as well as IRR values that exceed corporate WACC in every case. Of particular interest is the Pascua-Lama

74 stream with a NPV value of ~$1 billion. When evaluated at bullish silver price forecasts, the silver streaming business model is economically feasible in every sense and can in fact be quite lucrative.

7.3 Sensitivity analysis

Three of the key input parameters were varied in each silver stream’s cash flow model to determine to what extent their variation could improve or further diminish investment attractiveness. These include (1) the size of the upfront payment, (2) the amount of committed metal, and (3) the long term silver price.

Additionally, the impact of delaying the anticipated start-up of production was also evaluated. The first three parameters were varied in increments of 10% from a range of -90% to +100% of their base case values. Base case values for the size of the upfront payment and long term silver price are summarized in

Table 23 below. The base case values for the amount of committed metal vary annually for each project and can be found in Appendix B. Note that the variations for the silver price were based on the consensus pricing scenario. The production start-up delay was varied from 1-5 years for this analysis.

Table 23: Summary of base case values used in silver stream sensitivity analyses

Base Case Upfront Base Case LT Silver Year LT Stream Payment (US$ MM) Price (US$/oz) Pricing Begins Zinkgruvan 50 5.10 2009 Yauliyacu 285 7.50 2011 Stratoni 57.5 10.50 2011 Penasquito 485 9.00 2012 Mineral Park 42 11.00 2016 Campo Morado 80 13.00 2014 Keno Hill 50 14.00 2013 Pascua-Lama 625 13.22 2015 Rosemont (Ag) 14.00 230 2016 Rosemont (Au) 875

The streams’ NPV sensitivities to long term silver price are shown in Figure 11 below. It can be seen that the Pascua-Lama stream was by far the most sensitive, with a +/- 20% change in long-term silver price resulting in a +/- 908% change in NPV value. The Penasquito stream was also very sensitive to a change in the long-term silver price; a +/- 20% change in the long term silver price resulted in a +/-120% change in NPV. The Keno Hill and Rosemont streams were both approximately equally as sensitive to this parameter, as were Stratoni and Mineral Park. Yauliyacu, Zinkgruvan, and Campo Morado were all relatively insensitive to this parameter.

400% 2500%

2000%

1500%

200%

1000%

Lama) Zinkgruvan - 500% Yauliyacu Stratoni 0% 0% Penasquito -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Mineral Park Campo Morado

Change in NPV in Change -500% Keno Hill Rosemont -1000% Change in NPV (Pascua NPV in Change Pascua-Lama -200%

-1500%

-2000%

-400% -2500% Change in Ag Price

Figure 11: NPV sensitivity of all analyzed streams to long-term silver price, base case Silver

Wheaton perspective

The majority of the streams were expectedly very sensitive to changes in the long term silver price, with the notable exceptions of Campo Morado and Zinkgruvan. The Zinkgruvan stream deal was completed at a time when the long term silver price was forecasted to be about $5/oz, which makes its relative insensitivity to this parameter unsurprising. The Campo Morado stream’s insensitivity to LT silver price can be explained by its relatively short expected LOM of seven years at the time of the deal.

Figure 12 shows the NPV sensitivities of all nine analyzed streams to the upfront payment, at the base case silver price forecast. Pascua-Lama was the most sensitive to this input parameter, with a +/- 20% change in upfront payment resulting in a -/+ 825% change in NPV value. Keno Hill was sensitive to this parameter, as well; a +/- 20% change in upfront payment results in an average -/+ 280% change in NPV value. The Rosemont, Penasquito, and Stratoni streams were approximately equally as sensitive to this parameter, as were Mineral Park, Yauliyacu, and Campo Morado. Zinkgruvan was relatively insensitive to this parameter.

800% 2500%

2000% 600%

1500%

400%

1000%

Lama) Zinkgruvan

200% - 500% Yauliyacu Stratoni 0% 0% Penasquito -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Mineral Park Campo Morado

Change in NPV in Change -500% -200% Keno Hill Rosemont -1000% Change in NPV (Pascua NPV in Change Pascua-Lama -400%

-1500%

-600% -2000%

-800% -2500% Change in Upfront Payment

Figure 12: NPV sensitivity of all analyzed streams to upfront payment, base case Silver Wheaton

perspective

The relative insensitivity of Zinkgruvan, Yauliyacu, Mineral Park, and Campo Morado to the upfront payment values suggests that these streams were undervalued from the perspectives of the operating

77 partners and that Silver Wheaton underpaid for the forward silver production in each of these deals. Both the Zinkgruvan and Yauliyacu streams occurred at times of depressed silver prices, which would partially justify their owners’ underselling of forward silver production. In contrast, the Campo Morado and

Mineral Park deals occurred during times of rising silver prices. Given that Farallon and Mercator were junior mining companies looking for financing at the times of each respective deal, it is not necessarily surprising that they undersold their forward production in exchange for necessary capital that might not have been readily available to them through traditional means of financing.

Figure 13 shows the NPV sensitivities of all nine streams to changes in silver production27 with all other parameters held at base case values. As can be seen, the Zinkgruvan, Yauliyacu, and Campo Morado streams were all relatively insensitive to silver production. Pascua-Lama was the most sensitive stream to this parameter with a +/-20% change in silver production resulting in a +/-845% change in NPV. The

Keno Hill stream was the next most sensitive to this parameter with a +/-20% change resulting in a +/-

260% change in NPV. The Stratoni and Rosemont streams were only slightly less sensitive to silver production than Keno Hill, and the Penasquito and Mineral Park streams were approximately equally as sensitive.

27 Precious metal production for Rosemont.

800% 2500%

2000% 600%

1500%

400%

1000%

Lama) Zinkgruvan

200% - 500% Yauliyacu Stratoni 0% 0% Penasquito -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Mineral Park Campo Morado

Change in NPV in Change -500% -200% Keno Hill Rosemont -1000% Change in NPV (Pascua NPV in Change Pascua-Lama -400%

-1500%

-600% -2000%

-800% -2500% Change in Silver Production

Figure 13: NPV sensitivity of all analyzed streams to changes in silver production, base case Silver

Wheaton perspective

Though the majority of Silver Wheaton’s streams were very sensitive to changes in silver production levels at the times of each deal, three in particular were not so; Zinkgruvan, Yauliyacu, and Campo

Morado. Again, the presence of Zinkgruvan and Yauliyacu in this group can be explained by depressed silver prices and forecasts, while Campo Morado can be explained by its forecasted low silver production values and short LOM.

Figure 14 shows the NPV sensitivities of all nine silver streams to years of continuous production delay.

The Pascua-Lama stream was the most sensitive to production delay, with a two year delay resulting in a

616% decrease in NPV value. The Keno Hill stream was the next most sensitive, with a two year delay resulting in a -508% change in NPV value. Stratoni was relatively sensitive to production delay, with a two year delay resulting in a -244% change in NPV value. The Rosemont stream NPV decreased by

126% with a two year delay, while the remainder of the streams registered less than 100% decreases in

NPV value with identical delays.

0 1 2 3 4 5 0%

-200%

-400% Zinkgruvan Yauliyacu -600% Stratoni

-800% Penasquito Mineral Park -1000% Campo Morado -1200% Keno Hill

Impact Impact onStream NPV Pascua-Lama -1400% Rosemont -1600%

-1800% Production Delay (Years)

Figure 14: NPV sensitivity of all analyzed streams to years of continuous production delay, base

case Silver Wheaton perspective

The streams that were not as sensitive to this parameter were generally those earlier streams in Silver

Wheaton history that took place during times of depressed silver prices, and thus depressed consensus silver price forecasts.

7.4 Estimation of tolerable silver price floors

As previously described in Section 4.1.4, an attributable silver production profile for Silver Wheaton from

2012-2021 was subjected to an experiment to test the lowest silver price that the enterprise could bear in any given year. An upfront capital commitment was assumed in 2012 ranging from US$600 million to

US$2 billion in increments of US$200 million, with the silver price being held constant across every year

80 of the study. For each capital commitment scenario, the silver price was incrementally decreased until the

IRR of the cash flow series roughly matched Silver Wheaton’s currently calculated WACC of 4.11%.

The price at which this match occurred is theoretically the lowest silver price that the enterprise can tolerate for that capital commitment scenario. The results of the exercise are presented in Table 24.

Table 24: Minimum tolerable silver price values for Silver Wheaton at various levels of 2012 capital

commitment

2012 Capital Minimum Commitment tolerable Ag (USD MM) price (USD/oz) 600 5.26 800 5.79 1,000 6.33 1,200 6.86 1,400 7.39 1,600 7.94 1,800 8.47 2,000 8.99

As can be seen, Silver Wheaton could theoretically spend up to $2 billion in 2012 and tolerate a silver price as low as $8.99/oz in any given year or years while maintaining a minimally acceptable enterprise

IRR value.

7.5 Discussion

7.5.1 Base case vs. bullish stream cash flows

While application of a bullish silver price series yielded the obvious outcome of better stream economics than using typically conservative consensus price estimates (base case), what is particularly interesting is the economic marginality of the base case stream economics. Seven of the nine base case stream NPV values fell within the range of -$50 to $50 million. The majority of Silver Wheaton’s organically- generated silver streams evaluated at base case consensus pricing turned out to be marginally economic.

Making investments that yield marginal economic returns are not considered to be good business practice.

Shifting to an IRR analysis, of the nine streams, only four generated IRR values that met or exceeded their respective corporate WACC values at deal time. The average base case stream IRR value of 5% is almost half as much as the average corporate WACC value of 9%, which does not satisfy the minimum criteria for investment. Indeed, the highest IRR value across the entire portfolio is from the Stratoni stream at 15%. This is partially attributable to the fact that the Stratoni stream was already a producing operation at the time of the deal, thus reducing the typical first year negative cash flow by approximately

19% of what it would have been had Stratoni been a development project with no production from the start. Clearly, Silver Wheaton’s silver streams are not good investments when considered at consensus/conservative/base case silver price scenarios. Given that the market at large consistently forecasted the short term price of silver at values that resulted in marginal economic feasibility for the majority of Silver Wheaton’s formative investments, it would seem that the decision of Silver Wheaton to undertake these investments was based on a belief in the robustness of silver’s economic fundamentals in the medium and long term.

In stark contrast, all of the silver streams evaluated at the partially-realized and/or bullish silver price series results in excellent project economics by all standards. While this is to be expected based on the sensitivity analyses presented, all stream economics are exceptionally profitable and deliver excellent

82 value to shareholders under this price scenario. This suggests a business strategy that is almost entirely reliant on a positive outlook for the long-term silver price. It would seem that Silver Wheaton management applied a more optimistic price scenario to their evaluation of the different stream purchase opportunities available to them.

7.5.2 Stream life and general comments on portfolio diversity

As can be seen in the abbreviated Table 25 below (extracted from Table 20), the majority of Silver

Wheaton’s silver streams are with mines or development projects that are expected to have moderately long or long lives (10+ and 20+ years, respectively). Three had relatively short lives at deal times (less than 10 years). It is important to note that all evaluation metrics are impacted negatively by a shorter stream life. With a shorter series of cash flows, there are a lesser number of discounted positive cash flows to offset the initial negative cash flow(s) due to the upfront payment, which inherently reduces the

NPV, IRR, and PVR values. Conversely, these negative effects on profitability metrics can be offset by highly favourable off-take agreements at a low transfer price resulting in Silver Wheaton taking a very large proportion of the mine/project’s silver production, as well as reduced uncertainty regarding silver price stability due to a shorter time period.

Table 25: Lives of Silver Wheaton streams at deal times

Stream Life at Deal Time Zinkgruvan 13 Yauliyacu 20 Stratoni 6 Penasquito 26 Mineral Park 25 Campo Morado 7 Keno Hill 5 Pascua-Lama 25 Rosemont 21

Nevertheless, Silver Wheaton did deals with three short life mines/projects that either had a history of mining/exploration success or significant potential for the addition of reserves, as is the case with Campo

Morado. Incidentally, both Keno Hill and Campo Morado have achieved full commercial production as of the cut-off date.

Silver Wheaton’s diverse portfolio of mines allows it to spread risk across several ‘calibres’ of operating partners (i.e. junior, mid-size, and senior mining companies) and across several parts of the mining cycle.

This has resulted in a generally reliable group of assets that can be expected to generate positive cash flow on an annual basis for the group of investments, so long as the price of silver does not fall below the transfer fee in any given year. It can thus be concluded that, silver price notwithstanding, Silver Wheaton has practiced sufficiently good business in its construction of a diverse group of silver purchase agreements, providing an excellent example of how to manage risk as effectively as possible within the constraints of the silver streaming business model.

7.5.3 Silver purchase agreement terms

The terms of the standard silver purchase agreement are extremely conducive to sustained and predictable positive cash flows, assuming a price of silver that is greater than the transfer fee. Its simplicity allows for fixed operating costs (i.e. the transfer fee) for the entire life of the agreement, effectively eliminating one of the two major variables that affect the operating cash flows of traditional business models, with revenue being the other.

7.5.4 Sustainability of silver streaming business model as an enterprise

Silver Wheaton’s forecasted cash flow model based on their 2012 portfolio of silver streams suggests that

Silver Wheaton can tolerate very low silver prices while still maintaining a minimum enterprise IRR that is equivalent to current corporate WACC. This suggests that a well-established silver streaming business is generally sustainable with respect to silver price. Silver Wheaton, with its well-developed and diverse portfolio of silver streams, has enough producing and near-producing silver streams from mines with a variety of primary commodity products to sufficiently weather the bottom of a silver price cycle. The same cannot necessarily be said for a silver streaming business with less total streams, a more limited variety of primary mine types, less producing streams, or any combination of these factors. Furthermore, tax analysis was not carried out in the development of the enterprise model as Silver Wheaton does not currently pay any income tax; an untaxed silver streaming enterprise is unlikely to occur with another business entity and the introduction of taxation to the model could greatly affect its sustainability.

7.5.5 Risk mitigation through completion guarantees

In some cases, a silver purchase contract can include a provision for the optional repayment of Silver

Wheaton’s upfront capital contribution, specifically in the event of excessive project delay or

85 cancellation. This provision is often termed the “completion guarantee” or “completion test” and often takes the form of one or more deadlines by which the operating partner must complete a specific milestone or set of milestones related to project construction or production ramp-up; failure to meet a deadline would afford Silver Wheaton the right to demand the return of the upfront payment, in part or in full. As an example, the original Pascua-Lama silver purchase agreement required “Barrick to complete

Pascua-Lama to at least 75% of design capacity by December 31, 2015” (Silver Wheaton Corp., 2013a).

In the event that this condition is not satisfied, Silver Wheaton would be entitled to the repayment of the initial capital contribution of US$625 million less any silver delivered under the contract28 up to that point in time. This completion guarantee is not necessarily a part of every silver purchase contract and seems to be included as a provision in streams with large and complex development projects. Completion guarantees provide some considerable incentives for an operating partner to build projects as efficiently as possible and in a timely manner while simultaneously providing Silver Wheaton with significant insulation to project risk.

28 This is in reference to the silver that has been and is still to be delivered to Silver Wheaton from Barrick’s Lagunas Norte, Pierina, and Veladero mines until December 31, 2015, as per the original contract.

Chapter 8

Case Study: Silver Wheaton Operating Partner Perspective

The purpose of this chapter is to present an analysis of the viability of the silver streaming business model from the perspective of the stream seller, using a select subset of Silver Wheaton’s operating partners as a case study. The financial analysis of the nine silver stream agreements allows one to project the value of the selling decision of the mine explorer/operators. Sensitivity analyses were also applied to demonstrate the influence that some variable input parameters would have on the financial value of the silver streams to operating partner companies. Understanding the viability of such arrangements from the perspective of the stream seller is important for assessing the sustainability of the business model. If it works well for the sellers, then one might expect this business model to continue to fill a “financing” niche. If it proves not to be a “win” for the sellers, the client seller base may ultimately dry up. A discussion will ensue regarding the internal drivers that cause operating partner companies to pursue stream financing in lieu of traditional financing means. The possibilities for future target markets and operating partner types are also discussed.

8.1 Results of isolated stream financial analysis

The financial metrics previously outlined were calculated from the DCF models of each of nine individual silver streams and were evaluated at both a consensus silver price forecast as of the times of each deal and a partially-realized/bullish silver price series for contrast. The isolated silver stream cash flows were discounted at the calculated WACC value of each individual operating partner corporation at the time of each deal. Note that the IRR for each stream deal was omitted due to multiple contradictory results with respect to calculated NPV. For detailed information regarding the development of isolated silver stream cash flow models and the calculation of WACC in each instance, refer to Appendix B and Appendix A,

87 respectively. Additionally, a detailed summary of the various silver price series used in the financial analyses can be found in Appendix C.

8.1.1 Financial analysis at consensus silver prices forecasts

The results of the silver stream financial analysis at consensus base case silver prices are exhibited in

Table 26 below. As can be seen, three of the nine streams analysed yielded negative NPV values for the operating partner company at the base case silver price scenario. Note that a rating was assigned to each stream deal based on its financial performance with respect to the outlined criteria: good, marginal, or bad.

Table 26: Results of base case silver stream financial analysis, operating partner perspective

NPVWACC Stream (2011 USD WACC Comment MM) Zinkgruvan 33 13% Good Yauliyacu 117 10% Good Stratoni -9 7% Bad Penasquito 58 5% Marginal Mineral Park -17 6% Bad Campo Morado 34 7% Good Keno Hill 4 10% Good Pascua-Lama -352 2% Bad Rosemont 9 11% Marginal

These results suggest that when evaluated at base case silver price series, selling a silver stream can yield negative economic outcomes. Though six of the nine evaluated streams were economically feasible, two were only marginally so. The operating partner companies represent various calibres of mining company, from single-property junior miners/explorers to multinational, multi-asset corporations. No pattern with respect to economic value/viability and stream-seller calibre was observed. In fact, the worst stream

88 value observed was the Pascua-Lama stream with a NPV of USD -$352 million, a large poly-metallic development project owned and operated by Barrick Gold Corporation. Thus, it can be concluded that, generally speaking, selling a silver stream even at conservative silver price forecasts delivers marginal to poor financial value ~50% of the time.

8.1.2 Financial analysis at bullish silver price forecasts

The results of the stream financial analysis at the bullish/partially-realized silver price series is displayed in Table 27. When evaluated at bullish/partially-realized silver price forecast series, every stream analyzed resulted in negative NPV values. As can be seen, the Pascua-Lama silver stream delivers incredibly negative financial value to Barrick with an NPV of USD -$2.1 billion. These results suggest that, when assuming bullish/partially-realized silver price series, selling a silver stream delivers poor economic value and is an expensive financing method.

Table 27: Results of bullish case silver stream financial analysis, operating partner perspective

NPVWACC Stream (2011 USD WACC Comment MM) Zinkgruvan -114 13% Bad Yauliyacu -23 10% Bad Stratoni -98 7% Bad Penasquito -123 5% Bad Mineral Park -133 6% Bad Campo Morado -11 7% Bad Keno Hill -45 10% Bad Pascua-Lama -2,132 2% Bad Rosemont -289 11% Bad

8.2 Sensitivity analysis

To demonstrate NPV sensitivity three key input parameters were varied in each silver stream’s cash flow model: upfront payment, silver production, and long term silver price. Inputs were varied in increments of 10% from a range of -90% to 100% of their base case values. Base case values for the size of the upfront payment and long term silver price are repeated in Table 28 below.

Table 28: Summary of base case values used in silver stream sensitivity analyses

The streams’ NPV sensitivity to long term silver price is exhibited in Figure 15, below. It can be seen that the Rosemont stream is by far the most sensitive to long term silver price, with a +/-20% change resulting in a -/+426% change in stream NPV. Penasquito is also extremely sensitive to this input parameter, with a +/- 20% change resulting in a -/+230% change in NPV. The Keno Hill silver stream is relatively sensitive as well, with a +/- 20% change resulting in a -/+85% change in NPV. The remaining five streams are relatively insensitive to this input parameter.

600% 1250%

400% 750%

200% Zinkgruvan 250% Yauliyacu Stratoni 0% Penasquito -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Mineral Park Campo Morado

Change in NPV in Change -250% Keno Hill -200%

Pascua-Lama Change in NPV (Rosemont) NPV in Change Rosemont

-750% -400%

-600% -1250% Change in Ag Price

Figure 15: NPV sensitivity of all analyzed streams to long-term silver price, base case operating

partner perspective

The streams’ NPV sensitivity to value of upfront payment is displayed in Figure 16, below. Rosemont is the most sensitive to this input parameter with a +/-20% change resulting in a +/-453% change in NPV.

Keno Hill and Penasquito are approximately equally as sensitive to this parameter, with a +/-20% change resulting in a +/-186% change in NPV. The Stratoni stream is moderately sensitive to this stream, while

Mineral Park, Campo Morado, Zinkgruvan, and Pascua-Lama are not.

500% 1250%

300% 750%

Zinkgruvan 100% 250% Yauliyacu Stratoni Penasquito -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Mineral Park Campo Morado

Change in NPV in Change -100% -250% Keno Hill

Pascua-Lama Change in NPV (Rosemont) NPV in Change Rosemont

-300% -750%

-500% -1250% Change in Upfront Payment

Figure 16: NPV sensitivity of all analyzed streams to upfront payment, base case operating partner

perspective

The streams’ NPV sensitivity to delays in silver production29 is shown in Figure 17, below. As can be seen, the Rosemont stream is by far the most sensitive to silver production changes with a +/-20% increase resulting in an approximate -/+433% change in NPV value. Keno Hill and Stratoni are relatively sensitive to this parameter as well, with a +/-20% change resulting in a -/+166% change in NPV values for both streams. The remaining streams are all relatively insensitive to silver production with +/-20% changes resulting in changes to NPV ranging from -/+27% (Zinkgruvan and Penasquito) to -/+67%

(Mineral Park).

29 Precious metal production for the Rosemont stream.

500% 1250%

300% 750%

Zinkgruvan 100% 250% Yauliyacu Stratoni Penasquito -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Mineral Park Campo Morado

Change in NPV in Change -100% -250% Keno Hill

Pascua-Lama Change in NPV (Rosemont) NPV in Change Rosemont

-300% -750%

-500% -1250% Change in Silver Production

Figure 17: NPV sensitivity of all analyzed streams to changes in silver production, base case

operating partner perspective

8.3 Value of silver streams to development projects

In order to determine the financial effect the sale of a silver stream has on development projects in particular, two additional cash flow models involving all metal revenue were created for each development project in Silver Wheaton’s portfolio, with one exclusive of silver stream economics and one inclusive. The differences in project NPV and IRR when stream economics were included were then computed to outline the financial ramifications to each project from the sale of a silver stream. For additional insights, the percentage of construction capital funded by the stream and the incremental value lost, as calculated with Equation (6), were also calculated.

The results of this analysis are detailed in Table 29 below. As can be seen, project NPV values at the times of each deal were impacted positively by the stream sale in half of the cases. Contrary to this, IRR

93 values were significantly increased in all of the six cases. These seemingly contradictory results can be interpreted as follows: though stream sales have a mixed effect on the present values of the projects to the companies, they generally improve the theoretical returns on the companies’ investments in the projects.

This is likely due to the upfront payment being accounted for in the early years of the project and the relatively minor annual payments of silver metal throughout its operating years. With a minimum of 21% of expected construction capital funded by the stream sale across the set of six projects studied, the direct benefit to project realization is undeniable. Similarly, five of the six projects would lose less than 15% of expected average annual metal revenue in consideration of the stream sale. The outlying project, Keno

Hill, has a relatively high incremental value lost of 23% due to silver being one of its primary metallic products.

Table 29: Effect of silver stream sale on development project economics

% of capital Effect on Effect on Incremental Project funded by project NPV project IRR value lost stream Penasquito 13% 29% 53% 10% Mineral Park -1% 35% 21% 4% Campo Morado 14% 73% 64% 13% Keno Hill 4% 45% 79% 23% Pascua-Lama -15% 11% 21% 9% Rosemont 1% 15% 26% 5%

When considered altogether these results would suggest that the sale of a silver stream enacts positive changes on development project economics at best and slightly negative changes at worst. Though NPV values both increase and decrease, IRR values typically increase and the projects receive at minimum

20% of their necessary construction capital.

8.4 Internal drivers for opting for stream financing

Objectively, a company would pursue financing through the sale of a silver stream because it either is unwilling and/or unable to secure debt or equity financing at the time that it requires financing. The inability to secure debt or equity financing could be a function of the company’s size and position in the mining business cycle or it could be a function of external macroeconomic factors, such as a global recession. Further to this, the ability of junior to mid-sized exploration and development companies to complete debt financings has been hindered by the low tolerance for risk that creditors typically have with respect to potential debtors. Generally speaking, only well-established mining companies with proven cash flow bear credit ratings that allow them to secure debt financing on agreeable terms or at all. In times of economic growth, even the most junior of exploration companies has historically been able to successfully issue equity and raise capital. However, in times of economic decay when share prices are generally undervalued, management teams are largely unwilling to issue equity due to the effect that selling undervalued stock would have on their existing shareholder base.

Conversely, financing by silver stream sale offers some advantages over traditional financing means; the absences of direct cash liability and shareholder dilution are chief among them. Further to this, stream financings are generally equally as viable during time periods of both sparse and plentiful mining finance activity. Finally, the targeting of mining companies with non-core by-product silver by Silver Wheaton30, results in an agreeable bargain for the stream seller, as it generally does not have to worry about shareholder backlash for dealing out a primary company product in the transaction.

The rationale behind a management team securing stream financing over another form of financing cannot definitively be known, unless one were privy to the relevant internal discussions. Nevertheless,

30 Exception: Keno Hill silver stream.

95 educated speculations can be made and a brief study was undertaken to ascertain the potential driving forces behind each operating partner company deciding to sell a silver stream to Silver Wheaton. A simple summary of each operating partner’s balance sheet condition and financing history surrounding each silver stream deal is presented in Table 30 below. Note that the Yauliyacu mine’s owner, Glencore, was a private company at the time of its stream deal with Silver Wheaton and thus did not publish any information of substance regarding the deal; it has been omitted from this discussion. For descriptions of each operating partner’s relevant corporate and financing history, please refer to Appendix E.

Table 30: Financings and balance sheet condition of operating partner companies surrounding

stream financings

Financings surrounding stream deal? Balance sheet condition Stream Equity Debt Cash (USD MM) Debt (USD MM) Zinkgruvan- Lundin Y Y 25.7 0 Stratoni- European Goldfields Y N 34 0 Penasquito- Goldcorp Y Y 282.5 540 Mineral Park- Mercator Minerals Y Y 104.5 121.5 Campo Morado- Farallon Resources Y Y 15.9 2.5 Keno Hill- Alexco Resources Y N 6.2 0 Pascua-Lama- Barrick Y Y ~2,000 ~5,000 Rosemont- Augusta Resources Y Y 6.3 45.8

As can be seen, every operating partner company completed at least one financing through traditional means either in the year leading up to or the year following their silver stream sale to Silver Wheaton.

This would support the previously mentioned reasoning that the exhaustion of traditional financing avenues partially led to the pursuits of stream deals.

Of particular interest are the financing histories of the six junior to intermediate mining companies in this set (Barrick and Goldcorp being termed ‘senior companies’ for the purpose of this thesis). As can be

96 seen, all of them completed equity financings surrounding their stream deals; the handling of equity at the junior to intermediate company level requires careful decision-making, given the volatile nature of such companies’ share prices and the relatively small shareholder base. Further to this, three such companies

(Farallon, Alexco, and Augusta) had extremely low cash positions at the times of their stream deals.

Being that all three companies were in the relatively expensive development stage of their respective projects, they were likely in dire need of capital at the stream deal times. At the time of its silver stream sale, Augusta in particular had a debt position that was over seven times more than its meagre cash position, making it very unlikely that it could successfully sell debt to any lender. For these three junior companies, it can be postulated that they agreed to stream financing out of desperation; they all had limited cash positions at times when their other financing avenues were likely exhausted due to recent or planned financings.

As can be seen, the two senior mining companies, Goldcorp and Barrick, held debt that far exceeded their cash positions just prior to their deals with Silver Wheaton. While likely able to pursue other financing means due to their size, the author postulates that the combination of recent or planned financings and unfavourable balance sheet metrics were driving forces behind their sale of silver streams.

Three silver stream deals took place after the onset of the global recession that began in mid- to late 2008;

Keno Hill, Pascua-Lama, and Rosemont. While the probable rationale behind these deals have already been outlined, the external macroeconomic factors arising from the recession likely hindered the abilities and/or willingness of these companies to secure traditional financing. With depressed commodity prices leading to depressed share prices and company valuations, it may have been difficult for mining companies of all calibres to issue debt or equity on good terms during this time period. This is especially true of the two junior companies studied who required capital during this unfortunate time.

In summary, it is likely a combination of internal and external factors that drove these mining companies to make potential or actual financially lopsided stream sales to a stream buyer, Silver Wheaton. The exhaustion of traditional financing avenues, inability to pursue traditional financing due to company size and/or balance sheet condition, and depressed equity valuations due to macroeconomic factors likely all played roles in management teams’ decision to sell silver streams. Perhaps the most interesting observation of this study is the fact that silver streams were completed with mining companies of various calibres and sizes both during times of economic growth and recession. This suggests that silver stream financing can be readily accomplished at all times and does not discriminate based on company valuation.

8.5 Discussion

8.5.1 Isolated stream economics

At base case silver prices, only four silver streams generated non-marginal positive NPV values. Even at relatively conservative silver price forecasts, it can be seen that silver streams provided marginal value to

Silver Wheaton’s operating partners, if any at all.

At the partially-realized/bullish silver price series, stream NPV values were negative in every instance.

Given these two scenarios, it can then be concluded that when considered as a stand-alone series of cash flows, silver streams generally do not deliver positive financial value to operating partners.

8.5.2 Financial sensitivity of streams to operating partners

As all of the isolated stream cash flows are inversely sensitive to long term silver price (in some cases, extremely so), operating partner companies cannot have ignored the possibility of a bull market for silver when considering the stream deals. This would suggest that management teams in every case either had bearish views on long term silver fundamentals, had decided that upwards price risk was worth the value of the upfront payment at the time of the deals, or simply viewed non-core and/or by-product silver as an acceptable loss for upfront funds in each individual situation. As a commodity price forecast is by definition uncertain, it can be concluded that operating partner management generally viewed silver price volatility as a tolerable risk that was worth the upfront funds at the time.

The Penasquito, Rosemont, Stratoni, and Keno Hill streams are all relatively sensitive to the upfront payment. Conversely, the Mineral Park, Pascua-Lama, Zinkgruvan, Yauliyacu, and Stratoni streams are relatively insensitive to this parameter. This potentially suggests that the operating partners undersold their forward silver production on the latter five streams.

While the Rosemont, Keno Hill, and Stratoni streams are all relatively sensitive to changes in silver production, the remainder of the streams are all relatively insensitive to this parameter. This would suggest that, despite the largely poor financial value to operating partners of isolated streams at the base case, the majority of stream deals were at the very least economically robust enough to mitigate the negative financial outcomes of production increases due to the stream contract, from the perspective of the operating partners.

8.5.3 Sustainability of silver streaming business model as a financing service

While the results of this chapter show the relatively poor financial value of selling a silver stream, the shortcomings of both the debt and equity capital markets have historically created a void that this quasi- financing service seemingly fills, so to speak. Indeed, the silver streaming business model seems to have successfully exploited an inefficiency in the capital markets for almost a decade, and it is an inefficiency for which there is no solution through traditional financing means. As previously mentioned, mining companies have been willing participants of silver stream agreements during periods of both excellent and poor capital availability via debt and equity markets. This suggests that the ability to sell a silver stream is unaffected by macroeconomic factors, corporate valuations, the presence of other attractive financing options (during boom periods), and commodity markets to a degree.

By its very nature, silver is unique both economically and from a mine production standpoint, simultaneously making it both a valuable commodity for the stream buyer and an expendable by-product good that many mining companies (stream sellers) can viably offer as consideration in a deal. While it can safely be said that a primary gold or base metal producer would likely prefer to fully realize the value of its by-product silver output, giving up this commodity in exchange for essential project financing seems to have been an acceptable transaction for the stream sellers that did business with Silver Wheaton over the past 7-8 years.

In summary, the silver streaming business model offers a quasi-financing service that is sustainable insofar as silver remains an expendable commodity and traditional financing means cannot compete with it in terms of availability, impact on corporate capital structure, and impact on corporate finances.

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Chapter 9

Comparison of Silver Streaming to Traditional Financing Methods

In this chapter the characteristics, advantages, and disadvantages of both debt and equity financing will be reviewed and compared with selling a silver stream.

9.1 Debt financing overview

Debt financing is essentially the borrowing of money by a borrower from a lender (usually a bank) that is repaid through loan installments. In exchange for providing access to capital, the borrower must pay an additional interest rate on the principal amount borrowed from the lender. As well, in the event that the borrowing entity fails financially, the lender or creditor has claim to the borrower’s assets and typically has first right to reimbursement in many jurisdictions. The interest rate associated with a given loan is determined through several factors, including:

 The existence or lack of cash flows generated by the borrower and their reliability thereof;

 The tangibility of the borrower’s assets;

 The type of business the borrower is involved in;

 The credit rating of the borrower;

 Macroeconomic factors, such as the fluctuation of important interest rates (e.g. LIBOR31,

important national bank benchmark rates)

31 London Interbank Offered Rate: “An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market…the world’s most widely used benchmark for short-term interest rates.” (Investopedia)

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Debt financing offers some well-known advantages. Interest payments on principal loan amounts can be claimed as tax deductions, effectively aiding a company in servicing its debt. Furthermore, the obligations of the borrower are limited to the repayment of the principal along with interest; a lender does not receive any ownership of the borrowing entity in exchange for the loan.

However, debt financing is disadvantageous in some ways. Newer businesses and/or those without well- established and reliable cash flows might not be able to service their debt and make repayments on the agreed-upon schedule. This can result in extreme susceptibility to economic recessions when lenders might demand repayment of principal debt, or interest rate increases might lead to unsustainable debt servicing. Both of these events can lead to business insolvency. Additionally, accumulation of debt can result in an increased risk profile for a borrowing entity, which could make raising capital in the future more difficult.

9.2 Equity financing overview

Equity financing is the receipt of capital in exchange for an ownership position in a company. The monetary value of a given equity unit of a company is determined by several factors, including:

 The size and market positioning of the company;

 The existence or lack of cash flows generated by the company and the reliability thereof;

 The type of business the company is involved in;

 The quantity of any previously existing equity units;

 The market value of any previously existing equity units.

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Equity-holders have particular voting rights regarding certain of the enterprise’s business and internal activities. The primary advantage of equity financing is that the funds raised from an equity issue are not subject to repayment. The primary disadvantage is that the ownership of the company is diluted. The dilution of a company’s equity could eventually lead to a loss of authority or control of the enterprise’s activities, under specific circumstances.

9.3 Debt and equity financing in mineral exploration and mining

Discovering, proving, and developing a mineral deposit into a mine requires increasing quantities of capital at each respective stage in the mining business cycle. As a capital intensive industry, both equity and debt financing are essential to the successful capitalization of a mining enterprise.

However, debt financing is typically only available to a given company once it has reached the feasibility and pre-development stages of at least one mineral project. In a general sense, banks will only grant the large loans or credit facilities that mineral project development necessitates to those companies with proven cash flow or a high probability of near-term cash flow (i.e. companies in the feasibility stage).

Junior exploration companies have little to no tangible assets and no ability to generate cash flow in the near term. As such, banks will generally not lend to such companies.

Conversely, equity financing is typically available at all stages of the mining business cycle. While established commercial producers have access to both debt and equity, junior exploration companies can generally only raise capital through equity financings. As the value of equity is considerably more volatile than the value of debt, there are certain “windows of opportunity” in which mining companies can complete equity financings on good terms and when their stock is fairly or overly valued. These

103 windows typically occur during periods of upswing in both commodity price and global economic cycles.

During economic downturns or recessions experienced either globally or by certain influential nations, investor confidence in the mining industry generally falters and mining equity can become severely undervalued. During such periods equity financings are rare32. Looking at Figure 18 below, a sharp decrease in the total value of global mining equity financings occurred from 2011 to the first half of 2012.

The reasons for the rarity of equity financings during periods of depression can vary based on company type. Generally, junior to senior companies with one or more producing operations are able to successfully complete equity financings but often choose not to due to undervaluation, while high-risk exploration ventures with no production and cash flow cannot generate enough investor interest to complete such financings33.

32 A notable exception to this rule is illustrated by the recent US$3 billion public equity offering of Barrick Gold Corp., the majority of which is to be used to service short and medium term debt obligations (Barrick Gold Corp., 2013). Mining firms that are large and influential enough can generate enough investor interest to raise money through equity sales at all points in the mining cycle. In this instance, Barrick obviously believed that the pros of servicing debt would outweigh the cons of raising money through the sale of grossly-undervalued stock. 33 No publicly available quantitative data could be found to support this statement.

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Total value of global mining equity financings 70

30 C$ billions 20

0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 H1 2012

Figure 18: Total value of global mining equity financings (C$ billions), 1999-2012. Source:

PricewaterhouseCoopers

Though the use of both debt and equity financing methods are integral to the success of a mining company, it can generally be said that equity financing is the pervasive method of raising capital across the entire mining business cycle. Generally speaking, debt financing becomes more common and achievable both as projects move closer to commercial production and as companies become more established with respect to their cash flows and project diversity.

9.4 Comparison of silver streaming to debt and equity

Silver streaming differs from both debt and equity financing methods in many respects. Firstly, purchasing a silver stream does not afford the buyer any ownership of the selling entity, as is the case with equity financing. Secondly, the consideration for the upfront payment is not in the form of a repayment schedule at a set interest rate and over a specific period of time, as is the case with debt financing. Rather, the consideration is in the form of a pre-determined proportion of commercially-

105 produced silver provided to the buyer, usually for the life of the mine. Therefore, using a silver stream sale to finance development or plant expansions does not impact a company’s balance sheet as does debt, nor does it have any effect on the company’s capital structure or ownership as is the case with equity financing.

Often, the life of a mine as originally planned for is significantly extended based on the addition of future reserves that the owner delineates with near-mine exploration in the course of mining the original deposit.

This affords the stream buyer rights to any exploration upside and expansion of production capacity that the stream seller might achieve during the life of the mine. Further to this, the value derived by the stream buyer in consideration for the upfront payment is directly governed by the price of silver and not interest rates, thus making the purchase of a silver stream an indirect hedge on silver34. Conversely, if an operating partner were to go bankrupt or if the mining operation in question should be closed, the silver stream owner would receive nothing from the operating partner and have the lowest priority claim on its assets, if any at all.

Financing via silver stream is particularly unique with respect to the temporal diversity with which capital can be raised using this method. This is to say that silver stream financing has been completed during upswings and recessions in the mining industry, alike. This is likely due to the fact that the decision to buy a silver stream from a particular company is not influenced by such factors as credit rating, company valuation, size of the company, or position in the mining business cycle. Truly, the ability to secure silver stream financing is dependent on the quality of the mineral project in question and the capability of the project-owner’s management team to bring it into production (if it is a development project), if given the necessary capital.

34 While not a direct hedge position on the price of silver as defined by the financial derivatives industry, the success of a silver stream is entirely dependent on a healthy silver price during at least a portion of its lifetime.

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Thus, silver streaming, while fundamentally different than debt and equity financing in its core characteristics, is also fundamentally different with regard to its availability in time and its effect on the selling company’s balance sheet, capital structure, and ownership structure. It offers a potentially more expensive alternative to mining and exploration companies that may not be able to secure financing in other ways; the degree to which it is expensive is entirely dependent on the price of silver. Silver streaming exploits a niche of the mining finance industry that cannot be addressed by either debt or equity due to the very nature of these financing methods. Nevertheless, the risks to the operating partners are straightforward and well-known: potentially giving up more value than the upfront payment is worth should the price of silver remain high during periods of the contract term.

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Chapter 10

Conclusions and Discussions

In this thesis generally accepted mineral economic analytical methods were used to evaluate a relatively new investment and capital funding model, using the silver streams owned by Silver Wheaton Corp. as a case study. The deals were evaluated from both the perspective of Silver Wheaton, the stream buyer, and that of its operating partners, the stream sellers. Ten year cash flow forecasts were used to stress test

Silver Wheaton’s financial stability at various silver price forecasts. Internal drivers for opting to finance via the sale of a stream in lieu of traditional methods were investigated and discussed, from the perspective of the operating partner. Silver streaming was then qualitatively compared to both debt and equity financing to provide an understanding of the major differences between these methods. As the deals selected for evaluation were put in place between 2004 and 2010, with silver producing profiles extending from 4 to 28 years, silver prices had to be projected to 2036 to enable this predictive evaluation of the ‘profitability’ of these deals. The specific conclusion reached from the case study analysis is that the majority of silver streams generated marginal to excellent financial returns to the streaming entity while generating marginal to poor returns to the operator of the underlying mine, depending on the forecasted silver price series employed. However, the general conclusion reached regarding the viability of ‘streaming’ as a business model and mode of alternative mine financing was positive.

10.1 Summary

Silver is a unique commodity with two types of demand: demand as a store of value and demand as an industrial metal. Further to this, the majority of silver mine supply is generated as a by-product of either base metal or gold mines. The pricing of silver in the open markets reflects both its supply inventory and the extent of demand at any given time, the latter of which is robust due to its dual nature.

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A new type of physical commodity investment vehicle emerged in the early 2000s called metal streaming; it was applied to silver and gold, and has been used by metal producers to raise funds outside of conventional financing means. This quasi-financing method involves the sale of a “stream” of future metal products at a fixed price in exchange for an advance payment.

From the perspective of the stream buyer, the evaluation suggested that when the silver price is conservative/bearish/low, buying a silver stream is a moderately successful investment at best. When the silver price is bullish/high, the purchase of a silver stream is an excellent investment. The simple nature of the silver streaming business model, its relatively low risk profile, exposure to upside exploration potential, lack of future capital obligations, and essentially fixed operating costs all contribute to optimal profit margins and investor returns.

However from the perspective of the producers committing future production against capital financing, the financial returns to operating partners were questionable even with conservative estimates of prices.

Through reviews of the financial situations and recent financings of operating partners surrounding each stream deal, it was shown that silver stream financing was nevertheless an attractive method for these companies to raise capital during periods when they could not access or did not want to access capital through conventional means.

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10.2 Conclusions and general discussion

10.2.1 Silver streaming as an enterprise

Insofar as the silver price remains relatively strong, the silver streaming business model is an excellent one. The work presented in this thesis showed very clearly the good return on investment that several public examples of silver streams provide.

Qualitatively, the ability to fix operating costs at the agreed-upon transfer fee results in an economically robust business structure with reliable profit margins. Additionally, the lack of any further capital obligations on the part of the stream seller provides exposure to exploration upside without the burden of associated costs. The primary risk associated with operating the silver streaming business model is silver price risk; this one is shared by all entities that produce silver. While the risk that an underlying mine or project gets shut down or does not reach commercial production is significant, it is presumably mitigated through careful and objective project selection, due diligence, and by the nature of the silver purchase agreement in the sense that the upfront capital payment itself contributes to a reduction in the probability of a production delay or shutdown. Holistically, the silver streaming business model as it exists at the time of this writing is an objectively good enterprise to operate.

A review of Silver Wheaton’s ample initial financing leads to the conclusion that the ideal strategy for the successful implementation of the silver streaming business model is to first acquire streams with mines that have demonstrated silver production in order to generate positive operating cash flows in the formative years of the business. Not only is this strategy good business sense, but it is likely to significantly increase the probability of securing financing of any type, both at the inception of the business and throughout the course of growing it.

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10.2.2 Silver streaming as a quasi-financing service

As a means of financing, silver streaming was shown to be relatively expensive at both conservative and bullish silver price forecasts. In this regard, it is a poor financing method on a strict financial basis.

However, selling a silver stream was shown to increase development project IRR values in the majority of cases studied.

Qualitatively, silver stream financing allows the stream seller to realize present value from non-core by- product silver production, while preventing both the shareholder dilution and increased financial liability that equity and debt financing methods introduce. Stream financings were completed in every case studied at points in time around which other financings by one or both traditional methods were completed. Furthermore, stream financings were completed by companies of various sizes during both upswings and downturns in the mining cycle. These two facts would suggest that silver stream financing is available at times in metal price cycles during which other financing might not be.

10.2.3 Disproportionate risk profile of silver streaming

Silver stream buyers generally benefit financially from silver stream agreements while stream sellers do not. This can be attributable in large part to the absence of cost escalation in the silver streaming business model. The standard silver stream contract structure has been established by Silver Wheaton such that the stream buyer has never been required to assume any direct risk due to cost escalation, as reflected in its fixed transfer fee. This would suggest that discount rates assigned by analysts to Silver Wheaton’s corporate and stream valuations would be lower than those if Silver Wheaton were the mine operator, given its favourable risk profile. Conversely, the operating partner assumes all of the cost escalation risk,

111 which implies that a higher discount rate should be assigned to its stream and corporate valuation than if it had pursued financing through other means than a silver stream.

Furthermore, Silver Wheaton has been able to successfully mitigate project risk through the inclusion of completion guarantees in some of its streams with large scale and complex development projects (refer to

Section 7.5.5). Such guarantees almost completely protect Silver Wheaton against project delay or cancellation, although Silver Wheaton has already once proven to be flexible with respect to project delay35. Completion guarantees serve to further de-risk the silver streaming model from Silver Wheaton’s perspective and decrease their exposure to risk relative to that of their operating partners.

The combination of this factor coupled with almost a decade of relatively elevated silver price history will allow potential operating partners to negotiate silver stream terms such that the risk profiles of the stream sellers and buyers converge. The author fully expects future silver stream transactions to include upward revisions to the historical transfer fee and upfront payment levels. Although less likely, other revisions to future silver streams could include variations of contract term length (i.e. less than the LOM) and lower off-take percentages for Silver Wheaton.

10.2.4 Potential to stream commodities other than silver

The question of whether the silver streaming business model can be replicated with other commodities to the same degree of success as silver is a difficult one to answer. Incidentally, approximately two months prior to this writing Silver Wheaton completed a gold purchase agreement with Vale S.A. (Vale), a multi-

35 In 2013, Silver Wheaton extended the deadline for the completion test at Pascua-Lama on two separate occasions by a total of two years in response to Barrick’s announced delays at the project (Silver Wheaton Corp., 2013b).

112 national and multi-commodity Brazilian mining corporation, the terms of which are summarized in Table

31.

Table 31: Details of Silver Wheaton-Vale gold purchase agreement, February 28, 2013

Stream Consideration36 Transfer Fee Off-take Term

Salobo Mine US$1.33 billion US$400/oz 25% LOM

Sudbury Mines US$570 million US$400/oz 70% 20 years

Vale is a notable primary base metal producer with a significant amount of by-product gold output from several of its mines. The targeting of Vale’s non-core, by-product output by Silver Wheaton is consistent with their past investment selection strategy. The size and international scope of the deal suggests that gold streaming can be successfully completed with base metal producers on an on-going basis. Further to this, the company Sandstorm Ltd. (Sandstorm) owns several gold, silver, copper, natural gas, and palladium streams. While much smaller and less successful to date than Silver Wheaton, Sandstorm’s continued existence is a testament to the commodity streaming business model and evidence that it can be replicated with other commodities to some degree of success. It remains to be seen whether employing the business model using other commodities can be as successful as silver streaming has proven to be.

36 Additionally, Silver Wheaton issued 10 million Silver Wheaton warrants with a strike price of US$65.00 and a term of 10 years to Vale as a portion of the consideration for this deal.

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10.3 Conditions for the existence of the silver streaming business model

Although likely not the original intent of the company that founded it, the silver streaming business model has evolved to become a significant financing option within the Canadian mining finance industry. In this regard, its core competency is the quasi-financing service it provides to exploration and mining entities.

In the long term, silver streaming can only continue to be a viable enterprise to the extent that corporate entities continue to sell silver streams as a means of raising capital in lieu of issuing debt or equity. While commodity prices and macroeconomic factors play important roles in the ebbs and flows of mining business activity, Silver Wheaton has generated new purchase agreements and produced formidable profit margins and cash flows through a significant global recession and a period of decreasing commodity prices. Due to its targeting of a truly unique commodity that is intrinsically linked to several important primarily-produced metals, the silver streaming business model has proven to provide an attractive alternative, complement, or supplement to traditional financing methods particularly when their availability is constrained. A primary condition that governs the existence and success of this business model is the continued periodic unavailability of both debt and equity financings in the mining business cycle.

The relatively risky business of hard rock exploration and mining and the volatile nature of various metal prices have historically resulted in “dead periods” during which companies owning even the best exploration prospects, development projects, and mines find it difficult to secure financing via debt and equity. Additionally, during time periods in which capital is abundantly available to exploration and mining firms, silver stream financings have been completed when debt and equity issues could not be implemented due to financial and capital structure constraints. It is during such times that the true strength of the silver streaming business model is exhibited in the service it provides to exploration and mining corporations: the delivery of cash up front with little to no effect on capital structure or additional financial liability. These shortages in mining finance have always been present; Silver Wheaton just

114 happened to be the first to employ the business model at the right time and strictly targeted what is arguably the commodity with the best economic fundamentals to operate this type of enterprise with.

An equally important condition to the viability of this business model is a silver price environment that is sufficiently high to support a profitable business. While this condition has clearly held true over the past

7-8 years, it is impossible to accurately predict whether this condition will hold at any point in the future.

However, the dual nature of silver demand provides for a theoretically robust commodity price that should perform reasonably well under conditions of both economic boom and bust, which is presumably one of the key reasons for targeting silver in this business model.

10.4 Replication of Silver Wheaton experience and potential for new market

entrants

The rise of Silver Wheaton to its current size and degree of success can likely never be replicated again using the silver streaming business model. Silver Wheaton came into existence just prior to a bull run in precious and base metal prices that followed nearly a decade of depressed prices and corporate valuations.

The frenzied exploration and mining activity that occurred from roughly 2005 to the end of 2008 provided the perfect industrial environment for Silver Wheaton to compile a strong portfolio of both producing assets and promising development projects. The focused strategy of completing stream deals with four producing mines right from its inception provided the necessary cash flow to support future deals with non-producing development projects. The continuously rising price of silver during the first seven years of Silver Wheaton’s existence allowed it to accrue a significant cash position and post excellent profit margins. Finally, Silver Wheaton’s profits have been virtually un-taxed, a unique situation that likely would not be replicable by other companies. All of these factors indicate the extreme unlikelihood of any

115 new entrant into the silver streaming market achieving a similar degree of success to that of Silver

Wheaton in as short a time period.

Having said this, the target market for the silver streaming business model is vast and Silver Wheaton is currently the only publicly-traded silver streaming company in the world that is operating within this specific market. From this perspective, it is entirely possible for new companies to employ the silver streaming business model and achieve some success. To do so, any new market entrant would have to offer similar or better terms in its silver purchase agreements than those offered by Silver Wheaton.

Moreover, any new market entrant would have to be prepared to defend against a takeover attempt by

Silver Wheaton, hostile or otherwise; with its large market capitalization and relatively large pool of cash and capital resources at its disposal Silver Wheaton is currently well-positioned to absorb any new competitor. This very situation played out in 2009 when Silverstone Resources Inc., a competing silver streaming business, was taken over by Silver Wheaton. Nevertheless, the market for buying silver streams of various sizes and on a global scale is large enough for other companies employing this business model to come into existence, and the author expects this to be the case over the coming decade.

10.5 Risk elements for the silver streaming business model

There are a number of critical risks that have the potential to affect the future viability of the silver streaming business model, chief among them being silver price risk. Although the standard silver purchase agreement affords the stream buyer the right to purchase silver at the lesser of the transfer fee and the going spot price, an extended depression in the silver price would negatively impact the return on investment, cash flows, and equity valuation of any silver streaming company. As commodity prices are naturally volatile, there can be no certainty that the price of silver will remain sufficiently high enough to support silver streaming firms that are smaller than Silver Wheaton (i.e. less than five producing assets).

116

However, the dual demand structure of silver as both an industrial and precious metal bodes well for the future stability of its price, as new technologies and industrial uses begin to become widely implemented in the coming decade.

Silver Wheaton is exposed to the negative effects of potential project delay, project cancellation, mine shutdown, or the failure of the project’s operator. These kinds of project-specific risks can be mitigated through careful and objective technical and financial due diligence by Silver Wheaton with respect to project and operator selection, as well as proper vetting of a potential operator partner’s management and technical teams.

Another significant risk exposure of the business model is the possibility of silver streaming falling out of favour with mining companies as an alternative form of financing. Given the disparity in risk that currently favours the stream buyer in the standard silver purchase agreement, it is not unlikely that mining companies will demand better terms at some point in the future. Should these demands not be met by silver streaming companies existing at the time, deal generation could become sparse. In this regard, it is very likely that silver purchase contract terms will be revised in the future both to reflect this risk disparity and the current high value of silver. Some probable contract revisions in order of decreasing likelihood include increased transfer fees, increased capital requirements for upfront payments, and less off-take for the stream buyer. Similarly, albeit far less likely, silver stream financing could become less sought after should lenders increase their risk tolerance and begin to provide financing to producers during periods of upwards cost pressure or poor commodity prices and to riskier junior exploration companies.

117

A lesser risk to the business model is that enough competing silver streaming companies enter the market so as to dilute the deal availability, so to speak. Again, the risk disparity that exists in favour of stream buyers over sellers could potentially allow smaller, less established silver streaming companies to undercut the market and offer significantly better deal terms than those offered by Silver Wheaton in a suitably positive silver price environment. While this risk is real, several more companies would first have to enter the market and establish themselves without being taken over by Silver Wheaton. The longer that Silver Wheaton is the sole participant in the silver streaming market, the less likely it will be that one company could successfully enter the market without being acquired, let alone several.

10.6 Future work and recommendations

10.6.1 Future work

Add to data set

The study of Silver Wheaton would greatly benefit from the addition of more organically-generated silver streams, which presumably will occur over time. A re-visitation of this topic at some point in the future with a greater sample size of silver streams would certainly add more validity to the results and trends reported.

Increase accuracy of cash flow models

The modelling of mines/projects underlying silver streams from the operating partner perspective would be much improved through the additions of detailed working capital, royalty, depreciation, and tax modelling. Though reasonable assumptions were made to account for these items within the scope of this thesis, model accuracy would be improved by researching and incorporating them to the best degrees

118 achievable, preferably by an individual or group of individuals who are specifically trained in accounting practice.

Investigation of effect of taxation

Though not currently exposed to any Canadian income tax on recorded earnings, Silver Wheaton may very well be in its future. A detailed model of Silver Wheaton, inclusive of forecasted income tax payable and back-tax liability, would provide an important perspective for investors and ER analysts alike who wish to understand the effects of such a potential change.

Statistically-derived commodity price forecasts

An ideal report on Silver Wheaton would incorporate statistically-derived price forecasts for all commodities required. This would provide more validity to forecasted cash flow models.

10.6.2 Recommendations

Published research improvements

Equity research analysts tend to focus on a prescribed set of outputs when evaluating and publishing reports on public corporations. While these outputs certainly provide for excellent analysis of traditional businesses, the business of Silver Wheaton is unique and does not necessarily fall into a single category within which it can be compared to other companies, even other royalty/streaming firms that generate revenue from multiple commodity types. Due to the non-traditional nature of its services and revenue source, Silver Wheaton should routinely be compared to royalty/streaming firms, primary silver producers, and silver ETFs/trusts in any ER report. Furthermore, a brief description of Silver Wheaton’s primary target market, inclusive of a summary of the prevailing state of the mining finance market, should

119 be regularly included in a discussion of Silver Wheaton’s business to better convey the drivers of this company’s growth and success.

Monitor Silver Wheaton's proportion of global silver mine output

Currently accounting for 4% of annual global mine output, Silver Wheaton is expecting to increase this proportion to 6% by FYE 2016. The author believes that Silver Wheaton’s attributable proportion of global silver mine output will only continue to grow, given its past business success, attractive target market, and lack of direct competitors. While far from occurring at the present, Silver Wheaton could potentially account for a significant proportion of silver output from mines at some point in the future and in doing so corner the silver market. This position should be monitored by national banks, relevant stock exchanges, the LBMA, and by Silver Wheaton itself, who likely would not intend to profit unduly from such a position and would likely not want the value of its equity to be affected negatively by such publicity.

120

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Appendix A

Data Used in Beta Factor and WACC Calculations

This section will present the data used in the calculation of the beta factor and WACC for both Silver

Wheaton and their operating partners at the times of each silver purchase agreement.

Silver Wheaton Data

Yauliyacu transaction

Table 32: Share price and index data used to calculate the Beta factor for Silver Wheaton at the

time of the Yauliyacu stream deal

Normalized Normalized Date S&P/TSX SLW S&P/TSX SLW 03/23/2006 12,018 13.01 1.28 3.72 02/23/2006 11,739 8.65 1.25 2.47 01/23/2006 11,733 6.63 1.25 1.89 12/23/2005 11,245 6.40 1.20 1.83 11/23/2005 10,920 5.94 1.17 1.70 10/21/2005 10,291 5.19 1.10 1.48 09/23/2005 10,904 4.87 1.16 1.39 08/23/2005 10,480 4.11 1.12 1.17 07/22/2005 10,375 3.89 1.11 1.11 06/23/2005 9,998 3.95 1.07 1.13 05/24/2005 9,518 3.47 1.02 0.99 04/22/2005 9,367 3.50 1.00 1.00

140

Table 33: Calculation of Beta factor for Silver Wheaton at the time of the

Yauliyacu stream deal

Parameter Value 2 Stdev market 0.009

covarmarket,SLW 0.056 BetaSLW 6.49

Table 34: Market return data used in the calculation of Silver Wheaton Ke at the time of the

Yauliyacu stream deal

Real Return Year (Pre-tax) 1985 5% 1986 13% 1987 -13% 1988 14% 1989 -2% 1990 -16% 1991 4% 1992 -9% 1993 35% 1994 -12% 1995 21% 1996 21% 1997 8% 1998 -1% 1999 24% 2000 7% 2001 -20% 2002 -16% 2003 26% 2004 6% Average 4.81%

141

Table 35: Calculation of Silver Wheaton Ke at the time of the Yauliyacu stream deal

Parameter Value Risk-free rate 3.79% Market return 4.81% Beta 6.49

Ke 10.39%

Table 36: Calculation of WACC for Silver Wheaton at the time of the Yauliyacu stream deal

Parameter Value E 397

Ke 10.39% D 120

Kd 6.31% PWACC 9.44%

Note that Silver Wheaton’s cost of debt, Kd, was taken as the effective interest rate on debt provided in

Silver Wheaton’s financial statements for the first quarter of 2006.

Stratoni transaction

142

Table 37: Share price and index data used to calculate the Beta factor for Silver Wheaton at the

time of the Stratoni stream deal

Normalized Normalized Date S&P/TSX SLW S&P/TSX SLW 04/20/2007 13,665 12.85 1.18 1.38 03/22/2007 13,140 10.83 1.14 1.17 02/22/2007 13,318 12.41 1.15 1.34 01/22/2007 12,706 11.21 1.10 1.21 12/22/2006 12,718 11.95 1.10 1.29 11/22/2006 12,557 12.59 1.09 1.36 10/23/2006 12,119 11.39 1.05 1.23 09/22/2006 11,582 9.62 1.00 1.04 08/22/2006 12,201 11.52 1.06 1.24 07/21/2006 11,418 9.50 0.99 1.02 06/22/2006 11,130 9.43 0.96 1.02 05/23/2006 11,540 9.29 1.00 1.00

Table 38: Calculation of Beta factor for Silver Wheaton at the time of the

Stratoni stream deal

Parameter Value 2 Stdev market 0.005

covarmarket,SLW 0.008 BetaSLW 1.57

143

Table 39: Market return data used in the calculation of Silver Wheaton Ke at the time of the

Stratoni stream deal

Real Return Year (Pre-tax) 1987 -13% 1988 14% 1989 -2% 1990 -16% 1991 4% 1992 -9% 1993 35% 1994 -12% 1995 21% 1996 21% 1997 8% 1998 -1% 1999 24% 2000 7% 2001 -20% 2002 -16% 2003 26% 2004 6% 2005 27% 2006 7% Average 5.58%

Table 40: Calculation of Silver Wheaton Ke at the time of the Stratoni stream deal

Parameter Value Risk-free rate 4.17% Market return 5.58% Beta 1.57 Ke 6.38%

144

Table 41: Calculation of WACC for Silver Wheaton at the time of the Stratoni stream deal

Parameter Value E 397

Ke 6.38% D 0

Kd 0.00% PWACC 6.38%

Note that Silver Wheaton had no debt at the time of the Yauliyacu stream deal.

Penasquito transaction

Table 42: Share price and index data used to calculate the Beta factor for Silver Wheaton at the

time of the Penasquito stream deal

Normalized Normalized Date S&P/TSX SLW S&P/TSX SLW 07/23/2007 14,468 15.29 1.19 1.34 06/22/2007 13,986 12.73 1.15 1.11 05/23/2007 14,143 12.17 1.16 1.06 04/23/2007 13,629 12.79 1.12 1.12 03/23/2007 13,238 11.00 1.09 0.96 02/23/2007 13,344 12.62 1.09 1.10 01/23/2007 12,911 12.00 1.06 1.05 12/22/2006 12,718 11.95 1.04 1.04 11/23/2006 12,645 12.64 1.04 1.10 10/23/2006 12,119 11.39 0.99 1.00 09/22/2006 11,582 9.62 0.95 0.84 08/23/2006 12,195 11.44 1.00 1.00

145

Table 43: Calculation of Silver Wheaton Ke at the time of the Penasquito stream deal

Parameter Value 2 Stdev market 0.005

covarmarket,SLW 0.006 BetaSLW 1.17

Table 44: Market return data used in the calculation of Silver Wheaton Ke at the time of the

Penasquito stream deal

146

Table 45: Calculation of Silver Wheaton Ke at the time of the Penasquito stream deal

Parameter Value Risk-free rate 4.56% Market return 5.58% Beta 1.17

Ke 5.75%

Table 46: Calculation of cost of debt, Kd, for Silver Wheaton at the time of the Penasquito stream

deal

Parameter Value Bank debt (USD millions) 136 Effective interest rate 1.99% Silver interest payments due 368 Effective interest rate 8.16%

Kd 6.50%

The cost of debt was calculated by taking the weighted average of effective interest rates on debt, as reported in Silver Wheaton’s financial statements for the second quarter of 2007.

Table 47: Calculation of WACC for Silver Wheaton at the time of the Penasquito stream deal

Parameter Value E 759.8

Ke 5.75% D 0.453

Kd 6.97% PWACC 5.75%

147

Mineral Park transaction

Table 48: Share price and index data used to calculate the Beta factor for Silver Wheaton at the

time of the Mineral Park stream deal

Normalized Normalized Date S&P/TSX SLW S&P/TSX SLW 03/14/2008 13,253 19.18 0.97 1.49 02/15/2008 13,227 15.35 0.97 1.19 01/16/2008 13,075 16.37 0.96 1.27 12/14/2007 13,674 14.73 1.00 1.15 11/16/2007 13,530 14.67 0.99 1.14 10/16/2007 14,153 14.38 1.04 1.12 09/14/2007 13,846 12.60 1.01 0.98 08/16/2007 12,849 11.50 0.94 0.89 07/16/2007 14,338 14.24 1.05 1.11 06/15/2007 14,137 12.20 1.03 0.95 05/16/2007 14,025 12.12 1.03 0.94 04/16/2007 13,660 12.85 1.00 1.00

Table 49: Calculation of Silver Wheaton Ke at the time of the Mineral Park stream deal

Parameter Value 2 Stdev market 0.001

covarmarket,SLW -0.002 BetaSLW -1.40

148

Table 50: Market return data used in the calculation of Silver Wheaton Ke at the time of the

Mineral Park stream deal

Real Return Year (Pre-tax) 1987 1.7% 1988 14% 1989 -2% 1990 -16% 1991 4% 1992 -9% 1993 35% 1994 -12% 1995 21% 1996 21% 1997 8% 1998 -1% 1999 24% 2000 7% 2001 -20% 2002 -16% 2003 26% 2004 6% 2005 27% 2006 7% 2007 -1% Average 5.94%

Table 51: Calculation of Silver Wheaton Ke at the time of the Mineral Park stream deal

Parameter Value Risk-free rate 2.94% Market return 5.94% Beta -1.40

Ke 7.15%

149

Table 52: Calculation of WACC for Silver Wheaton at the time of the Mineral Park stream deal

Parameter Value E 814

Ke 7.15% D 386

Kd 5.74% PWACC 6.70%

The cost of debt for Silver Wheaton at the time of this deal was taken as the total effective interest rate, as reported in the Silver Wheaton financial statements for the first quarter of 2008.

Campo Morado transaction

Table 53: Share price and index data used to calculate the Beta factor for Silver Wheaton at the

time of the Campo Morado stream deal

Normalized Normalized Date S&P/TSX SLW S&P/TSX SLW 05/13/2008 14,617 13.99 1.04 1.21 04/14/2008 13,739 16.46 0.98 1.43 03/14/2008 13,253 18.10 0.95 1.57 02/05/2008 12,932 15.13 0.92 1.31 01/16/2008 13,075 16.85 0.93 1.46 12/06/2007 13,850 16.23 0.99 1.41 11/16/2007 13,530 14.80 0.97 1.28 10/09/2007 14,262 14.65 1.02 1.27 09/10/2007 13,625 12.90 0.97 1.12 08/10/2007 13,466 14.19 0.96 1.23 07/12/2007 14,356 14.83 1.03 1.29 06/14/2007 14,002 11.54 1.00 1.00

150

Table 54: Calculation of Silver Wheaton Ke at the time of the Campo Morado stream deal

Parameter Value 2 Stdev market 0.001

covarmarket,SLW -0.002 BetaSLW -1.61

Table 55: Market return data used in the calculation of Silver Wheaton Ke at the time of the

Campo Morado stream deal

Real Return Year (Pre-tax) 1988 6.8% 1989 15.3% 1990 -18.8% 1991 7.9% 1992 -3.5% 1993 30.3% 1994 -40.0% 1995 12.6% 1996 25.6% 1997 14.1% 1998 -2.6% 1999 28.4% 2000 4.0% 2001 -13.2% 2002 -15.7% 2003 24.2% 2004 12.1% 2005 21.5% 2006 15.4% 2007 7.3% Average 6.59%

151

Table 56: Calculation of Silver Wheaton Ke at the time of the Campo Morado stream deal

Parameter Value Risk-free rate 2.71% Market return 6.59% Beta -1.61 Ke 8.95%

Table 57: Calculation of WACC for Silver Wheaton at the time of the Campo Morado stream deal

Parameter Value E 814.2

Ke 8.95% D 386.3

Kd 5.74% PWACC 7.92%

The cost of debt for Silver Wheaton at the time of this deal was taken as the total effective interest rate, as reported in the Silver Wheaton financial statements for the first quarter of 2008.

Keno Hill transaction

152

Table 58: Share price and index data used to calculate the Beta factor for Silver Wheaton at the

time of the Keno Hill stream deal

Table 59: Calculation of Silver Wheaton Ke at the time of the Keno Hill stream deal

Parameter Value 2 Stdev market 0.003

covarmarket,SLW 0.005 BetaSLW 1.75

153

Table 60: Market return data used in the calculation of Silver Wheaton Ke at the time of the Keno

Hill stream deal

Table 61: Calculation of Silver Wheaton Ke at the time of the Keno Hill stream deal

Parameter Value Risk-free rate 1.88% Market return 6.15% Beta 1.75

Ke 9.35%

154

Table 62: Calculation of cost of debt, Kd, for Silver Wheaton at the time of the Keno Hill stream

deal

Parameter Value E 898.3

Ke 9.35% D 380

Kd 4.88% PWACC 8.02%

The cost of debt for Silver Wheaton at the time of this deal was taken as the total effective interest rate, as reported in the Silver Wheaton financial statements for the third quarter of 2008.

Pascua-Lama transaction

155

Table 63: Share price and index data used to calculate the Beta factor for Silver Wheaton at the

time of the Pascua-Lama stream deal

Normalized Normalized Date S&P/TSX SLW S&P/TSX SLW 09/04/2009 11,017 12.65 1.12 1.89 08/07/2009 10,885 10.62 1.11 1.59 07/07/2009 9,844 9.03 1.00 1.35 06/05/2009 10,569 11.61 1.08 1.73 05/07/2009 9,967 10.17 1.01 1.52 04/07/2009 8,825 9.33 0.90 1.39 03/06/2009 7,591 8.57 0.77 1.28 02/06/2009 9,008 8.23 0.92 1.23 01/07/2009 9,121 6.80 0.93 1.01 12/05/2008 8,117 3.96 0.83 0.59 11/07/2008 9,596 4.21 0.98 0.63 10/07/2008 9,830 6.70 1.00 1.00

Table 64: Calculation of Silver Wheaton Ke at the time of the Pascua-Lama stream deal

Parameter Value 2 Stdev market 0.011

covarmarket,SLW 0.024 BetaSLW 2.08

156

Table 65: Market return data used in the calculation of Silver Wheaton Ke at the time of the

Pascua-Lama stream deal

Real Return Year (Pre-tax) 1989 -2% 1990 -16% 1991 4% 1992 -9% 1993 35% 1994 -12% 1995 21% 1996 21% 1997 8% 1998 -1% 1999 24% 2000 7% 2001 -20% 2002 -16% 2003 26% 2004 6% 2005 27% 2006 7% 2007 -1% 2008 -35% Average 3.69%

Table 66: Calculation of Silver Wheaton Ke at the time of the Pascua-Lama stream deal

Parameter Value Risk-free rate 0.23% Market return 3.69% Beta 2.08 Ke 7.43%

157

Table 67: Calculation of WACC for Silver Wheaton at the time of the Pascua-Lama stream deal

Parameter Value E 1,306

Ke 7.43% D 150

Kd 2.52% PWACC 6.92%

The cost of debt for Silver Wheaton at the time of this deal was taken as the total effective interest rate, as reported in the Silver Wheaton financial statements for the second quarter of 2009.

Rosemont transaction

Table 68: Share price and index data used to calculate the Beta factor for Silver Wheaton at the

time of the Rosemont stream deal

Normalized Normalized Date S&P/TSX SLW S&P/TSX SLW 02/10/2010 11,286 15.28 1.43 1.99 01/08/2010 11,954 17.66 1.52 2.30 12/10/2009 11,465 16.35 1.45 2.13 11/10/2009 11,427 15.68 1.45 2.04 10/09/2009 11,437 14.55 1.45 1.90 09/10/2009 11,155 13.14 1.42 1.71 08/10/2009 10,794 10.39 1.37 1.35 07/10/2009 9,747 8.69 1.24 1.13 06/10/2009 10,598 11.30 1.34 1.47 05/08/2009 10,238 10.26 1.30 1.34 04/09/2009 9,187 9.58 1.17 1.25 03/10/2009 7,880 7.67 1.00 1.00

158

Table 69: Calculation of Silver Wheaton Ke at the time of the Rosemont stream deal

Parameter Value 2 Stdev market 0.022

covarmarket,SLW 0.052

BetaSLW 2.37

Table 70: Market return data used in the calculation of Silver Wheaton Ke at the time of the

Rosemont stream deal

Real Return Year (Pre-tax) 1990 -16% 1991 4% 1992 -9% 1993 35% 1994 -12% 1995 21% 1996 21% 1997 8% 1998 -1% 1999 24% 2000 7% 2001 -20% 2002 -16% 2003 26% 2004 6% 2005 27% 2006 7% 2007 -1% 2008 -35% 2009 27% Average 5.17%

159

Table 71: Calculation of Silver Wheaton Ke at the time of the Rosemont stream deal

Parameter Value Risk-free rate 0.18% Market return 5.17% Beta 2.37 Ke 12.02%

Table 72: Calculation of cost of debt, Kd, for Silver Wheaton at the time of the Rosemont stream

deal

Parameter Value Bank debt (USD millions) 136 Effective interest rate 1.99% Silver interest payments due 368 Effective interest rate 8.16% Kd 6.50%

The cost of debt for Silver Wheaton was calculated by taken as the weighted average of interest rates on bank debt and the Barrick silver interest payment liability, as reported in the 2009 Annual Report.

Table 73: Calculation of WACC for Silver Wheaton at the time of the Rosemont stream deal

Parameter Value E 1,724

Ke 12.02% D 503

Kd 6.50% PWACC 10.77%

160

Operating Partner Data

Lundin and the Zinkgruvan transaction

Table 74: Share price and index data used to calculate the Beta factor for Lundin at the time of the

Zinkgruvan stream deal

Normalized Normalized Date S&P/TSX Lundin S&P/TSX Lundin 12/07/2004 8,991 3.37 1.07 1.89 11/05/2004 8,869 2.93 1.06 1.64 10/07/2004 8,825 2.88 1.05 1.62 09/07/2004 8,369 2.33 1.00 1.31 08/06/2004 8,177 2.42 0.97 1.36 07/07/2004 8,482 2.58 1.01 1.45 06/07/2004 8,413 2.67 1.00 1.50 05/07/2004 8,275 3.17 0.99 1.78 04/08/2004 8,808 3.33 1.05 1.87 03/05/2004 8,845 3.33 1.05 1.87 02/06/2004 8,639 2.07 1.03 1.16 01/07/2004 8,389 1.78 1.00 1.00

Table 75: Calculation of Lundin Ke at the time of the Zinkgruvan stream deal

Parameter Value 2 Stdev market 0.001

covarmarket,SLW 0.005

BetaSLW 4.79

161

Table 76: Market return data used in the calculation of Lundin Ke at the time of the Zinkgruvan

stream deal

Table 77: Calculation of Lundin Ke at the time of the Zinkgruvan stream deal

Parameter Value Risk-free rate 2.56% Market return 4.81% Beta 4.79

Ke 13.31%

162

Table 78: Calculation of WACC for Lundin at the time of the Zinkgruvan stream deal

Parameter Value E 174.5

Ke 13.31% D 0.6

Kd 7.50% T 37.9%

PWACC 13.28%

The cost of debt was taken as the effective interest rate reported in the Lundin financial statements for the year of 2004. The information used to calculate Lundin’s effective tax rate was taken from this same document.

European Goldfields and the Stratoni transaction

Table 79: Share price and index data used to calculate the Beta factor for European Goldfields at

the time of the Stratoni stream deal

Normalized Normalized Date S&P/TSX EGU S&P/TSX EGU 04/20/2007 13,665 2.57 1.18 1.38 03/22/2007 13,140 2.49 1.14 1.34 02/22/2007 13,318 2.50 1.15 1.34 01/22/2007 12,706 2.20 1.10 1.18 12/22/2006 12,718 2.14 1.10 1.15 11/22/2006 12,557 2.03 1.09 1.09 10/23/2006 12,119 1.65 1.05 0.89 09/22/2006 11,582 1.80 1.00 0.97 08/22/2006 12,201 1.63 1.06 0.87 07/21/2006 11,418 1.71 0.99 0.92 06/22/2006 11,130 1.59 0.96 0.85 05/23/2006 11,540 1.86 1.00 1.00

163

Table 80: Calculation of European Goldfields Ke at the time of the Stratoni stream deal

Parameter Value 2 Stdev market 0.005

covarmarket,SLW 0.011 BetaSLW 2.28

Table 81: Market return data used in the calculation of European Goldfields Ke at the time of the

Stratoni stream deal

164

Table 82: Calculation of European Goldfields Ke at the time of the Stratoni stream deal

Parameter Value Risk-free rate 4.17% Market return 5.58% Beta 2.28

Ke 7.38%

Table 83: Calculation of WACC for European Goldfields at the time of the Stratoni stream deal

Parameter Value E 312

Ke 7.38% D 0

Kd 0.00% T 37.9% PWACC 7.38%

Note that European Goldfields had no debt at the time of the Stratoni silver stream transaction.

Goldcorp and the Penasquito transaction

165

Table 84: Share price and index data used to calculate the Beta factor for Goldcorp at the time of

the Penasquito stream deal

Normalized Normalized Date S&P/TSX Goldcorp S&P/TSX Goldcorp 07/23/2007 14,468 28.20 1.19 0.83 06/22/2007 13,986 26.11 1.15 0.77 05/23/2007 14,143 25.24 1.16 0.75 04/23/2007 13,629 28.51 1.12 0.84 03/23/2007 13,238 28.90 1.09 0.85 02/23/2007 13,344 32.99 1.09 0.98 01/23/2007 12,911 31.64 1.06 0.94 12/22/2006 12,718 31.46 1.04 0.93 11/23/2006 12,645 31.30 1.04 0.93 10/23/2006 12,119 26.14 0.99 0.77 09/22/2006 11,582 25.23 0.95 0.75 08/23/2006 12,195 33.81 1.00 1.00

Table 85: Calculation of Goldcorp Ke at the time of the Penasquito stream deal

Parameter Value 2 Stdev market 0.005

covarmarket,SLW -0.001 BetaSLW -0.20

166

Table 86: Market return data used in the calculation of Goldcorp Ke at the time of the Penasquito

stream deal

Table 87: Calculation of Goldcorp Ke at the time of the Penasquito stream deal

Parameter Value Risk-free rate 4.56% Market return 5.58% Beta -0.20 Ke 4.76%

167

Table 88: Calculation of Goldcorp's cost of debt, Kd, at the time of the Penasquito stream deal

Parameter Value Interest paid in Q2 2007 13 Long term debt 540

Kd 9.63%

Information from this table was taken from Goldcorp’s financial statements for the second quarter of

2007.

Table 89: Calculation of WACC for Goldcorp at the time of the Penasquito stream deal

Parameter Value E 12,634

Ke 4.76% D 540

Kd 9.63% T 38.7% PWACC 4.81%

Mercator and the Mineral Park transaction

168

Table 90: Share price and index data used to calculate the Beta factor for Mercator at the time of

the Mineral Park stream deal

Normalized Normalized Date S&P/TSX Mercator S&P/TSX Mineral Park 03/14/2008 13,253 10.75 0.97 2.01 02/15/2008 13,227 10.08 0.97 1.88 01/16/2008 13,075 9.53 0.96 1.78 12/14/2007 13,674 8.27 1.00 1.55 11/16/2007 13,530 9.64 0.99 1.80 10/16/2007 14,153 9.16 1.04 1.71 09/14/2007 13,846 6.85 1.01 1.28 08/16/2007 12,849 5.00 0.94 0.93 07/16/2007 14,338 9.00 1.05 1.68 06/15/2007 14,137 7.92 1.03 1.48 05/16/2007 14,025 5.58 1.03 1.04 04/16/2007 13,660 5.35 1.00 1.00

Table 91: Calculation of Mercator Ke at the time of the Mineral Park stream deal

Parameter Value 2 Stdev market 0.001

covarmarket,SLW -0.001 BetaSLW -0.53

169

Table 92: Market return data used in the calculation of Mercator Ke at the time of the Mineral

Park stream deal

Table 93: Calculation of Mercator Ke at the time of the Mineral Park stream deal

Parameter Value Risk-free rate 2.94% Market return 5.94% Beta -0.53 Ke 4.54%

170

Table 94: Calculation of WACC for Mercator at the time of the Mineral Park stream deal

Parameter Value E 70

Ke 4.54% D 122

Kd 11.5% T 42.8% PWACC 5.83%

Mercator’s cost of debt was taken as the interest rate on secured notes reported in its financial statements for 2007.

Farallon and the Campo Morado transaction

Table 95: Share price and index data used to calculate the Beta factor for Farallon at the time of

the Campo Morado stream deal

Normalized Normalized Date S&P/TSX Farallon S&P/TSX Farallon 05/13/2008 14,666 0.80 1.07 1.14 04/14/2008 13,683 0.78 1.00 1.11 03/14/2008 13,297 0.79 0.97 1.13 02/05/2008 13,087 0.75 0.95 1.07 01/16/2008 13,633 0.68 0.99 0.97 12/06/2007 13,809 0.70 1.01 1.00 11/16/2007 13,605 0.77 0.99 1.10 10/09/2007 14,296 0.76 1.04 1.09 09/10/2007 13,757 0.67 1.00 0.96 08/10/2007 13,466 0.72 0.98 1.03 07/12/2007 14,356 0.89 1.05 1.27 06/14/2007 13,724 0.70 1.00 1.00

171

Table 96: Calculation of Farallon Ke at the time of the Campo Morado stream deal

Parameter Value 2 Stdev market 0.001

covarmarket,SLW 0.001 BetaSLW 1.01

Table 97: Market return data used in the calculation of Farallon Ke at the time of the Campo

Morado stream deal

172

Table 98: Calculation of Farallon Ke at the time of the Campo Morado stream deal

Parameter Value Risk-free rate 2.71% Market return 6.59% Beta 1.01

Ke 6.63%

Table 99: Calculation of WACC for Farallon at the time of the Campo Morado stream deal

Parameter Value E 50.8

Ke 6.63% D 2.5

Kd 8.00% PWACC 6.70%

The information presented in Table 99 was taken from Farallon financial statements for the first quarter of

2008. Note that the cost of debt, Kd, was taken as the interest rate reported by Farallon on corporate debt;

6% in addition to LIBOR. As historical LIBOR data is not gratis and thus not readily available to the author, a value of 2% was assumed.

Alexco and the Keno Hill transaction

173

Table 100: Share price and index data used to calculate the Beta factor for Alexco at the time of the

Keno Hill stream deal

Normalized Normalized Date S&P/TSX Alexco S&P/TSX Alexco 10/01/2008 11,715 2.00 0.82 0.38 09/02/2008 13,300 2.60 0.93 0.49 08/01/2008 13,497 3.02 0.94 0.57 07/02/2008 14,034 3.29 0.98 0.62 06/02/2008 14,814 3.60 1.03 0.68 05/01/2008 14,066 4.08 0.98 0.77 04/01/2008 13,441 4.18 0.94 0.78 03/03/2008 13,544 4.65 0.94 0.87 02/01/2008 13,318 4.40 0.93 0.83 01/02/2008 13,927 5.20 0.97 0.98 12/03/2007 13,657 4.95 0.95 0.93 11/01/2007 14,373 5.33 1.00 1.00

Table 101: Calculation of Alexco Ke at the time of the Keno Hill stream deal

Parameter Value 2 Stdev market 0.003

covarmarket,SLW 0.005 BetaSLW 1.90

174

Table 102: Market return data used in the calculation of Alexco Ke at the time of the Keno Hill

stream deal

Table 103: Calculation of Alexco Ke at the time of the Keno Hill stream deal

Parameter Value Risk-free rate 1.88% Market return 6.15% Beta 1.90 Ke 9.98%

175

Table 104: Calculation of WACC for Alexco at the time of the Keno Hill stream deal

Parameter Value E 57

Ke 9.98% D 0

Kd 0.00% PWACC 9.98%

Note that Alexco had no debt at the time of the Keno Hill stream deal.

Barrick and the Pascua-Lama transaction

Table 105: Share price and index data used to calculate the Beta factor for Barrick at the time of

the Pascua-Lama stream deal

Normalized Normalized Date S&P/TSX Barrick S&P/TSX Barrick 09/04/2009 11,017 43.50 1.12 1.29 08/07/2009 10,885 37.62 1.11 1.12 07/07/2009 9,844 38.22 1.00 1.14 06/05/2009 10,569 40.50 1.08 1.20 05/07/2009 9,967 38.55 1.01 1.14 04/07/2009 8,825 35.81 0.90 1.06 03/06/2009 7,591 36.96 0.77 1.10 02/06/2009 9,008 48.00 0.92 1.43 01/07/2009 9,121 37.34 0.93 1.11 12/05/2008 8,117 32.06 0.83 0.95 11/07/2008 9,596 28.16 0.98 0.84 10/07/2008 9,830 33.67 1.00 1.00

176

Table 106: Calculation of Barrick Ke at the time of the Pascua-Lama stream deal

Parameter Value 2 Stdev market 0.011

covarmarket,SLW 0.004 BetaSLW 0.34

Table 107: Market return data used in the calculation of Barrick Ke at the time of the Pascua-Lama

stream deal

177

Table 108: Calculation of Barrick Ke at the time of the Pascua-Lama stream deal

Parameter Value Risk-free rate 0.23% Market return 3.69% Beta 0.34

Ke 1.42%

Table 109: Calculation of WACC for Barrick at the time of the Pascua-Lama stream deal

Parameter Value E 16,583

Ke 1.42% D 5,126

Kd 6.95% T 27.9% PWACC 2.27%

The data used to calculate the effective tax rate was taken from the Barrick financial statements for the second quarter of 2009 and the cost of debt, Kd, was taken as the interest rate on corporate notes.

Augusta and the Rosemont transaction

178

Table 110: Share price and index data used to calculate the Beta factor for Augusta at the time of

the Rosemont stream deal

Normalized Normalized Date S&P/TSX Augusta S&P/TSX Augusta 02/10/2010 11,286 2.30 1.43 2.17 01/08/2010 11,954 2.86 1.52 2.70 12/10/2009 11,465 2.95 1.45 2.78 11/10/2009 11,427 2.85 1.45 2.69 10/09/2009 11,437 3.16 1.45 2.98 09/10/2009 11,155 2.74 1.42 2.58 08/10/2009 10,794 1.97 1.37 1.86 07/10/2009 9,747 1.60 1.24 1.51 06/10/2009 10,598 2.80 1.34 2.64 05/08/2009 10,238 2.25 1.30 2.12 04/09/2009 9,187 2.34 1.17 2.21 03/10/2009 7,880 1.06 1.00 1.00

Table 111: Calculation of Augusta Ke at the time of the Rosemont stream deal

Parameter Value 2 Stdev market 0.022

covarmarket,SLW 0.066 BetaSLW 3.00

179

Table 112: Market return data used in the calculation of Augusta Ke at the time of the Rosemont

stream deal

Table 113: Calculation of Augusta Ke at the time of the Rosemont stream deal

Parameter Value Risk-free rate 0.18% Market return 5.17% Beta 3.00 Ke 15.14%

180

Table 114: Calculation of Augusta Kd at the time of the Rosemont stream deal

Parameter Value Accrued interest 0.62 Outstanding debt 31.04

Kd 3.98%

The cost of debt, Kd, for Augusta at the time of the Rosemont transaction was calculated by extrapolating the effective interest rate over the course of 1 year. Note that the reported interest on outstanding debt was accrued over a 6 month period.

Table 115: Calculation of WACC for Augusta at the time of the Rosemont stream deal

Parameter Value E 84

Ke 15.14% D 46

Kd 3.98% T 27.9% PWACC 10.83%

The data used in the calculation of T and WACC for Augusta was taken from the Augusta annual financial statements for 2009.

181

Appendix B

Cash Flow Models for Silver Streams and Underlying Mines

This appendix will present the cash flow models that were developed for the silver streams studied and for their underlying mines, along with any technical and economic assumptions used in their computation.

Note that in every case, silver price assumptions used in the cash flow models were taken as a consensus of silver price forecasts from several equity research reports (base case) and from the LBMA (partially- realized/bullish).

Zinkgruvan

A mining, milling, and concentrate production schedule from the relevant technical report was used in the development of the Zinkgruvan mine cash flow model for the purpose of this thesis (Sullivan, et al., 2004 pp. 103-104).

The following is a description of the smelter terms that were incorporated into the cash flow model for the

Zinkgruvan mine at the time of the silver purchase agreement with Silver Wheaton.

For the mine’s zinc concentrate contract with the smelter (Sullivan, et al., 2004 p. 87):

 Pay for the lesser of 85% of contained zinc or a deduction of 8 units;

 Treatment charge of US$170/t of concentrate for all years in the model;

 Price participation of US$0.15 for each dollar the zinc price is above or below US$1000/t.

182

For the mine’s lead-silver concentrate contract with the smelter (Sullivan, et al., 2004 pp. 87-88):

 Pay for the lesser of 95% or a minimum deduction of 3 units;

 Treatment charge of US$130/t of concentrate for all years in the model;

 Price participation of US$0.15 for each dollar that the lead price is above or below US$450/t at

any time;

 Transportation charge of US$26.56/t of concentrate;

 Total operating cost of US$38.18/t of ore.

The following table shows the silver price assumptions used in the computation of the two cash flow models for the Zinkgruvan silver stream.

Table 116: Silver price assumptions used in the cash flow models for the Zinkgruvan silver stream

Price Scenario 2005 2006 2007 2008 2009 2010 2011 LT Base case 6.70 6.50 5.50 5.15 5.10 5.10 5.10 5.10 Realized/bullish 7.31 11.19 12.60 13.60 16.09 26.29 30.49 30.00

Presented below are the cash flow models for the Zinkgruvan mine and the silver stream from both the perspective of Lundin and Silver Wheaton. Note that the model presented has been generated using base case silver prices; the second model for which financial results were discussed in the body of the thesis was generated used the partially-realized/bullish price series.

183

Table 117: Cash flow model of the Zinkgruvan mine

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Throughput Mt 0.85 0.85 0.88 0.88 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.33 1.68 2.53 3.40 4.28 5.18 6.08 6.98 7.88 8.78 9.68 10.58 11.48 11.81 Grades Zinc % 8.7% 8.7% 8.7% 8.7% 8.7% 8.7% 8.7% 8.7% 8.7% 8.7% 8.7% 8.7% 8.7% Lead % 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% Silver g/t 95 95 95 95 95 95 95 95 95 95 95 95 95

Contained Metal Zinc Mt 0.07 0.07 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.03 Lead Mt 0.033 0.033 0.034 0.034 0.035 0.035 0.035 0.035 0.035 0.035 0.035 0.035 0.013 Silver Mg 80.75 80.75 83.125 83.125 85.5 85.5 85.5 85.5 85.5 85.5 85.5 85.5 31.54 Silver Moz 2.60 2.60 2.67 2.67 2.75 2.75 2.75 2.75 2.75 2.75 2.75 2.75 1.01

Recoveries to Concentrate Zn con % 93.3% 93.4% 93.4% 92.5% 92.9% 93.2% 93.4% 93.3% 93.5% 93.6% 93.7% 93.7% 93.9% Zn Pb con Pb % 89.2% 89.1% 88.6% 90.3% 90.5% 91.0% 90.4% 90.7% 90.8% 90.6% 90.4% 90.4% 89.8% Ag % 75.0% 72.8% 75.7% 73.4% 83.5% 78.8% 76.3% 75.7% 74.4% 74.3% 73.0% 73.0% 69.6%

Recovered metal in con Zinc Mt 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.03 Lead Mt 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.01 Silver Moz 1.95 1.89 2.02 1.96 2.30 2.17 2.10 2.08 2.05 2.04 2.01 2.01 0.71

Concentrate produced Zn con Mt 0.12 0.12 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.05 Zn grade % 0.55 0.56 0.56 0.56 0.55 0.56 0.55 0.55 0.55 0.56 0.56 0.56 0.56

Pb con Mt 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.02 Pb grade % 71% 71% 72% 72% 72% 72% 72% 72% 72% 72% 72% 72% 72% Ag grade oz/t 46.8 45.4 48.2 45.8 52.0 48.8 47.6 47.1 46.2 46.2 45.6 45.6 43.7 % 0.15% 0.14% 0.15% 0.14% 0.16% 0.15% 0.15% 0.15% 0.14% 0.14% 0.14% 0.14% 0.14%

Metal Prices Zn price USD/tonne 1146 1102 1102 1091 1091 1091 1091 1091 1091 1091 1091 1091 1091 Pb price USD/tonne 838 650 551 551 551 551 551 551 551 551 551 551 551 Ag price USD/oz 6.70 6.50 5.50 5.15 5.10 5.10 5.10 5.10 5.10 5.10 5.10 5.10 5.10

Gross Revenue Zn con USD millions 43.37 41.65 42.88 42.02 43.39 43.54 43.62 43.57 43.66 43.73 43.78 43.78 16.19 Pb con USD millions 27.91 23.07 20.17 19.36 21.26 20.65 20.24 20.19 20.01 19.98 19.78 19.78 7.10 Payable Ag 1.82 1.77 1.90 1.83 2.16 2.03 1.97 1.95 1.91 1.91 1.87 1.87 0.66 Total 71.27 64.72 63.05 61.38 64.65 64.20 63.86 63.76 63.68 63.71 63.56 63.56 23.28

Shipping cost USD millions 4.41 4.41 4.52 4.51 4.65 4.67 4.67 4.67 4.68 4.68 4.68 4.68 1.73

TOTAL NSR USD millions 66.87 60.31 58.53 56.87 60.00 59.53 59.19 59.09 58.99 59.03 58.88 58.88 21.55

OPERATING COSTS USD millions 32.45 32.45 33.41 33.41 34.36 34.36 34.36 34.36 34.36 34.36 34.36 34.36 12.68

NET OPERATING PROFIT USD millions 34.41 27.85 25.12 23.47 25.63 25.17 24.83 24.73 24.63 24.67 24.51 24.51 8.88

SUSTAINING CAPITAL USD millions 6.9 6.3 5.1 5.5 3.9 3.2 3.1 3.3 1.9 1.9 2.8 2.5 1.2

DEVELOPMENT CAPITAL USD millions 4.6 3.5 5.7 5.6 1.7 1.5 2.0 1.8 1.5 1.9 2.8 2.5 1.2 NET CASH FLOW USD millions 22.9 18.1 14.4 12.3 20.0 20.5 19.7 19.5 21.3 20.9 18.8 19.6 6.5

184

Table 118: Cash flow model of the Zinkgruvan silver stream, Lundin perspective

Lundin Perspective 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CASH IN-FLOW USD millions 50.0 7.1 6.9 7.4 7.2 8.4 7.9 7.7 7.6 7.5 7.4 7.3 7.3 2.6

Ag price USD/oz 6.7 6.5 5.5 5.2 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1

CASH OUT-FLOW USD millions 12.2 11.5 10.4 9.4 11.0 10.4 10.0 9.9 9.8 9.7 9.6 9.6 3.4

NET CASH FLOW USD millions 50.0 -5.1 -4.6 -3.0 -2.3 -2.6 -2.4 -2.4 -2.3 -2.3 -2.3 -2.2 -2.2 -0.8

Table 119: Cash flow model of the Zinkgruvan silver stream, Silver Wheaton perspective

SLW Perspective 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Total Ag Produced Moz 1.82 1.77 1.90 1.83 2.16 2.03 1.97 1.95 1.91 1.91 1.87 1.87 0.66

Ag price USD/oz 6.70 6.50 5.50 5.15 5.10 5.10 5.10 5.10 5.10 5.10 5.10 5.10 5.10

REVENUE USD millions 12.2 11.5 10.4 9.4 11.0 10.4 10.0 9.9 9.8 9.7 9.6 9.6 3.4

TRANSFER FEE USD millions 7.1 6.9 7.4 7.2 8.4 7.9 7.7 7.6 7.5 7.4 7.3 7.3 2.6

Capital Payment USD millions 50

NET INCOME USD millions -50 5.1 4.6 3.0 2.3 2.6 2.4 2.4 2.3 2.3 2.3 2.2 2.2 0.8

185

Yauliyacu

The ore grades, silver process recovery to concentrate, operating costs, capital expenditures, and ore production schedule were taken from the relevant technical report (Sullivan, et al., 2004 pp. 77-78).

The following table shows the silver price assumptions used in the computation of the two cash flow models for the Yauliyacu silver stream.

Table 120: Silver price assumptions used in the cash flow models for the Yauliyacu silver stream

Price Scenario 2006 2007 2008 2009 2010 2011 LT Base case 8.90 9.00 8.63 8.50 8.25 7.50 7.50 Realized/bullish 11.55 13.01 14.04 16.61 27.13 31.48 30.00

Presented below are the cash flow models for the Yauliyacu mine and the silver stream from both the perspective of Glencore and Silver Wheaton. Note that the model presented has been generated using base case silver prices; the second model for which financial results were discussed in the body of the thesis was generated used the partially-realized/bullish price series.

Note that the NSR for concentrates quoted in Spring et al were inconsistent with the given technical and economic parameters. The author could not determine how the quoted NSR values were developed and therefore used his own NSR computations, based on the technical and economic parameters given.

186

Table 121: Cash flow model for the Yauliyacu mine

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Throughput (Mined and Milled) Mt 0.945 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26

Metal Grades Zn % 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% Pb % 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% Cu % 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% Ag oz/t 8.90 9.00 8.63 8.50 8.25 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50

Recoveries to Zn con Zn % 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% 86.7% Ag % 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6%

Recoveries to Pb con Pb % 86% 86% 86% 86% 86% 86% 86% 86% 86% 86% 86% 86% 86% 86% 86% 86% 86% 86% 86% 86% Cu % 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% Ag % 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80%

Contained Metal-Zn con Zn Mt 0.02 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 Ag Moz 0.56 0.75 0.72 0.71 0.69 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62

Contained Metal-Pb con Pb Mt 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Cu Mt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Ag Moz 6.73 9.07 8.69 8.57 8.32 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56

Metal Prices Zn USD/t 2025 1808 1598 1433 1213 1213 1213 1213 1213 1213 1213 1213 1213 1213 1213 1213 1213 1213 1213 1213 Pb USD/t 1058 882 772 716 694 661 661 661 661 661 661 661 661 661 661 661 661 661 661 661 Cu USD/t 4299 3086 2811 2403 2205 2205 2205 2205 2205 2205 2205 2205 2205 2205 2205 2205 2205 2205 2205 2205 Ag USD/oz 8.90 9.00 8.63 8.50 8.25 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50

Zn con Con shipped Mt 0.04 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 Zn grade % 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 58.00 Ag grade oz/t 14.53 14.70 14.08 13.88 13.47 12.25 12.25 12.25 12.25 12.25 12.25 12.25 12.25 12.25 12.25 12.25 12.25 12.25 12.25 12.07 NSR initial USD millions 49.57 59.86 53.16 48.12 41.29 40.31 40.31 40.31 40.31 40.31 40.31 40.31 40.31 40.31 40.31 40.31 40.31 40.31 40.31 40.84 NI 43-101 model USD millions 27.06 29.76 21.55 21.39 21.39 21.39 21.39 21.39 21.39 21.39 21.39 21.39 21.39 21.39 21.39 21.39 21.39 21.39 21.39 21.74 % Difference 0.83 1.01 1.47 1.25 0.93 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.88

Pb con Con shipped Mt 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 Pb grade % 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 Cu grade % 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 Ag grade oz/t 268.19 271.21 259.91 256.14 248.61 226.01 226.01 226.01 226.01 226.01 226.01 226.01 226.01 226.01 226.01 226.01 226.01 226.01 226.01 224.43 NSR USD millions 81.11 104.91 96.54 94.05 91.71 74.04 74.04 74.04 74.04 74.04 74.04 74.04 74.04 74.04 74.04 74.04 74.04 74.04 74.04 74.51 NI 43-101 model USD millions 53.53 69.89 56.10 49.09 49.09 49.09 49.09 49.09 49.09 49.09 49.09 49.09 49.09 49.09 49.09 49.09 49.09 49.09 49.09 50.58 %Difference 0.52 0.50 0.72 0.92 0.87 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.47

REVENUE USD millions 129.66 162.73 146.99 137.93 126.05 112.65 112.65 112.65 112.65 112.65 112.65 112.65 112.65 112.65 112.65 112.65 112.65 112.65 112.65 113.65

OPERATING COSTS USD millions 23.18 31.22 31.52 31.83 31.83 31.83 31.83 31.83 31.83 31.83 31.83 31.83 31.83 31.83 31.83 31.83 31.83 31.83 31.83 31.83

OPERATING PROFIT USD millions 106.48 131.51 115.46 106.10 94.22 80.82 80.82 80.82 80.82 80.82 80.82 80.82 80.82 80.82 80.82 80.82 80.82 80.82 80.82 81.82

CAP EX 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 Exploration & Dev USD millions 25.29 33.73 24.23 19.48 19.48 19.48 19.48 19.48 19.48 19.48 19.48 19.48 19.48 19.48 19.48 19.48 19.48 19.48 19.48 19.48 Other USD millions 3.06 2.75 2.80 2.79 3.79 3.42 1.97 2.67 3.03 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 28.36 36.47 27.03 22.26 23.26 22.89 21.44 22.14 22.51 22.39 22.39 22.39 22.39 22.39 22.39 22.39 22.39 22.39 22.39 22.39

NET INCOME USD millions 78.12 95.04 88.43 83.84 70.96 57.93 59.38 58.68 58.31 58.43 58.43 58.43 58.43 58.43 58.43 58.43 58.43 58.43 58.43 59.42

187

Table 122: Cash flow model for the Yauliyacu silver stream, Glencore perspective

Glencore Perspective 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

CASH IN-FLOW USD millions 298.89 18.53 18.53 18.66 18.85 19.03 19.22 19.40 19.59 19.78 19.96 20.15 20.33 20.52 20.70 20.89 21.07 21.26 21.44 21.63

Ag price USD/oz 8.90 9.00 8.63 8.50 8.25 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50

CASH OUT-FLOW USD millions 31.71 42.75 40.99 40.38 39.19 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63

NET CASH FLOW USD millions 267.19 -24.23 -22.47 -21.71 -20.34 -16.59 -16.41 -16.22 -16.03 -15.85 -15.66 -15.48 -15.29 -15.11 -14.92 -14.74 -14.55 -14.37 -14.18 -14.00

Table 123: Cash flow model for the Yauliyacu silver stream, Silver Wheaton perspective

SLW Perspective 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Throughput Mt 0.945 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26 1.26

Ag grade oz/t 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.52 5.67

Ag produced Moz Zn con 0.56 0.75 0.72 0.71 0.69 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 Bulk/Pb con 6.73 9.07 8.69 8.57 8.32 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 7.56 Total

SLW attributable Moz 3.56 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75 4.75

Ag price USD/oz 8.9 9 8.63 8.5 8.25 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5

REVENUE USD millions 31.71 42.75 40.99 40.38 39.19 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63 35.63

TRANSFER FEE USD millions 13.89 18.53 18.53 18.66 18.85 19.03 19.22 19.40 19.59 19.78 19.96 20.15 20.33 20.52 20.70 20.89 21.07 21.26 21.44 21.63 Adjustment 1.00 1.00 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17

Capital Payment USD millions 285

NET INCOME USD millions -267.19 24.23 22.47 21.71 20.34 16.59 16.41 16.22 16.03 15.85 15.66 15.48 15.29 15.11 14.92 14.74 14.55 14.37 14.18 14.00

188

Stratoni

The Stratoni cash flow calculation was unique in that a full and very detailed valuation/pre-feasibility study was conducted by Behre Dolbear and published in two separate documents in September and

October 2004, while an update to Stratoni mill throughput and head grade forecasts was published in

February 2007, just prior to completion of the SLW stream deal in April 2007. The February 2007 document is very short and provides no new technical information other than that which was previously mentioned, as well as no reference to additional reserves or mine life. Thus, the cash flow calculation was first carried out using the technical information provided in the late 2004 technical documents. A second, separate cash flow calculation was carried out using the updated throughputs and mill head grades from the February 2007 document. For this second calculation, it was assumed that all other technical information not referenced in the February 2007 document remained identical to what was presented in the previous documents.

As previously stated, a production schedule from the relevant 2007 technical report was used as the basis for the final Stratoni cash flow model (Forward, 2007 p. 12). As well, process recovery rates used in the

Stratoni cash flow model for zinc, lead, and silver were taken as the weighted average recoveries from

1996-2002 (Behre Dolbear & Company, Inc., 2004 p. 98).

The following tables outline the various economic and technical parameters used in the Stratoni mine cash flow calculation.

189

The following table outlines the smelter terms used in the Stratoni cash flow model, which were taken from page 1 of Appendix 10 in (Behre Dolbear International Ltd., 2004).

Table 124: Smelter terms used in the Stratoni mine cash flow model

SMELTER TERMS Zn concentrate Value Unit Description 85 % payable Zn 150 USD/t treatment 20 USD/t freight Pb concentrate Value Unit Description 95 % payable Pb 95 % payable Ag 160 USD/t treatment 0.40 USD/oz Ag refining 30 USD/t freight

The following table shows the operating costs used in the Stratoni mine model (Behre Dolbear &

Company, Inc., 2004 p. 131).

Table 125: Operating costs used in the Stratoni mine cash flow model

OPERATING COSTS Description Value Unit Mine 28.44 USD/t mined Mine maintenance 7.51 USD/t mined Technical services 2.33 USD/t mined Mill 18.61 USD/t mined Management & Support 4.33 USD/t mined Overhead 10.10 USD/t mined

190

Due to the fact that the majority of technical and economic information was taken from the two technical reports prepared by Behre Dolbear in 2004, all quoted capital costs were required to be escalated to 2007

USD because the silver stream purchase deal took place at this time. As such, European consumer price index data was sourced from the website of the Organization for Economic Co-operation and

Development and used for cost escalation purposes. The relevant data to the Stratoni capital cost escalation calculation is presented in the following table.

Table 126: European CPI data and resulting growth rates used in the Stratoni capital cost

escalation calculation

Item 2002 2003 2004 2005 2006 2007 European Annual CPI (2005 base) 92.57 95.38 97.67 100.00 102.57 105.32 Growth since 2005 2.39% 5.02% 7.83%

The following table shows the silver price assumptions used in the computation of the two cash flow models for the Yauliyacu silver stream.

Table 127: Silver price assumptions used in the cash flow models for the Stratoni silver stream

Price Scenario 2007 2008 2009 2010 2011 LT Base case 13.40 13.00 12.50 11.00 10.50 10.50 Realized/bullish 13.38 14.43 17.08 27.91 32.37 30.00

191

Table 128: Cash flow model for the Stratoni mine

2007 2008 2009 2010 2011 2012

Throughput Mt 0.25 0.35 0.40 0.40 0.40 0.37

Grades Zn % 9.7% 9.3% 9.2% 9.6% 9.8% 10.5% Pb % 6.9% 7.0% 7.0% 7.0% 6.9% 6.8% Ag g/t 174.0 175.0 174.0 174.0 172.0 163.0

Recoveries to Zn con Zn % 90% 90% 90% 90% 90% 90% Pb % 92% 92% 92% 92% 92% 92% Ag % 88% 88% 88% 88% 88% 88%

Metal Prices Zn USD/t 3373 2921 2083 1433 1323 1323 Pb USD/t 1653 1345 1014 882 772 772 Ag USD/oz 13.40 13.00 12.50 11.00 10.50 10.50

Zn con Con produced Mt 0.04 0.06 0.07 0.07 0.07 0.07 Contained Zn Mt 0.02 0.03 0.03 0.03 0.04 0.03 Zn grade % 50% 48% 47% 50% 50% 54% NSR USD millions 55.9 63.7 47.3 30.9 28.1 28.6

Pb con Con produced Mt 0.024 0.033 0.038 0.038 0.038 0.035 Contained Pb Mt 0.016 0.023 0.026 0.026 0.026 0.023 Pb grade % 68% 68% 69% 68% 68% 67% Contained Ag Moz 1.24 1.75 1.97 1.98 1.96 1.71 Ag grade oz/t 52.32 52.62 52.32 52.32 51.72 49.01 NSR USD millions 36.1 43.4 40.4 34.3 30.4 26.8

TOTAL NSR USD millions 91.3 106.3 87.0 64.7 58.0 55.0

OPERATING COSTS USD millions 18.0 25.2 28.6 28.7 28.7 26.5 Escalation to 2007 USD 19.4 27.1 30.8 30.9 30.9 28.5

OPERATING PROFIT USD millions 71.9 79.1 56.2 33.8 27.1 26.5

CAPITAL USD millions 2.1 1.4 Escalation to 2007 USD 2.3 1.5

NET CASH FLOW USD millions 69.6 77.6 56.2 33.8 27.1 26.5

192

Table 129: Cash flow model for the Stratoni silver stream, European Goldfields perspective

European Goldfields Perspective 2007 2008 2009 2010 2011 2012 CASH IN-FLOW USD millions 62.1 6.5 7.3 7.4 7.4 6.5

Ag price USD/oz 13.40 13.00 12.50 11.00 10.50 10.50

CASH OUT-FLOW USD millions 15.8 21.6 23.4 20.7 19.5 17.1

NET CASH FLOW USD millions 46.3 -15.1 -16.1 -13.3 -12.1 -10.5

Table 130: Cash flow model for the Stratoni silver stream, Silver Wheaton perspective

SLW Perspective 2007 2008 2009 2010 2011 2012

Throughput Mt 0.3 0.4 0.4 0.4 0.4 0.4

Ag Grade g/t 174 175 174 174 172 163

Total Ag Produced Moz 1.24 1.75 1.97 1.98 1.96 1.71

Payable Ag Moz 1.18 1.66 1.88 1.88 1.86 1.63

Ag price USD/oz 13.40 13.00 12.50 11.00 10.50 10.5

REVENUE USD millions 15.8 21.6 23.4 20.7 19.5 17.1

TRANSFER FEE USD millions 4.6 6.5 7.3 7.4 7.4 6.5 Adjustment 1.00 1.00 1.00 1.01 1.02 1.03

Capital Payment USD millions 57.5

NET INCOME USD millions -46.3 15.1 16.1 13.3 12.1 10.5

Penasquito

From Bryson et al, it can be seen that Penasquito ore can be separated into two primary types: oxide ore for treatment by heap leaching and sulphide ore for treatment by flotation. The following two tables show

193 the information given for sulphide ore composition (Bryson, et al., 2007 p. 11) and metal recovery factors

(Bryson, et al., 2007 p. 92).

Table 131: Penasquito sulphide ore composition by lithology

Sulphide Ore Composition Breccia Intrusive Sedimentary 61% 6% 33%

Table 132: Metal process recovery factors by lithology for Penasquito sulphide ore

SULPHIDE MILL RECOVERIES Pb Concentrate Zn Concentrate Metal Breccia Intrusive Sedimentary Breccia Intrusive Sedimentary Pb 75% 72% 63% 0% 0% 0% Zn 0% 0% 0% 75% 60% 60% Ag 65% 63% 58% 15% 14% 5% Au 62% 64% 20% 13% 10% 5%

As no breakdown of sulphide ore feed by lithology was provided anywhere in Bryson et al, weighted average metal recoveries to concentrate were computed with the given information in Table 131 and

Table 132. Table 133 below shows the result of these calculations, which were ultimately used in the

Penasquito cash flow model.

194

Table 133: Weighted average metal process recovery factors for Penasquito sulphide ore

WEIGHTED AVERAGE SULPHIDE MILL RECOVERIES

Metal Pb Concentrate Zn Concentrate

Pb 71% 0% Zn 0% 69% Ag 63% 12% Au 48% 10%

The following two tables show the information given for oxide ore types (Bryson, et al., 2007 p. 20) and metal process recovery factors (Bryson, et al., 2007 p. 11).

Table 134: Penasquito oxide ore tonnage by type

2P Oxide Reserves Tonnage Penasco Chile Colorado Mt 77.3 33.1

Table 135: Penasquito oxide ore process recovery factors by ore type

OXIDE ORE RECOVERIES Metal Penasco Chile-Colorado Au 50% 50% Ag 28% 22%

Again, no breakdown of oxide ore feed by ore type was provided in Bryson et al, and thus a weighted average calculation was undertaken using the information given in Table 134 and Table 135 to determine the process recovery factors to doré for use in the cash flow model.

195

Table 136: Weighted average process recovery factors for Penasquito oxide ore

Metal Average Recovery Au 50% Ag 26%

The following table shows the LOM operating and capital cost estimates used in the cash flow model for the mine (Bryson, et al., 2007 p. 99).

Table 137: Life-of-mine operating, shipping, and smelting/refining costs for the Penasquito mine

LOM COSTS Mining 3.94 USD/t of total ore Sulphide process 4.66 USD/t of total ore Oxide process 1.34 USD/t of total ore G&A 0.45 USD/t of total ore Pb con shipping & smelting 1.23 USD/t of total ore Zn con shipping & smelting 2.65 USD/t of total ore Dore shipping and refining 0.08 USD/t of total ore

Table 138: Capital cost estimates for the Penasquito mine

CAPITAL COST PARAMETERS Initial capital 882 Sustaining capital 327 Contingency capital 271

A NSR royalty of 2% was used in the cash flow model for the mine (Bryson, et al., 2007 pp. 98, 100).

196

As greater than 1 year had passed between the publication date of Bryson et al and the stream deal, capital cost estimates were required to be escalated to USD of the deal time. The following table shows the relevant U.S. CPI data used in this calculation.

Table 139: U.S. CPI data used in the escalation of capital costs for the Penasquito mine

Year CPI Growth since 2006 2006 201.6 2007 207.3 2.85%

The following assumptions were made in the cash flow model generation:

 Sustaining capital is distributed evenly across the LOM;

 Contingency capital is distributed evenly across the LOM;

 Initial capital is incurred in 2007.

The silver price estimates used in the Penasquito mine and stream cash flow models are outlined in the following table.

Table 140: Silver price assumptions used in the cash flow models of the Mineral Park silver stream

Price Scenario 2007 2008 2009 2010 2011 2012 LT Base case 13.29 13.38 12.80 11.00 11.00 9.00 9.00 Realized/bullish 13.38 14.44 17.08 27.91 32.37 30.00 30.00

197

Table 141: Cash flow model for the Penasquito mine

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Throughput Sulphide Mt 0.0 0.8 12.2 33.2 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 5.0 Oxide Mt 1.9 28.8 20.8 12.1 0.4 0.1 0.1 1.5 0.5 1.3 5.4 0.0 0.1 9.9 12.6 7.4 5.1 2.1 1.5 0.1 0.0 0.0 0.0 0.0 0.0 0.0 Total Mt 1.9 29.6 33.0 45.4 36.4 36.1 36.1 37.5 36.5 37.3 41.4 36.0 36.1 45.9 48.6 43.4 41.1 38.1 37.5 36.1 36.0 36.0 36.0 36.0 36.0 5.0

METAL GRADES Sulphide Ag g/t 26.2 24.4 23.7 23.2 24.2 27.0 29.8 29.0 28.7 28.4 30.2 31.0 34.4 36.5 33.1 30.9 36.1 39.4 38.0 35.0 34.0 26.9 30.7 29.3 32.0 Au g/t 0.2 0.2 0.3 0.3 0.4 0.5 0.7 0.5 0.7 0.9 0.8 0.7 0.8 0.6 0.7 0.6 0.6 0.3 0.2 0.3 0.3 0.2 0.2 0.2 0.3 Pb % 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Zn % 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Oxide Ag g/t 23.6 21.2 17.7 15.9 20.0 11.8 19.9 11.1 16.1 19.8 17.9 17.3 11.7 15.0 19.5 14.1 13.7 16.1 23.1 23.4 Au g/t 0.2 0.2 0.2 0.2 0.3 0.1 0.0 0.1 0.1 0.1 0.2 0.0 0.1 0.2 0.2 0.1 0.1 0.2 0.2 0.2

METAL RECOVERED TO CON Zn con Zn MMlbs 0.0 11.0 105.7 263.3 279.9 345.8 340.3 323.8 329.3 373.2 422.6 417.1 384.2 466.5 543.3 422.6 406.1 504.9 395.1 411.6 417.1 411.6 312.8 367.7 466.5 109.0 Ag Moz 0.0 0.1 1.1 2.9 3.1 3.3 3.6 4.0 3.9 3.9 3.8 4.1 4.2 4.6 4.9 4.5 4.2 4.9 5.3 5.1 4.7 4.6 3.6 4.1 3.9 0.6 Au Moz 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Pb con Pb MMlbs 0.0 4.7 62.7 160.8 168.7 168.7 151.8 157.5 163.1 185.6 180.0 168.7 196.8 219.3 213.7 174.3 196.8 208.1 208.1 241.8 185.6 151.8 123.7 151.8 275.6 52.7 Ag Moz 0.0 0.4 6.0 15.8 16.8 17.5 19.6 21.6 21.0 20.8 20.6 21.9 22.5 24.9 26.5 24.0 22.4 26.2 28.5 27.5 25.4 24.6 19.5 22.2 21.2 3.2 Au Moz 0.0 0.0 0.0 0.1 0.2 0.2 0.3 0.4 0.3 0.4 0.5 0.5 0.4 0.4 0.3 0.4 0.4 0.3 0.2 0.1 0.1 0.2 0.1 0.1 0.1 0.0

METAL RECOVERED TO DORE Ag Moz 0.4 5.1 3.1 1.6 0.1 0.0 0.0 0.1 0.1 0.2 0.8 0.0 0.0 1.2 2.1 0.9 0.6 0.3 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Au Moz 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

METAL PRICES Au USD/oz 670 716 650 600 575 575 575 575 575 575 575 575 575 575 575 575 575 575 575 575 575 575 575 575 575 575 Ag USD/oz 13.29 13.38 12.80 11.00 11.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 Pb USD/lb 0.91 0.70 0.50 0.40 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 Zn USD/lb 1.68 1.50 1.23 0.93 0.75 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60

VALUE OF METAL IN CON Zn con Zn USD millions 0.0 16.5 129.5 243.5 209.9 207.5 204.2 194.3 197.6 223.9 253.6 250.3 230.5 279.9 326.0 253.6 243.7 302.9 237.1 247.0 250.3 247.0 187.7 220.6 279.9 65.4 Ag USD millions 0.0 1.1 14.2 32.4 34.3 29.3 32.7 36.1 35.2 34.8 34.5 36.6 37.6 41.7 44.3 40.1 37.5 43.8 47.7 46.0 42.5 41.2 32.6 37.2 35.5 5.3 Au USD millions 0.0 0.3 5.6 16.3 21.6 26.4 32.1 45.7 35.3 47.4 61.9 55.8 44.2 51.5 39.6 45.9 43.4 40.9 23.1 14.8 17.4 18.7 10.8 13.1 12.4 3.1 Pb con Pb USD millions 0.0 3.3 31.4 64.3 59.1 59.1 53.1 55.1 57.1 65.0 63.0 59.1 68.9 76.8 74.8 61.0 68.9 72.8 72.8 84.6 65.0 53.1 43.3 53.1 96.4 18.5 Ag USD millions 0.0 5.9 76.5 174.2 184.4 157.6 176.0 194.3 189.0 186.8 185.3 196.8 202.3 224.3 238.1 215.8 201.6 235.5 256.5 247.5 228.3 221.6 175.3 199.8 191.0 28.7 Au USD millions 0.0 1.5 26.6 77.3 102.5 125.3 152.3 216.5 167.4 224.9 293.3 264.4 209.4 244.1 187.6 217.5 205.9 194.0 109.5 70.0 82.6 88.7 51.4 62.0 58.8 14.6

VALUE OF METAL IN DORE Ag USD millions 4.9 68.7 39.7 17.9 0.7 0.1 0.2 1.3 0.6 1.9 7.3 0.0 0.1 11.2 18.7 7.9 5.3 2.6 2.6 0.1 0.0 0.0 0.0 0.0 0.0 0.0 Au USD millions 3.5 61.3 46.7 19.6 1.2 0.1 0.0 1.2 0.2 1.7 9.4 0.0 0.1 17.3 23.0 9.6 6.3 3.1 2.4 0.1 0.0 0.0 0.0 0.0 0.0 0.0

NSR Zn con USD millions 15.7 62.0 172.0 169.4 167.5 173.3 176.7 171.4 207.4 240.2 247.2 216.6 251.6 281.0 224.6 215.8 286.7 208.6 212.2 214.8 211.5 135.7 175.5 232.4 60.6 Pb con USD millions 9.7 93.9 260.0 301.2 297.5 337.0 419.8 368.5 430.8 490.6 475.9 436.2 488.8 440.6 440.9 425.9 455.5 392.8 357.8 331.6 319.1 225.7 270.7 301.9 55.6 Dore USD millions 8.2 127.6 83.8 33.8 -0.9 -2.7 -2.7 -0.5 -2.1 0.6 13.4 -2.8 -2.6 24.8 37.8 14.0 8.3 2.6 2.0 -2.7 -2.9 -2.9 -2.9 -2.9 -2.9 -0.4 TOTAL NSR USD millions 8.2 153.1 239.7 465.9 469.7 462.3 507.6 596.0 537.8 638.8 744.2 720.2 650.1 765.2 759.4 679.4 649.9 744.8 603.3 567.4 543.4 527.7 358.6 443.2 531.5 115.9

OPERATING COSTS USD millions 10.7 307.6 342.6 471.3 378.1 375.1 375.3 389.5 378.9 387.2 430.1 374.2 375.2 476.4 505.4 450.9 426.8 396.0 389.5 374.6 374.0 374.0 374.0 374.0 374.0 51.6 Escalation to 2007 USD USD millions 11.0 316.4 352.3 484.7 388.9 385.7 386.0 400.6 389.7 398.2 442.4 384.9 385.9 490.0 519.8 463.7 438.9 407.3 400.6 385.3 384.7 384.7 384.7 384.7 384.7 53.0

OPERATING PROFIT USD millions -2.8 -163.3 -112.6 -18.8 80.8 76.6 121.6 195.4 148.1 240.6 301.8 335.3 264.2 275.2 239.6 215.7 211.0 337.5 202.8 182.1 158.8 143.0 -26.1 58.5 146.8 62.9

CAPEX Initial USD millions 882.0 Sustaining USD millions 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 Contingency USD millions 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 TOTAL USD millions 905.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 Escalation to 2007 USD USD millions 930.8 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7

NSR ROYALTY USD millions 0.2 3.1 4.8 9.3 9.4 9.2 10.2 11.9 10.8 12.8 14.9 14.4 13.0 15.3 15.2 13.6 13.0 14.9 12.1 11.3 10.9 10.6 7.2 8.9 10.6 2.3 NET CASH FLOW USD millions -933.7 -190.1 -141.1 -51.8 47.7 43.7 87.8 159.8 113.7 204.2 263.3 297.3 227.6 236.2 200.8 178.4 174.3 298.9 167.0 147.1 124.2 108.8 -57.0 26.0 112.5 36.9

198

Table 142: Cash flow model for the Penasquito silver stream, Goldcorp perspective

Goldcorp Perspective 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 CASH IN-FLOW USD millions 485.4 5.5 9.9 19.9 19.6 20.7 23.3 26.1 25.6 25.7 26.3 27.3 28.3 33.0 36.2 32.0 29.9 34.8 38.2 36.9 34.3 33.6 26.8 30.8 29.7 4.5

Ag price USD/oz 13.29 13.38 12.80 11.00 11.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00

CASH OUT-FLOW USD millions 1.2 18.9 32.6 56.1 54.9 46.8 52.2 57.9 56.2 55.9 56.8 58.4 60.0 69.3 75.3 66.0 61.1 70.5 76.7 73.4 67.7 65.7 52.0 59.2 56.6 8.5 NET CASH FLOW USD millions 484.1 -13.4 -22.7 -36.2 -35.2 -26.1 -28.9 -31.8 -30.6 -30.2 -30.4 -31.0 -31.7 -36.3 -39.1 -33.9 -31.2 -35.7 -38.5 -36.5 -33.4 -32.1 -25.2 -28.4 -26.9 -4.0

Table 143: Cash flow model for the Penasquito silver stream, Silver Wheaton perspective

SLW Perspective 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Throughput, sulphide Mt 0.0 0.8 12.2 33.2 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 5.0 Ag grade g/t Ag produced, Lead con Moz 0.0 0.4 6.0 15.8 16.8 17.5 19.6 21.6 21.0 20.8 20.6 21.9 22.5 24.9 26.5 24.0 22.4 26.2 28.5 27.5 25.4 24.6 19.5 22.2 21.2 3.2 Ag produced, Zinc con Moz 0.0 0.1 1.1 2.9 3.1 3.3 3.6 4.0 3.9 3.9 3.8 4.1 4.2 4.6 4.9 4.5 4.2 4.9 5.3 5.1 4.7 4.6 3.6 4.1 3.9 0.6

Throughput, oxide Mt 1.9 28.8 20.8 12.1 0.4 0.1 0.1 1.5 0.5 1.3 5.4 0.0 0.1 9.9 12.6 7.4 5.1 2.1 1.5 0.1 0.0 0.0 0.0 0.0 0.0 0.0 Ag grade g/t Ag produced Moz 0.4 5.1 3.1 1.6 0.1 0.0 0.0 0.1 0.1 0.2 0.8 0.0 0.0 1.2 2.1 0.9 0.6 0.3 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Ag Moz 0.4 5.7 10.2 20.4 20.0 20.8 23.2 25.7 25.0 24.8 25.2 25.9 26.7 30.8 33.4 29.3 27.2 31.3 34.1 32.6 30.1 29.2 23.1 26.3 25.2 3.8

Total Ag, SLW Moz 0.1 1.4 2.5 5.1 5.0 5.2 5.8 6.4 6.2 6.2 6.3 6.5 6.7 7.7 8.4 7.3 6.8 7.8 8.5 8.2 7.5 7.3 5.8 6.6 6.3 0.9

Ag Price USD/oz 13.29 13.38 12.80 11.00 11.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00

REVENUE USD millions 1.2 18.9 32.6 56.1 54.9 46.8 52.2 57.9 56.2 55.9 56.8 58.4 60.0 69.3 75.3 66.0 61.1 70.5 76.7 73.4 67.7 65.7 52.0 59.2 56.6 8.5

TRANSFER FEE USD millions 0.4 5.5 9.9 19.9 19.6 20.7 23.3 26.1 25.6 25.7 26.3 27.3 28.3 33.0 36.2 32.0 29.9 34.8 38.2 36.9 34.3 33.6 26.8 30.8 29.7 4.5 Adjustment 1.00 1.00 1.00 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20 1.21 1.22

Capital Payment USD millions 485.0

NET INCOME USD millions -484.1 13.4 22.7 36.2 35.2 26.1 28.9 31.8 30.6 30.2 30.4 31.0 31.7 36.3 39.1 33.9 31.2 35.7 38.5 36.5 33.4 32.1 25.2 28.4 26.9 4.0

199

Mineral Park

All technical parameters were taken from a prefeasibility study prepared by Olson et al in early 2007.

The mine life was expected to be 25 years at the time of the deal and was taken as the life of the silver stream (Olson, et al., 2007 p. 194). The upfront payment was assumed to have been incurred by SLW in

FY 2008, prior to commencement of silver production at the mine in 2009. The transfer fee adjustment period was to begin three years after a minimum production target of 35,000 tons per day is reached at the

Mineral Park mill.

On April 5, 2011 Mercator announced that the mill had operated for 30 consecutive days at an average throughput of 35,238 tons per day, thus satisfying the production target (Mercator Minerals Ltd., 2011).

This indicates that the transfer fee adjustment period would begin in 2014. Although this specific detail was unknown at the time of the deal, it will be used for the purposes of this calculation. Therefore, an inflationary adjustment of 1% annually was factored into the calculation of the transfer fee, beginning in

2014.

The following tables show technical parameters taken from Olson et al and used in the Mineral Park mine cash flow calculation. Freight, shipping, and refining cost estimates were taken from the relevant technical report (Olson, et al., 2007 pp. 192-193). The LOM ore production, metal grade, and process recovery schedule in the relevant technical report was used as the basis for the mine cash flow model

(Olson, et al., 2007 pp. 190-191).

200

The following two tables show the process recovery factors and LOM operating cost estimates used in the cash flow model (Olson, et al., 2007 p. 183).

Table 144: Recovery factors used in the Mineral Park mine cash flow model

Recoveries Cu (SG) 80% Cu (HG) 82% Cu (leach) 70% Mo (SG) 75% Mo (HG) 76% Ag 42%

Where “SG” and “HG” refer to supergene and hypergene ore types, respectively.

Table 145: Operating cost estimates used in the Mineral Park mine cash flow model

OPERATING COST ESTIMATES LOM Mining Cost 0.80 USD/ton mined LOM Milling Cost 3.17 USD/ton milled LOM Leaching Cost 0.61 USD/ton leached LOM G&A Cost 0.19 USD/ton mined

Due to the fact that the latest technical report at the time of the stream deal was published greater than 12 months prior, all quoted capital costs were required to be escalated to USD of the deal time. To this end,

U.S. CPI data was collected for the relevant time period and is presented in the following table.

201

Table 146: CPI data used in the escalation of Mineral Park capital costs

Item 2007 2008 USA Annual CPI 207.3 215.3 Growth 3.8%

The following table shows the silver price assumptions used in the computation of the two cash flow models for the Mineral Park silver stream.

Table 147: Silver price assumptions used in the cash flow models of the Mineral Park silver stream

Price Scenario 2009 2010 2011 2012 2013 2014 2015 LT Base case 16.50 16.75 14.75 12.00 11.67 11.67 11.67 11.00 Realized/bullish 17.73 28.98 33.62 30.00 30.00 30.00 30.00 30.00

202

Table 148: Cash flow model for the Mineral Park mine

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

Throughput Supergene Mtons 8.1 13.5 8.7 9.0 7.9 13.7 7.8 5.7 4.5 2.4 0.6 14.0 7.9 6.9 4.4 2.3 1.8 1.7 0.7 0.4 0.2 Hypergene Mtons 1.0 4.8 9.5 9.2 10.4 4.5 10.5 12.5 13.7 15.9 17.6 4.2 10.4 11.4 13.8 16.0 16.4 16.6 17.6 17.8 18.1 18.3 18.3 18.3 9.0 Leach Mtons 6.3 6.3 1.5 4.2 4.0 5.5 6.1 6.7 7.2 5.0 4.9 1.5 2.2 2.2 2.3 2.1 2.1 2.7 4.5 1.2 0.7 0.2 0.1 0.019 0.001 Waste 4.8 3.4 2.6 0.3 4.0 3.7 2.2 2.4 2.4 3.6 4.6 6.0 6.3 5.3 6.6 7.3 7.1 4.5 2.5 2.3 1.7 2.0 1.4 1.3 0.2

Grades Cu (SG) % 0.22% 0.30% 0.24% 0.23% 0.15% 0.24% 0.26% 0.23% 0.21% 0.22% 0.21% 0.22% 0.15% 0.15% 0.14% 0.13% 0.22% 0.12% 0.12% 0.11% 0.22% 0.00% 0.00% 0.00% 0.00% Cu (HG) % 0.10% 0.11% 0.12% 0.15% 0.10% 0.12% 0.17% 0.16% 0.14% 0.14% 0.13% 0.14% 0.12% 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% 0.10% 0.10% 0.09% 0.09% 0.08% Cu (leach) % 0.09% 0.09% 0.08% 0.08% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% 0.06% 0.07% 0.07% 0.07% 0.06% 0.07% 0.07% 0.07% 0.07% 0.06% 0.06% 0.06% 0.07% 0.09% 0.10% Mo (SG) % 0.03% 0.03% 0.04% 0.04% 0.05% 0.04% 0.04% 0.04% 0.04% 0.04% 0.05% 0.03% 0.04% 0.04% 0.04% 0.05% 0.03% 0.05% 0.04% 0.05% 0.05% 0.00% 0.00% 0.00% 0.00% Mo (HG) % 0.03% 0.04% 0.05% 0.04% 0.05% 0.04% 0.04% 0.04% 0.04% 0.04% 0.05% 0.03% 0.03% 0.04% 0.04% 0.04% 0.04% 0.04% 0.04% 0.04% 0.04% 0.04% 0.04% 0.04% 0.05% Ag oz/t 0.10 0.10 0.10 0.10 0.09 0.09 0.09 0.08 0.08 0.08 0.08 0.08 0.08 0.07 0.07 0.07 0.07 0.07 0.06 0.06 0.06 0.00 0.00 0.00 0.00

Recoverable metal to con Cu (milling) MMlbs 30.4 73.4 52.2 55.6 35.7 60.8 61.6 53.1 46.8 44.4 40.3 59.2 38.9 37.6 35.4 32.8 35.6 31.9 32.1 31.8 30.3 29.9 27.8 26.3 11.9 Cu (leaching) MMlbs 7.8 7.5 1.6 4.4 4.1 5.7 5.9 6.6 6.8 4.7 4.4 1.4 2.1 2.0 1.9 2.2 2.0 2.4 4.2 1.0 0.6 0.2 0.1 0.0 0.0 Mo MMlbs 3.8 9.9 11.5 11.2 14.1 9.7 10.1 10.7 11.3 11.9 12.8 8.9 10.1 10.2 10.8 11.0 10.4 10.7 11.4 11.4 11.1 11.1 11.4 11.9 6.4 Ag Moz 0.4 0.7 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.0 0.0 0.0 0.0

Con production Cu Mtons 0.07 0.17 0.12 0.13 0.08 0.14 0.14 0.12 0.11 0.10 0.09 0.13 0.09 0.09 0.08 0.08 0.08 0.07 0.07 0.07 0.07 0.07 0.06 0.06 0.03 Mo Mtons 0.00 0.01 0.01 0.01 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

Metal Prices Cu USD/lb 2.95 2.50 1.91 2.00 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 Mo USD/lb 23.38 15.50 13.42 12.46 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 11.71 Ag USD/oz 16.50 16.75 14.75 12.00 11.67 11.67 11.67 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00

Freight, Shipping, and Refining Cu USD/lb 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 0.39 Mo USD/lb 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 Ag USD/oz 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74

GROSS REVENUE Cu (milling) USD millions 89.6 183.6 99.9 111.2 57.1 97.3 98.6 84.9 74.8 71.0 64.4 94.6 62.2 60.1 56.7 52.5 56.9 51.1 51.3 50.8 48.4 47.9 44.5 42.1 19.1 Cu (leach) USD millions 23.1 18.8 3.1 8.7 6.6 9.2 9.5 10.5 10.9 7.5 7.1 2.3 3.3 3.2 3.1 3.5 3.3 3.9 6.7 1.6 0.9 0.3 0.2 0.0 0.0 Mo USD millions 88.7 152.9 154.2 139.2 164.7 113.4 118.1 125.2 132.0 139.0 149.6 104.4 118.1 119.2 126.2 128.9 121.3 125.3 133.5 133.6 130.1 129.9 133.2 139.7 75.1 Ag USD millions 6.1 12.3 10.9 8.8 8.1 7.7 7.7 7.1 6.7 6.7 6.7 6.7 6.7 5.9 5.9 5.9 5.9 5.9 5.1 5.1 5.1 0.0 0.0 0.0 0.0 TOTAL 207.4 367.6 268.1 268.0 236.4 227.5 233.9 227.7 224.5 224.3 227.8 208.1 190.4 188.4 191.8 190.9 187.4 186.2 196.6 191.1 184.5 178.1 177.9 181.9 94.2

FS & R Cu con refining USD millions 11.8 28.6 20.4 21.7 13.9 23.7 24.0 20.7 18.2 17.3 15.7 23.1 15.2 14.7 13.8 12.8 13.9 12.4 12.5 12.4 11.8 11.7 10.9 10.3 4.7 Mo refining USD millions 4.1 10.7 12.4 12.1 15.2 10.5 10.9 11.5 12.2 12.8 13.8 9.6 10.9 11.0 11.6 11.9 11.2 11.6 12.3 12.3 12.0 12.0 12.3 12.9 6.9 Ag refining charge USD millions 0.3 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.0 0.0 0.0 0.0 TOTAL 16.2 39.8 33.3 34.3 29.6 34.7 35.4 32.7 30.9 30.6 30.0 33.2 26.5 26.1 25.8 25.1 25.5 24.4 25.2 25.1 24.1 23.7 23.1 23.2 11.6

NSR USD millions 191.2 327.8 234.7 233.7 206.8 192.9 198.5 194.9 193.6 193.7 197.9 174.9 163.9 162.4 165.9 165.8 162.0 161.8 171.4 166.1 160.4 154.5 154.7 158.7 82.6

OPERATING COSTS Mining USD millions 16.1 22.3 17.9 18.1 21.0 22.0 21.2 21.9 22.3 21.5 22.2 20.5 21.4 20.6 21.7 22.2 21.9 20.4 20.2 17.4 16.5 16.4 15.8 15.7 7.4 Milling USD millions 28.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 28.5 Leaching USD millions 3.8 3.8 0.9 2.5 2.4 3.4 3.7 4.1 4.4 3.1 3.0 0.9 1.3 1.3 1.4 1.3 1.3 1.6 2.7 0.7 0.4 0.1 0.1 0.0 0.0 G&A USD millions 3.8 5.3 4.2 4.3 5.0 5.2 5.0 5.2 5.3 5.1 5.3 4.9 5.1 4.9 5.1 5.3 5.2 4.8 4.8 4.1 3.9 3.9 3.8 3.7 1.8 TOTAL 52.7 89.3 80.9 82.8 86.3 88.4 87.7 89.0 89.8 87.5 88.4 84.2 85.7 84.7 86.1 86.6 86.2 84.7 85.6 80.1 78.7 78.2 77.5 77.3 37.6 TOTAL Escalated to 2008 USDUSD millions 54.8 92.7 84.0 86.0 89.6 91.8 91.1 92.4 93.2 90.9 91.8 87.4 89.0 87.9 89.4 89.9 89.6 87.9 88.8 83.2 81.8 81.2 80.4 80.2 39.0

OPERATING PROFIT USD millions 136.5 235.0 150.7 147.7 117.2 101.1 107.4 102.5 100.4 102.8 106.1 87.6 74.9 74.5 76.6 75.8 72.4 73.9 82.6 82.9 78.6 73.2 74.3 78.5 43.6

CAPITAL EXPENDITURE USD millions 128 62.5 0.0 0.8 0.0 0.0 0.8 0.0 2.0 0.8 13.5 0.0 0.8 0.0 0.0 0.8 2.0 0.0 0.8 0.0 13.5 0.8 0.0 0.0 0.0 0.0 Escalated to 2008 USD USD millions 132.9 64.9 0.0 0.8 0.0 0.0 0.8 0.0 2.1 0.8 14.0 0.0 0.8 0.0 0.0 0.8 2.1 0.0 0.8 0.0 14.0 0.8 0.0 0.0 0.0 0.0

NET CASH FLOW USD millions -132.9 71.6 235.0 149.9 147.7 117.2 100.2 107.4 100.4 99.6 88.8 106.1 86.7 74.9 74.5 75.7 73.8 72.4 73.1 82.6 68.9 77.8 73.2 74.3 78.5 43.6

203

Table 149: Cash flow model for the Mineral Park silver stream, Mercator perspective

Mercator Perspective 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 CASH IN-FLOW USD millions 42 1.43 2.87 2.87 2.87 2.69 2.60 2.62 2.59 2.49 2.51 2.53 2.56 2.58 2.28 2.30 2.32 2.34 2.36 2.04 2.06 2.08

Ag price USD/oz 16.50 16.75 14.75 12.00 11.67 11.67 11.67 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00

CASH OUT-FLOW USD millions 6.1 12.3 10.9 8.8 8.1 7.7 7.7 7.1 6.7 6.7 6.7 6.7 6.7 5.9 5.9 5.9 5.9 5.9 5.1 5.1 5.1

NET CASH FLOW USD millions 42 -4.6 -9.5 -8.0 -6.0 -5.4 -5.1 -5.1 -4.5 -4.3 -4.2 -4.2 -4.2 -4.2 -3.6 -3.6 -3.6 -3.6 -3.5 -3.0 -3.0 -3.0

Table 150: Cash flow model for the Mineral Park silver stream, Silver Wheaton perspective

SLW Perspective 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Throughput Mt 9.125 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25 18.25

Ag Grade oz/t 0.096 0.096 0.096 0.096 0.09 0.086 0.086 0.084 0.08 0.08 0.08 0.08 0.08 0.07 0.07 0.07 0.07 0.07 0.06 0.06 0.06

Total Ag Produced Moz 0.4 0.7 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

Ag Price USD/oz 16.50 16.75 14.75 12.00 11.67 11.67 11.67 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00

REVENUE USD millions 6.1 12.3 10.9 8.8 8.1 7.7 7.7 7.1 6.7 6.7 6.7 6.7 6.7 5.9 5.9 5.9 5.9 5.9 5.1 5.1 5.1

TRANSFER FEE USD millions 1.43 2.87 2.87 2.87 2.69 2.60 2.62 2.59 2.49 2.51 2.53 2.56 2.58 2.28 2.30 2.32 2.34 2.36 2.04 2.06 2.08 Adjustment 1 1 1 1 1 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.1 1.11 1.12 1.13 1.14 1.15 1.16

Capital Payment USD millions 42 NET INCOME USD millions -42 4.6 9.5 8.0 6.0 5.4 5.1 5.1 4.5 4.3 4.2 4.2 4.2 4.2 3.6 3.6 3.6 3.6 3.5 3.0 3.0 3.0

Note that at the time of the stream deal the Mineral Park mine was expected to cease production of silver after the year 2029.

204

Campo Morado

As the only deposit with published technical information was the G-9 deposit at the time of the deal, it was the only project considered in the calculation and valuation of this silver stream.

A LOM mill feed, metal grade, metal process recovery, and concentrate production schedule in the relevant technical report was used as the basis for the Campo Morado cash flow model computation

(Stone, et al., 2007 pp. 115-117).

The following table shows the average smelter recoveries of various metals used in the development of the Campo Morado cash flow model (Stone, et al., 2007 p. 114).

Table 151: Average smelter recovery factors for Campo Morado concentrate products

Average Smelter Recoveries Product Au Ag Cu Pb Zn Cu con 95% 93% 96%* - - Pb con 75% 70% - 95% - Zn con 75% 70% - - 85%

*Corrected from 99%, based on a back-calculation by the author from the information provided in the aforementioned LOM production schedule (Stone, et al., 2007 pp. 115-117).

The following table shows the smelter terms for the three concentrate products used in the development of the Campo Morado cash flow model (Stone, et al., 2007 p. 112).

205

Table 152: Metal refining costs for the Campo Morado project

METAL REFINING COSTS Cu USD/lb 0.08 Ag USD/oz 0.55 Cu con Au USD/oz 5.50 Penalty USD/dmt 15.00 Ag USD/oz 0.40 Pb con Au USD/oz 6.00 Penalty USD/dmt 13.39 Zn con Penalty USD/dmt 16.78

Table 153: Silver price assumptions used in the cash flow models of the Campo Morado silver

stream

Price Scenario 2009 2010 2011 2012 2013 2014 2015 LT Base case 17.25 16.25 15.75 14.53 13.95 13.83 13.72 13.00 Realized/bullish 17.73 28.98 33.62 30.00 30.00 30.00 30.00 30.00

206

Table 154: Cash flow model for the Campo Morado project

2007 2008 2009 2010 2011 2012 2013 2014 2015

Throughput Mt 0.35 0.525 0.525 0.525 0.525 0.525 0.155

Metal Grades Au g/t 2.34 2.33 3.18 3.13 3.49 3.49 3.49 Ag g/t 178 177 217 208 205 205 205 Cu % 2.0% 2.0% 1.7% 1.6% 1.2% 1.2% 1.2% Pb % 1.2% 1.2% 1.2% 1.0% 1.2% 1.2% 1.2% Zn % 15.3% 15.3% 10.7% 6.8% 6.4% 6.4% 6.4%

Recoveries Cu con Cu % 75% 75% 65% 65% 60% 60% 60% Ag % 10% 10% 10% 10% 10% 8% 8% Au % 3% 3% 3% 3% 3% 3% 3% Pb con Pb % 45% 45% 45% 40% 40% 45% 45% Ag % 25% 25% 25% 25% 25% 25% 25% Au % 10% 10% 10% 10% 10% 10% 10% Zn con Zn % 85% 85% 80% 75% 75% 75% 75% Ag % 13% 13% 13% 13% 10% 10% 10% Au % 10% 10% 10% 10% 8% 8% 8%

Cu con details Concentrate tonnage Wet Mt 0.02 0.03 0.02 0.02 0.02 0.02 0.00 Dry Mt 0.02 0.03 0.02 0.02 0.02 0.02 0.00 Contained Metal Cu MMlbs 11.57 17.36 12.49 11.74 8.61 8.61 2.54 Ag Moz 0.20 0.30 0.37 0.35 0.35 0.28 0.08 Au Moz 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Payable Metal Cu MMlbs 11.11 16.67 11.99 11.27 8.27 8.27 2.44 Ag Moz 0.19 0.28 0.34 0.33 0.32 0.26 0.08 Au Moz 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Pb con details Concentrate tonnage Wet Mt 0.006 0.010 0.009 0.007 0.008 0.009 0.003 Dry Mt 0.006 0.009 0.008 0.007 0.008 0.009 0.003 Contained Metal Pb MMlbs 4.20 6.30 5.99 4.77 5.42 6.09 1.80 Ag Moz 0.50 0.75 0.92 0.88 0.87 0.87 0.26 Au Moz 0.00 0.00 0.01 0.01 0.01 0.01 0.00 Payable Metal Pb MMlbs 3.99 5.99 5.69 4.53 5.15 5.79 1.71 Ag Moz 0.35 0.52 0.64 0.61 0.61 0.61 0.18 Au Moz 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Zn con details Concentrate tonnage Wet Mt 0.09 0.13 0.09 0.05 0.05 0.05 0.02 Dry Mt 0.08 0.12 0.08 0.05 0.05 0.05 0.01 Contained Metal Zn MMlbs 100.2 150.7 99.0 58.9 55.9 55.9 16.5 Ag Moz 0.26 0.39 0.48 0.46 0.35 0.35 0.10 Au Moz 0.00 0.00 0.01 0.01 0.00 0.00 0.00 Payable Metal Zn MMlbs 85.18 128.11 84.13 50.03 47.52 47.52 14.04 Ag Moz 0.18 0.27 0.33 0.32 0.24 0.24 0.07 Au Moz 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Metal Prices Au USD/oz 935.00 887.5 800.00 762.50 737.50 737.50 737.50 Ag USD/oz 17.25 16.25 15.75 14.53 13.95 13.83 13.72 Cu USD/lb 3.08 2.60 2.00 2.00 1.75 1.75 1.75 Pb USD/lb 0.80 0.50 0.40 0.38 0.35 0.35 0.35 Zn USD/lb 1.00 1.08 0.96 0.91 0.79 0.76 0.76

207

2007 2008 2009 2010 2011 2012 2013 2014 2015 Treatment Charges Cu con USD/wmt 80 80 80 80 80 80 80 Pb con USD/wmt 145 145 145 145 145 145 145 Zn con USD/wmt 50 50 100 100 140 140 140

Delivery Charges Transportation USD/wmt 81 76 71 71 71 71 71 Losses & Insurance % of NIV 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

NSR Cu con Gross revenue USD millions 38.1 48.8 30.6 28.4 20.2 19.3 5.7 Treatment charge USD millions 1.8 2.7 2.0 1.8 1.4 1.4 0.4 Penalty charge USD millions 0.3 0.5 0.3 0.3 0.2 0.2 0.1 Refining charge USD millions 1.0 1.5 1.2 1.1 0.8 0.8 0.2 NIV USD millions 35.0 44.2 27.1 25.2 17.8 16.9 5.0 Transportation cost USD millions 2.0 2.8 1.9 1.8 1.3 1.3 0.4 NSR USD millions 33.0 41.3 25.2 23.4 16.5 15.6 4.6

NSR Pb con Gross revenue USD millions 11.1 14.1 15.6 13.6 13.5 13.7 4.0 Treatment charge USD millions 0.9 1.4 1.3 1.1 1.2 1.4 0.4 Penalty charge USD millions 0.1 0.1 0.1 0.1 0.1 0.1 0.0 Refining charge USD millions 0.2 0.2 0.3 0.3 0.3 0.3 0.1 NIV USD millions 9.9 12.4 13.9 12.2 11.9 11.9 3.5 Transportation cost USD millions 0.6 0.8 0.7 0.6 0.7 0.7 0.2 NSR USD millions 9.3 11.6 13.1 11.6 11.3 11.2 3.3

NSR Zn con Gross revenue USD millions 90.2 144.8 89.2 53.2 43.3 42.1 12.4 Treatment charge USD millions 4.4 6.6 9.2 5.5 7.3 7.3 2.2 Penalty charge USD millions 1.4 2.0 1.4 0.8 0.8 0.8 0.2 Refining charge USD millions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 NIV USD millions 84.4 136.1 78.6 46.9 35.2 34.0 10.0 Transportation cost USD millions 7.6 10.8 6.9 4.1 3.9 3.9 1.1 NSR USD millions 76.8 125.3 71.7 42.7 31.3 30.1 8.9

TOTAL NSR USD millions 119.1 178.2 110.0 77.8 59.1 56.9 16.8

OPERATING COSTS Mining USD/tmilled 13.42 21.61 21.61 21.61 21.61 21.61 21.61 Processing & Power USD/tmilled 23.47 23.14 22.58 21.29 21.11 21.13 22.26 G&A USD/tmilled 4.73 3.87 3.87 3.87 3.87 3.87 8.19 Tailings Disposal USD/tmilled 0.19 0.19 0.21 0.23 0.23 0.23 0.23 TOTAL USD millions 14.63 25.63 25.34 24.68 24.58 24.59 8.112

OPERATING PROFIT USD millions 104.5 152.6 84.7 53.1 34.5 32.3 8.7

CAPITAL EXPENDITURE Initial USD millions 41.4 82.9 Sustaining USD millions 8.2 8.6 2.7 4.5 5.1 3.1 3.6 TOTAL USD millions 41.4 82.9 8.2 8.6 2.7 4.5 5.1 3.1 3.6

NET CASH FLOW USD millions -41.4 -82.9 96.4 143.9 82.0 48.6 29.5 29.2 5.1

208

Table 155: Cash flow model for the Campo Morado silver stream, Farallon perspective

Farallon Perspective 2008 2009 2010 2011 2012 2013 2014 2015 CASH IN-FLOW USD millions 80 2.1 3.1 3.8 3.7 3.5 3.3 1.0

Ag price USD/oz 0.0 17.3 16.3 15.8 14.5 13.9 13.8 13.7

CASH OUT-FLOW USD millions 0 9.3 13.1 15.5 13.7 12.2 10.8 3.2

NET CASH FLOW USD millions 80 -7.2 -9.9 -11.7 -10.0 -8.8 -7.5 -2.2

Table 156: Cash flow model for the Campo Morado silver stream, Silver Wheaton perspective

SLW Perspective 2008 2009 2010 2011 2012 2013 2014 2015

Payable Ag Moz Pb concentrate 0.35 0.52 0.64 0.61 0.61 0.61 0.18 Zn concentrate 0.18 0.27 0.33 0.32 0.24 0.24 0.07 Cu concentrate 0.19 0.28 0.34 0.33 0.32 0.26 0.08

Total Payable Ag Moz 0.72 1.07 1.32 1.26 1.17 1.11 0.33

SLW attributable 0.5 0.8 1.0 0.9 0.9 0.8 0.2

Ag Price USD/oz 17.25 16.25 15.75 14.53 13.95 13.83 13.72

REVENUE USD millions 9.3 13.1 15.5 13.7 12.2 10.8 3.2

TRANSFER FEE USD millions 2.1 3.1 3.8 3.7 3.5 3.3 1.0 Adjustment 1.00 1.00 1.00 1.01 1.02 1.03 1.04

Capital Payment USD millions 80

NET INCOME USD millions -80 7.2 9.9 11.7 10.0 8.8 7.5 2.2

209

Keno Hill

Unless otherwise specified, all technical information was taken from the PEA/technical report prepared by Keller et al and published by Alexco in early October 2008. As the Bellekeno deposit was the only deposit with published technical information at the time of the deal, it was used as the only generator of cash flow for the purposes of this stream calculation. The expected Bellekeno mine life of five years was taken as the life of the stream with production commencing in 2010. As per the SLW press release published on the deal date, $15 million of the upfront payment was assumed to have been incurred in FY

2008. By year-end 2010 SLW had paid $47.5 million of the total upfront payment (Silver Wheaton

Corp., 2011a p. 68). Thus, the remaining $32.6 million was assumed to have been incurred in equal installments in FY 2009 and FY 2010, for the purposes of this calculation.

A LOM production schedule inclusive of mill throughput and head grade was used as the basis of the

Keno Hill mine cash flow model computation (Keller, et al., 2008 p. 4).

Table 157 shows the metal process recovery factors by concentrate type used in the Keno Hill cash flow model (Keller, et al., 2008 p. 127).

Table 157: Metal process recoveries used in the Keno Hill cash flow model

Recoveries Metal Pb/Ag con Zn con Zn 0% 90% Pb 97% 0% Ag 87% 8%

210

Table 158 shows the smelter terms used in the Keno Hill cash flow model (Keller, et al., 2008 p. 128.).

Table 158: Smelter terms for the Keno Hill mine

Smelter Terms Value Unit 140 USD/dmt TC for Pb con 225 USD/dmt TC for Zn con 95% Pb payable in Pb con 90% Ag payable in Pb con 85% Zn payable in Zn con 65% Ag payable in Zn con 0.35 USD/oz Ag refining

Table 159 shows operating cost estimates used in the Keno Hill cash flow model (Keller, et al., 2008 p.

136).

Table 159: Operating cost estimates for the Keno Hill mine

Operating Cost Estimates 2010 2011 2012 2013 2014 CAD/t milled 213 234 189 181 184

Table 160 shows the smelter penalty charges for the lead and zinc concentrates, as found on pages 12 and

16 of Appendix A of Keller et al, respectively.

211

Table 160: Estimated metal penalties for the Keno Hill mine concentrate products

Metal Penalties Value Unit and Description 3.60 USD/t-Zn con 7.35 USD/t-Pb con

The following additional information was taken from Keller et al for use in the Keno Hill cash flow model:

 Concentrate transportation charges of US$176.83/t, found in Appendix A of (Keller, et al., 2008

pp. 13, 17);

 An exchange rate of US$0.89 to C$1.00 (Keller, et al., 2008 p. 141);

 Total construction capital cost of C$56.08 MM (Keller, et al., 2008 p. 140).

The author found major issues with the validity of the production and process schedule (“production schedule”) provided in Keller et al. The issues perceived by the author are described below:

 Both lead and zinc concentrate production remains constant in Years 1-4 of the production

schedule, which does not make sense given that mill feed increases drastically in Year 3 while

grades and process recoveries remain almost constant.

 Further to this, concentrate production decreases drastically in Year 5, the final year of the

operation, while mining and milling throughput is estimated to be negligibly less than in Years 3

and 4, which does not make sense.

 The author determined that the recovered/contained metal quantities reported in the production

schedule do not reflect the addition of East Zone ore feed to the mill beginning in Year 3. This

error is carried through to the bottom line of the cash flow model for Years 3-5.

212

As a result of these perceived errors, the author made the following assumptions for the purpose of this calculation:

 Concentrate production will vary proportionally to mill throughput;

 All reported throughput will be incorporated into the cash flow calculation;

 Model calibration was made to Years 1-2 of the production schedule only, as these are the only

years with indisputably clear technical parameters.

Table 161: Silver price assumptions used in the cash flow models of the Keno Hill silver stream

Price Scenario 2010 2011 2012 LT Base case 17.50 16.04 14.40 14.00 Realized/bullish 28.98 33.62 30.00 30.00

213

Table 162: Cash flow model for the Keno Hill mine

2010 2011 2012 2013 2014

Throughput SW+99 Zone Mt 0.09 0.09 0.09 0.09 0.04 East Zone Mt 0.00 0.00 0.06 0.06 0.10 TOTAL 0.091 0.091 0.146 0.146 0.139

Metal Grades Combined Zn % 4.9% 4.9% 4.9% 4.9% 4.9% Pb % 16.6% 16.6% 16.6% 16.6% 16.6% Ag g/t 1221.36 1221.36 1221.36 1221.36 1221.36

Payable Metal Recovered to Con Zn con Zn MMlbs 8.87 8.87 14.23 14.23 13.54 Ag Moz 0.29 0.29 0.46 0.46 0.44 Pb con Pb MMlbs 32.14 32.14 51.56 51.56 49.09 Ag Moz 3.11 3.11 4.99 4.99 4.75

Concentrate Tonnage Zn con Mt 0.01 0.01 0.01 0.01 0.01 Pb con Mt 0.02 0.02 0.04 0.04 0.04

Metal Prices Zn USD/lb 0.91 0.91 0.82 0.78 0.78 Pb USD/lb 0.67 0.58 0.53 0.48 0.48 Ag USD/oz 17.50 16.04 14.40 14.00 14.00 Au USD/oz 965 900 800 800 750

NSR before penalties Zn con model USD millions 8.3 8.0 11.2 10.6 10.1 Pb con model USD millions 65.3 58.3 84.0 79.4 75.6

Penalties Zn con USD millions 0.03 0.03 0.04 0.04 0.04 Pb con USD millions 0.17 0.17 0.27 0.27 0.26

Tranportation Charges Zn con USD millions 1.37 1.37 2.20 2.20 2.09 Pb con USD millions 4.07 4.07 6.53 6.53 6.22

NSR Zn con USD millions 6.9 6.6 9.0 8.4 8.0 Pb con USD millions 61.0 54.0 77.2 72.6 69.2 TOTAL 68.0 60.6 86.2 81.0 77.2

OPERATING COSTS Unit CAD/t milled 213 234 189 181 184 Total USD millions 17.3 18.9 24.6 23.5 22.7

OPERATING PROFIT USD millions 50.7 41.7 61.6 57.5 54.4

CAPITAL EXPENDITURES CAD millions 12.5 45.7 7.5 5.7 3.6 0.3 -4.6 USD millions 11.1 40.6 6.7 5.1 3.2 0.2 -4.1

NSR ROYALTY USD millions 1.0 0.9 1.3 1.2 1.2

NET CASH FLOW USD millions -11.1 -40.6 43.0 35.7 57.1 56.1 57.4

214

Table 163: Cash flow model for the Keno Hill silver stream, Alexco perspective

Alexco Perspective 2008 2009 2010 2011 2012 2013 2014

CASH IN-FLOW USD millions 0.0 14.9 35.5 5.4 4.7 4.7 4.5

Ag price USD/oz 17.50 16.04 14.40 14.00 14.00

CASH OUT-FLOW USD millions 0 13.1 12.0 17.3 16.8 16.0

NET CASH FLOW USD millions 0.0 14.9 22.4 -6.6 -12.6 -12.1 -11.5

Table 164: Cash flow model for the Keno Hill silver stream, Silver Wheaton perspective

SLW Perspective 2008 2009 2010 2011 2012 2013 2014

Throughput Mt SW+99 0.09 0.09 0.09 0.09 0.04 East 0.00 0.00 0.06 0.06 0.10 Total 0.09 0.09 0.15 0.15 0.14

Ag Grade g/t 1221 1221 850 850 542

Ag Produced Moz Lead con 3.11 3.11 4.99 4.99 4.75 Zinc con 0.29 0.29 0.46 0.46 0.44

Payable Ag Moz Lead con 2.80 2.80 4.49 4.49 4.28 Zinc con 0.19 0.19 0.30 0.30 0.28

Total Payable Ag Moz 3.0 3.0 4.8 4.8 4.6

SLW attributable Moz 0.747 0.747 1.198 1.198 1.141

Ag Price USD/oz 17.50 16.04 14.40 14.00 14.00

REVENUE USD millions 13.1 12.0 17.3 16.8 16.0

TRANSFER FEE USD millions 2.9 2.9 4.7 4.7 4.5 Adjustment 1 1 1 1 1.01

Capital Payment USD millions 14.9 32.6 2.5

NET INCOME USD millions 0.0 -14.9 -22.4 6.6 12.6 12.1 11.5

215

Pascua-Lama

Unless otherwise specified, all technical parameters were taken from the technical report prepared by

SRK Consulting Inc. and published by Silver Wheaton in September 2009 (Elliott, et al., 2009). In addition, average annual collective silver production from the Lagunas Norte, Pierina, and Veladero mines was assumed to be 2.4 Moz (Silver Wheaton Corp., 2010a). The capital payment was assumed to be incurred exactly as the press release for the deal stated.

A full LOM production schedule inclusive of mill throughput and metal grade was used as the basis for the cash flow calculation (Elliott, et al., 2009 p. 18.47). From this schedule, it can be seen that the

Pascua-Lama project was determined to have two primary non-refractory (oxide) ore types for treatment by heap leaching: Pascua and Esperanza ores. Furthermore, a mine life of 25 years beginning in 2013 was used for the purpose of this calculation, as included in the production schedule.

Table 165 shows the breakdown of non-refractory mineral reserves by ore type (Elliott, et al., 2009 p. V).

Table 165: Proven and probable reserves (Mt) for non-refractory ore, Pascua-Lama project

Reserves (Non-refractory) Pascua Esperanza 263.54 26.23

216

Table 166 shows the breakdown of metal process recovery by ore type used in the Pascua-Lama cash flow model development (Elliott, et al., 2009 pp. 15.6-15.7).

Table 166: Given metal process recoveries for Pascua-Lama ore types

RECOVERIES Non-refractory (oxide) Refractory (Sulphide) Product % Pascua Esperanza Pascua Au 90% 90% 36% Dore Ag 77% 39% 32% Au - - 38% Concentrate Ag - - 49% Cu - - 60%

As can be seen, metal recovery of oxide ores to doré varies by ore type for silver, the metal of interest in this cash flow calculation. However, no breakdown of oxide ore feed by type was provided in Elliott et al. Thus, using the reserve tonnages reported in Elliott et al and exhibited in Table 165, weighted average silver and gold recoveries were calculated for use in the cash flow model.

Table 167: Weighted average metal recovery factors for Pascua-Lama oxide ore

Weighted Average Metal Recovery Au 90% Ag 74%

Table 168 shows the smelter terms used in the Pascua-Lama cash flow model development (Elliott, et al.,

2009 p. 16.14)

217

Table 168: Estimated smelter terms for Pascua-Lama concentrate at the time of the stream deal

with Silver Wheaton

SMELTER TERMS Au refining-dore USD/oz 0.843 Au refining-con USD/oz 6.00 Ag refining-dore USD/oz 0.243 Ag refining-con USD/oz 0.40 Transport losses % 0.5% Cu refining USD/lb 0.09 Smelting USD/t con 90.00 Penalties USD/t con 218.08 Transport USD/t con 145.30 Cu payable % 80% Smelter deduction % Cu grade in con 1% Cu grade in con % 12% Effective Cu deduction % 8.33%

Table 169 shows the operating unit cost estimates for mining, processing, and G&A used in the Pascua-

Lama cash flow model development (Elliott, et al., 2009 pp. 18.23, 18.24, 18.25). Note that the processing unit cost in Years 1-2 is less than all remaining years because the flotation process is not scheduled to be in operation during Years 1-2.

Table 169: Estimated LOM operating costs for the Pascua-Lama project

OPERATING COST PARAMETERS Mining USD/t mined 1.52 Processing USD/t milled 12.38 Processing Yr 1-2 USD/t milled 11.91 G&A USD/t milled 3.09

218

Formulae for the calculation of royalties due to both Chile and Argentina were taken from the relevant technical report (Elliott, et al., 2009 p. 16.13).

The silver price series used in the cash flow models is presented in the following table.

Table 170: Silver price assumptions used in the cash flow models of the Pascua-Lama silver stream

Price Scenario 2009 2010 2011 2012 2013 2014 2015 LT Base case 14.04 14.63 13.00 13.75 13.50 13.47 13.22 13.22 Bullish 17.67 28.88 33.50 30.00 30.00 30.00 30.00 30.00

219

Table 171: Cash flow model for Pascua-Lama mine

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037

Material Mined Ore Mt 0.5 12.0 24.6 15.3 33.0 17.8 16.0 10.3 19.6 28.4 29.8 18.6 17.8 17.4 16.2 18.1 22.3 17.2 17.3 10.5 9.1 12.7 0.0 0.0 0.0 Waste Mt 18.8 62.9 91.0 83.4 105.9 84.2 83.6 94.3 102.5 92.4 45.2 39.2 14.0 14.0 14.1 17.9 25.9 14.0 12.8 17.7 24.5 25.9 12.0 0.0 0.0 0.0 TOTAL Mt 18.8 63.4 102.9 108.0 121.2 117.2 101.4 110.3 112.8 112.0 73.7 69.0 32.6 31.8 31.5 34.1 44.0 36.3 30.0 35.0 35.0 35.0 12.2 0.0 0.0 0.0

Mill Throughput Refractory Mt 2.8 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 3.7 0.0 Non-refractory Mt 0.3 10.5 11.5 13.7 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 12.8 0.8 TOTAL Mt 0.3 10.5 11.5 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 16.4 0.8

Metal Grade Refractory Cu % 0.2% 0.1% 0.1% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.0% Au g/t 1.9 2.9 3.1 2.7 3.0 2.2 1.5 1.7 1.8 1.7 1.6 1.7 2.0 2.0 1.5 1.6 2.0 2.0 2.1 1.2 1.2 0.2 Ag g/t 39.7 111.0 53.9 37.4 35.9 61.5 79.0 112.8 77.5 72.3 65.4 44.4 27.4 32.4 50.4 26.7 19.4 23.7 21.4 36.7 35.5 76.3 Non-refractory Au g/t 1.7 1.6 1.7 1.5 1.7 1.6 1.4 1.2 1.4 1.3 1.2 1.2 1.2 1.2 1.4 1.4 1.4 1.3 1.2 1.2 1.3 0.6 0.2 0.2 0.2 Ag g/t 82.2 103.4 87.5 101.7 59.7 62.3 28.9 73.5 101.1 120.9 72.7 62.8 48.6 32.4 17.9 19.8 28.5 21.7 19.6 14.9 6.7 21.4 85.9 89.6 89.6

Concentrate tonnage Mt (dmt) 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03

Contained Metal Concentrate Cu MMlbs 0.0 0.0 7.2 7.5 10.0 9.7 12.0 5.9 4.8 9.7 10.7 9.3 7.8 6.2 7.3 6.0 7.1 7.6 9.7 7.2 7.2 5.0 4.9 1.2 0.0 Au Moz 0.0 0.0 0.1 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 Ag Moz 0.0 0.0 1.7 9.6 4.6 3.2 3.1 5.3 6.8 9.7 6.7 6.2 5.6 3.8 2.4 2.8 4.3 2.3 1.7 2.0 1.8 3.2 3.1 4.4 0.0 Dore Au Moz 0.5 0.5 0.7 0.7 0.7 0.7 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.3 0.1 0.1 0.0 Ag Moz 20.4 28.2 29.4 32.6 18.5 18.2 9.5 22.5 30.6 37.7 23.2 20.3 16.3 10.9 6.2 6.9 10.2 7.1 6.2 5.2 2.9 7.6 24.3 29.9 1.7

Metal Prices Cu USD/lb 1.95 1.95 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 1.83 Au USD/oz 800 800 750 750 750 750 750 750 750 750 750 750 750 750 750 750 750 750 750 750 750 750 750 750 750 Ag USD/oz 13.50 13.47 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22

NSR Concentrate USD millions 0.0 0.0 59.3 254.1 205.9 166.6 183.7 164.6 149.2 199.0 166.0 154.9 145.5 124.5 124.5 126.4 123.7 101.3 117.2 119.3 123.6 89.6 87.7 49.5 0.0 Gross revenue by metal Cu USD millions 9.1 9.4 12.7 12.3 15.2 7.5 6.1 12.3 13.6 11.7 9.9 7.9 9.3 7.6 9.0 9.6 12.3 9.2 9.1 6.3 6.2 1.5 Au USD millions 47.7 142.1 153.5 132.7 148.6 108.9 75.8 82.2 86.7 83.2 78.7 82.7 100.0 98.1 74.3 77.3 98.5 99.0 106.0 57.9 57.4 6.9 Ag USD millions 22.0 122.0 59.2 41.1 39.5 67.6 86.9 124.1 85.3 79.5 71.9 48.9 30.1 35.7 55.4 29.4 21.3 26.1 23.5 40.3 39.0 56.0 Metal Revenue USD millions 78.8 273.6 225.4 186.1 203.3 184.1 168.7 218.6 185.5 174.4 160.5 139.5 139.4 141.3 138.7 116.3 132.1 134.3 138.5 104.6 102.7 64.5 NSR costs Cu USD millions 2.3 0.7 1.1 1.3 1.5 0.8 0.7 1.1 1.4 1.3 0.9 0.8 1.0 0.8 1.0 1.2 1.4 1.0 1.0 0.9 0.9 0.4 Au USD millions 11.8 10.1 13.3 13.9 14.3 11.5 8.8 7.3 9.1 9.3 7.3 8.9 10.7 10.4 8.0 9.9 11.2 11.0 11.4 8.3 8.4 1.6 Ag USD millions 5.4 8.7 5.1 4.3 3.8 7.2 10.0 11.1 9.0 8.9 6.7 5.2 3.2 3.8 6.0 3.8 2.4 2.9 2.5 5.8 5.7 13.0 NSR by metal Cu USD millions 6.9 8.8 11.6 11.0 13.8 6.7 5.4 11.2 12.1 10.4 9.0 7.0 8.3 6.8 8.0 8.4 10.9 8.1 8.1 5.4 5.3 1.2 Au USD millions 35.9 132.0 140.2 118.8 134.3 97.4 67.0 74.9 77.6 73.9 71.4 73.8 89.3 87.7 66.3 67.3 87.4 88.0 94.5 49.7 49.1 5.3 Ag USD millions 16.6 113.3 54.1 36.8 35.7 60.5 76.9 113.0 76.3 70.6 65.2 43.6 26.9 31.9 49.4 25.6 18.9 23.2 20.9 34.5 33.3 43.0 Dore USD millions 676 799 931 913 779 751 598 686 807 871 673 628 569 510 509 512 524 480 455 435 448 292 405 437 25 NSR by metal Au USD millions 405 426 549 490 539 514 475 394 410 383 373 365 358 369 428 422 392 387 375 368 410 193 91 48 3 Ag USD millions 271 373 382 423 240 237 123 292 398 489 301 264 211 141 80 90 133 93 80 67 38 99 315 388 22 TOTAL USD millions 676 799 990 1167 985 917 782 851 956 1070 839 783 715 635 633 638 648 581 572 555 572 382 493 486 25 Total NSR by metal Cu USD millions 0 0 7 9 12 11 14 7 5 11 12 10 9 7 8 7 8 8 11 8 8 5 5 1 0 Au USD millions 405 426 585 622 679 633 609 491 477 458 450 439 429 443 518 509 458 455 462 456 505 243 140 54 3 Ag USD millions 0.6 2.4 2.4 2.4 271 373 398 536 294 273 159 352 474 602 377 334 276 185 107 122 182 118 99 90 59 133 348 431 22

OPERATING COSTS USD millions 29 102 314 337 438 432 408 422 426 424 366 359 304 302 302 306 321 309 300 307 307 307 273 254 254 254 12

OPERATING PROFIT USD millions -29 -102 362 462 552 735 577 496 356 426 590 711 536 481 413 329 312 329 348 274 264 247 299 128 239 232 12

ROYALTY USD millions 68 74 99 110 113 104 97 82 85 86 80 76 73 72 82 82 75 72 73 72 80 38 27 15 1

CAPITAL EXPENDITURE USD millions 1084 861 898 121 26 20 22 14 17 14 12 21 17 11 18 16 21 21 12 20 8 20 19 4 1 1 1 NET CASH FLOW USD millions -1084 -890 -1000 173 362 433 603 450 375 245 332 485 608 445 386 323 235 208 235 253 193 172 157 215 88 211 216 12

220

Table 172: Cash flow model for Pascua-Lama silver stream, Barrick perspective

Barrick Perspective 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037

CASH IN-FLOW USD millions 214.8 146.9 146.9 146.9 19.9 27.5 30.4 41.5 23.0 21.6 12.8 28.5 38.7 49.4 31.5 28.2 23.5 15.9 9.3 10.7 16.2 10.6 8.9 8.2 5.5 12.5 32.0 40.5 2.0

Ag price USD/oz 14.04 14.63 13.00 13.75 13.50 13.47 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22

CASH OUT-FLOW USD millions 8.4 35.1 31.2 33.0 68.9 94.9 102.9 139.3 76.5 71.0 41.6 91.9 123.8 156.7 98.7 87.8 72.4 48.7 28.3 32.2 48.2 31.2 25.9 23.9 15.8 35.6 90.3 113.5 5.6 NET CASH FLOW USD millions 206.4 111.7 115.7 113.9 -49.0 -67.4 -72.6 -97.8 -53.5 -49.4 -28.9 -63.4 -85.1 -107.2 -67.3 -59.6 -48.9 -32.7 -18.9 -21.5 -32.0 -20.6 -17.0 -15.6 -10.3 -23.1 -58.3 -73.0 -3.6

Table 173: Cash flow model for Pascua-Lama silver stream, Silver Wheaton perspective

SLW Perspective 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037

Ag Produced Moz Concentrate 0.0 0.0 1.7 9.6 4.6 3.2 3.1 5.3 6.8 9.7 6.7 6.2 5.6 3.8 2.4 2.8 4.3 2.3 1.7 2.0 1.8 3.2 3.1 4.4 0.0 Dore 20.4 28.2 29.4 32.6 18.5 18.2 9.5 22.5 30.6 37.7 23.2 20.3 16.3 10.9 6.2 6.9 10.2 7.1 6.2 5.2 2.9 7.6 24.3 29.9 1.7 Total 20.4 28.2 31.1 42.2 23.2 21.5 12.6 27.8 37.5 47.4 29.9 26.6 21.9 14.7 8.6 9.7 14.6 9.4 7.8 7.2 4.8 10.8 27.3 34.3 1.7

SLW attributable Moz 0.6 2.4 2.4 2.4 5.1 7.0 7.8 10.5 5.8 5.4 3.1 7.0 9.4 11.8 7.5 6.6 5.5 3.7 2.1 2.4 3.6 2.4 2.0 1.8 1.2 2.7 6.8 8.6 0.4

Ag Price USD/oz 14.04 14.63 13.00 13.75 13.50 13.47 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22 13.22

REVENUE USD millions 8.4 35.1 31.2 33.0 68.9 94.9 102.9 139.3 76.5 71.0 41.6 91.9 123.8 156.7 98.7 87.8 72.4 48.7 28.3 32.2 48.2 31.2 25.9 23.9 15.8 35.6 90.3 113.5 5.6

TRANSFER FEE USD millions 2.3 9.4 9.4 9.4 19.9 27.5 30.4 41.5 23.0 21.6 12.8 28.5 38.7 49.4 31.5 28.2 23.5 15.9 9.3 10.7 16.2 10.6 8.9 8.2 5.5 12.5 32.0 40.5 2.0 Adjustment 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20 1.21 1.22

Capital Payment USD millions 212.5 137.5 137.5 137.5 NET INCOME USD millions -206.4 -111.7 -115.7 -113.9 49.0 67.4 72.6 97.8 53.5 49.4 28.9 63.4 85.1 107.2 67.3 59.6 48.9 32.7 18.9 21.5 32.0 20.6 17.0 15.6 10.3 23.1 58.3 73.0 3.6

221

Rosemont

Unless otherwise specified, all technical information was taken from a feasibility study prepared by Huss of M3 Engineering & Technology Corporation and published by Augusta in early 2009. Therefore, the capital payment was assumed to have been incurred by Silver Wheaton in FY 2012, prior to the estimated start date.

A full LOM production schedule inclusive of mill throughput, head grades, and capital cost estimates was used as the basis for the Rosemont mine cash flow calculation (Huss, Conrad; M3 Engineering &

Technology Corporation, 2009 p. 117). From this production schedule, a mine life of 21 years beginning in 2013 was taken as the stream life. Although the capital payment was only to be incurred upon receipt of key permits and a positive construction decision on the part of Augusta, the start year of 2013 indicated in the aforementioned production schedule would suggest that all of the upfront payment will have been transferred to Augusta prior to this time.

Table 174 shows the smelter terms used in the Rosemont mine cash flow development (Huss, Conrad; M3

Engineering & Technology Corporation, 2009 p. 108).

222

Table 174: Smelter terms for the Rosemont project

SMELTER TERMS Cu con Treatment charge 50.00 USD/ton Shipping charge 43.00 USD/ton Cu payable 96.5% % Cu refining 0.055 USD/lb Au payable 90.0% % Au refining 7.00 USD/oz Ag payable 90.0% % Ag refining 0.40 USD/oz Mo con Treatment charge 1.50 USD/lb

Table 175 shows the operating cost estimates used in the Rosemont mine cash flow development (Huss,

Conrad; M3 Engineering & Technology Corporation, 2009 p. 103).

Table 175: Expected LOM operating costs for the Rosemont project

Operating Costs Mining 0.613 USD/ton mined Sulphide processing 3.341 USD/ton Oxide processing 2.061 USD/ton Supporting-sulphide 0.266 USD/ton

As well, the following parameters were taken from Huss et al for use in the cash flow model:

 A mass recovery factor of 1.83% for the calculation of concentrate tonnage, which was not given

(Huss, Conrad; M3 Engineering & Technology Corporation, 2009 p. 87);

 NSR royalty of 3% (Huss, Conrad; M3 Engineering & Technology Corporation, 2009 p. 112);

223

Finally, metal process recovery factors was taken from page 9 of Huss et al for use in the cash flow model computation.

The gold and silver price series used in the Rosemont cash flow calculation are shown in the following table.

Table 176: Metal price assumptions used in the Rosemont mine and precious metals stream cash

flow calculations

Price Commodity 2013 2014 2015 2016 LT Scenario Silver Base case 15.00 14.00 14.00 14.00 14.00 Silver Bullish 30.00 30.00 30.00 30.00 30.00 Gold Base case 950 900 900 875 875 Gold Bullish 1400 1400 1400 1400 1400

224

Table 177: Rosemont project cash flow model

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Throughput Oxide Mt 8.65 20.68 14.75 9.63 3.90 1.82 9.76 Sulphide Mt 2.02 21.50 27.38 27.38 27.38 27.38 27.38 27.38 27.38 27.38 27.38 27.19 27.38 27.38 27.38 27.38 27.38 27.38 27.38 27.38 27.38 2.87 Waste Mt 62.23 72.82 72.24 72.37 78.09 80.18 71.24 82.00 82.00 82.00 81.50 77.00 68.00 78.00 65.00 52.00 40.51 4.93 1.43 0.14 4.37 2.53 Total Mt 72.89 115.00 114.37 109.37 109.37 109.37 108.38 109.37 109.37 109.37 108.88 104.19 95.38 105.38 92.37 79.37 67.89 32.30 28.81 27.52 31.75 5.40

Metal grades Cu-oxide % 0.16% 0.17% 0.20% 0.16% 0.16% 0.15% 0.15% Cu-sulphide % 0.26% 0.44% 0.53% 0.39% 0.46% 0.38% 0.44% 0.47% 0.49% 0.49% 0.52% 0.54% 0.40% 0.45% 0.49% 0.48% 0.42% 0.45% 0.46% 0.41% 0.34% 0.40% Ag oz/ton 0.1082 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 Mo % 0.01% 0.02% 0.02% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.01%

Recoveries Cu-oxide % 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% Cu-sulphide % 85% 85% 85% 85% 83% 83% 83% 83% 84% 84% 84% 84% 84% 84% 84% 84% 84% 84% 84% 84% 84% 84% Ag % 77% 77% 77% 77% 76% 76% 76% 76% 78% 78% 78% 78% 78% 78% 78% 78% 78% 78% 78% 78% 78% 78% Mo % 72% 72% 72% 72% 65% 65% 65% 65% 56% 56% 56% 56% 56% 56% 56% 56% 56% 56% 56% 56% 56% 56%

Metal Recovered Cu-cathode MMlbs 20.0 20.0 20.0 20.0 20.0 20.0 20.0 6.4 6.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cu-concentrate MMlbs 160.8 246.7 181.5 209.0 172.7 200.0 213.6 225.4 225.4 239.2 246.6 184.0 207.0 225.4 220.8 193.2 207.0 211.6 188.6 156.4 19.3 Au Moz 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Ag Moz 2.2 2.6 1.9 2.9 1.7 2.6 2.5 2.7 3.2 2.6 2.9 1.5 1.9 2.4 2.6 2.7 2.6 2.8 2.4 2.6 0.4 Mo MMlbs 5.0 5.9 4.3 5.0 5.0 4.3 3.9 4.0 3.7 4.0 3.3 3.3 4.6 4.6 4.9 5.8 5.2 5.5 6.7 5.2 0.4

Metal prices Cu USD/lb 3.15 2.50 2.14 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 Au USD/lb 1000 950 900 900 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875 Ag USD/oz 16.25 15.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 Mo USD/oz 16.00 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48 13.48

Cu concentrate tonnage Mt 0.037 0.393 0.501 0.501 0.501 0.501 0.501 0.501 0.501 0.501 0.501 0.498 0.501 0.501 0.501 0.501 0.501 0.501 0.501 0.501 0.501 0.053

NSR details Cu con Gross revenue 430.2 557.9 386.8 455.1 366.9 433.1 459.0 481.1 487.5 506.6 524.6 382.9 433.9 476.4 470.0 417.1 443.7 454.6 405.0 342.2 43.6 Cu payable MMlbs 155 238 175 202 167 193 206 217 217 231 238 178 200 217 213 186 200 204 182 151 19 Au payable Moz 0.01 0.02 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Ag payable Moz 2.02 2.31 2 3 2 2 2 2 3 2 3 1 2 2 2 2 2 3 2 2 0 Cu refining USD millions 8.53 13.09 9.63 11.09 9.17 10.61 11.34 11.96 11.96 12.69 13.09 9.76 10.98 11.96 11.72 10.25 10.98 11.23 10.01 8.30 1.02 Au refining USD millions 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Ag refining USD millions 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 Treatment charge USD millions 20 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 3 Shipping charge USD millions 17 22 22 22 22 22 22 22 22 22 21 22 22 22 22 22 22 22 22 22 2 Total charges USD millions 46.02 60.73 57.01 58.85 56.47 58.26 58.96 59.63 59.81 60.31 60.50 56.97 58.35 59.49 59.34 57.90 58.61 58.92 57.56 55.88 6.06 NSR USD millions 384.15 497.14 329.79 396.24 310.39 374.88 400.06 421.49 427.66 446.32 464.10 325.96 375.54 416.93 410.67 359.22 385.11 395.70 347.40 286.33 37.53 Mo con Gross revenue USD millions 67 80 58 67 67 58 53 53 49 53 45 45 62 62 66 78 70 74 90 70 5 Mo payable MMlbs 5 6 4 5 5 4 4 4 4 4 3 3 5 5 5 6 5 5 7 5 0 Treatment charge USD millions 7 9 7 7 7 6 6 6 5 6 5 5 7 7 7 9 8 8 10 8 1 NSR USD millions 59 71 52 60 60 51 47 47 44 47 40 40 55 55 58 69 62 66 80 62 5 Cu-cathode NSR USD millions 50 43 40 40 40 40 40 13 13 ------

Gross revenue (Cu + Mo cons) USD millions 496.9 637.6 445.3 522.3 434.0 490.7 511.8 534.5 536.7 560.0 569.4 428.1 495.4 538.0 535.7 495.1 513.5 528.5 495.2 412.0 48.8

TOTAL NSR USD millions 493 611 422 496 410 466 487 482 484 494 504 366 430 472 469 429 447 461 428 348 42

OPERATING COSTS USD millions 69.8 190.6 199.3 185.6 173.8 169.5 185.3 165.8 165.8 165.8 165.5 161.9 157.2 163.3 155.4 147.4 140.4 118.5 116.4 115.6 118.2 13.7

OPERATING PROFIT USD millions - 70 303 412 236 322 241 281 321 316 318 328 342 209 267 316 322 288 329 345 312 230 28

CAPITAL EXPENDITURES Initial USD millions 60 273 489 59 Sustaining USD millions 26 21 0 1 1 2 0 3 12 20 2 1 9 1 0 10 1 0 TOTAL USD millions 60.1 272.5 488.9 84.7 - 20.8 0.2 0.9 0.8 1.9 0.3 3.2 12.3 20.1 2.0 1.1 8.8 1.0 0.4 9.8 0.6 0.2 - -

ROYALTY USD millions 14.80 18.32 12.65 14.88 12.30 13.98 14.61 14.45 14.53 14.81 15.12 10.98 12.91 14.15 14.07 12.86 13.41 13.84 12.83 10.45 1.26 NET CASH FLOW USD millions - 60 - 273 - 559 203 393 203 307 227 266 305 301 301 301 307 196 253 293 307 275 305 331 299 220 27

225

Table 178: Cash flow model for Rosemont silver stream, Augusta perspective

Augusta Perspective 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

CASH IN-FLOW USD millions 230 14 17 13 18 12 17 17 16 18 17 18 11 13 16 17 17 17 18 16 15 3

Ag price USD/oz 15 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 950 900 900 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875

CASH OUT-FLOW USD millions 42 48 37 52 34 47 47 46 53 45 49 28 34 41 44 44 44 46 41 40 6

NET TAX CASH FLOW USD millions 230 - 29 - 31 - 24 - 34 - 21 - 30 - 30 - 30 - 34 - 28 - 31 - 17 - 21 - 26 - 27 - 28 - 27 - 28 - 25 - 25 - 4

Table 179: Cash flow model for the Rosemont silver stream, Silver Wheaton perspective

SLW Perspective 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

Contained Metal Moz Ag 2.2 2.6 1.9 2.9 1.7 2.6 2.5 2.7 3.2 2.6 2.9 1.5 1.9 2.4 2.6 2.7 2.6 2.8 2.4 2.6 0.4 Au 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.01 0.01 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.00

Metal prices USD/oz Ag 15.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 Au 950 900 900 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875 875

REVENUE USD millions 42.2 48.5 36.5 51.6 33.6 47.2 46.8 46.2 52.5 45.1 48.6 27.9 34.4 41.5 43.9 44.3 44.3 46.3 41.0 40.4 6.4

TRANSFER FEE USD millions Ag 7.9 9.0 6.8 10.3 6.2 9.5 9.2 10.1 12.0 9.7 11.1 5.8 7.4 9.2 10.3 10.7 10.6 11.3 10.0 10.6 1.6 Au 5.7 8.1 6.1 7.8 6.2 7.5 8.0 6.4 6.4 6.9 6.6 4.9 5.8 6.7 6.4 5.9 6.5 6.5 6.1 4.7 1.0 Adjustment 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.2 1.2 1.2 1.2 Total 13.5 17.1 12.9 18.1 12.4 17.0 17.2 16.4 18.5 16.6 17.6 10.7 13.2 15.9 16.6 16.7 17.0 17.8 16.1 15.3 2.5

Capital Payment USD millions 230 NET INCOME USD millions - 230 34 40 30 41 27 38 38 36 41 35 38 22 27 32 34 34 34 35 31 30 5

226

Appendix C

Consensus Metal Price Estimates Used in Cash Flow Models

This appendix contains the metal price estimate data used in the development of the cash flow models in this thesis, as published in equity research reports at the times of each deal.

Zinkgruvan

Consensus silver price estimates at the time of the Zinkgruvan silver stream are in Table 180 below and were mined from the following sources: Canaccord Capital (Currie, et al., 2004), National Bank Financial

(Howat, et al., 2004), HSBC (Flores, et al., 2004), J.P. Morgan Securities Limited (Gambardella, et al.,

2004), Deutsche Bank (Kaderavek, et al., 2004a), ABN-AMRO (Edney, et al., 2004), and RBC Capital

Markets (Hale-Sanders, et al., 2004).

Table 180: Consensus silver price estimates at the time of the Zinkgruvan silver stream

Firm 2004 2005 2006 2007 2008 LT ABN-AMRO 6.50 6.90 6.80 5.30 5.10 5.00 RBC Capital Markets 5.74 5.00 5.00 5.00 5.00 5.00 J.P. Morgan Securities Inc. 6.60 6.40 Deutsche Bank 6.50 6.70 6.50 5.70 5.20 5.20 HSBC Global Research 6.14 6.00 5.50 4.75 4.75 4.75 Canaccord Adams 6.71 7.15 6.50 6.50 6.50 6.50 National Bank Financial 6.60 7.00 7.00 7.00 7.00 7.00 Median Price 6.50 6.70 6.50 5.50 5.15 5.10

Consensus lead price estimates at the time of the Zinkgruvan silver stream are in Table 181 below and were mined from the following sources: Citigroup Smith Barney (Lau, et al., 2004), J.P. Morgan

Securities Limited (Gambardella, et al., 2004), Deutsche Bank (Kaderavek, et al., 2004a), HSBC (Flores,

227 et al., 2004), RBC Capital Markets (Lancaster, et al., 2004), and National Bank Financial (Howat, et al.,

2004).

Table 181: Consensus lead price estimates at the time of the Zinkgruvan silver stream

Firm 2004 2005 2006 2007 2008 LT Citi Bank 0.40 0.37 0.30 0.23 0.23 0.23 J.P. Morgan Securities Inc. 0.39 0.32 Deutsche Bank 0.39 0.35 0.28 0.25 0.26 0.26 HSBC Global Research 0.40 0.33 0.29 0.25 0.25 0.25 RBC Capital Markets 0.42 0.40 0.25 0.25 0.25 0.25 National Bank Financial 0.40 0.40 0.35 0.30 0.30 0.30 Median Price (USD/lb) 0.40 0.38 0.30 0.25 0.25 0.25 Median Price (USD/tonne) 882 838 650 551 551 551

Consensus zinc price estimates at the time of the Zinkgruvan silver stream are in Table 182 below and were mined from the following sources: Citigroup Smith Barney (Lau, et al., 2004), J.P. Morgan

Securities Limited (Gambardella, et al., 2004), Deutsche Bank (Kaderavek, et al., 2004b), HSBC Global

Research (Flores, et al., 2004), RBC Capital Markets (Lancaster, et al., 2004), Canaccord Adams (Barnes, et al., 2004), National Bank Financial (Howat, et al., 2004), Morgan Stanley (Campbell, et al., 2004), and

UBS (MacArthur, et al., 2004).

228

Table 182: Consensus zinc price estimates at the time of the Zinkgruvan silver stream

Firm 2004 2005 2006 2007 2008 LT Citi Bank 0.52 0.50 0.48 0.45 0.45 J.P. Morgan Securities Inc. 0.51 0.51 Deutsche Bank 0.47 0.56 0.53 0.51 0.49 0.49 HSBC Global Research 0.47 0.45 0.45 0.52 0.52 0.52 RBC Capital Markets 0.46 0.55 0.50 0.50 0.50 0.50 Canaccord Adams 0.47 0.52 0.45 0.45 0.45 0.45 National Bank Financial 0.47 0.54 0.55 0.50 0.50 0.50 Median Price (USD/lb) 0.47 0.52 0.50 0.50 0.50 0.50 Median Price (USD/tonne) 1036 1146 1102 1102 1091 1091

Yauliyacu

Consensus silver price estimates at the time of the Yauliyacu silver stream are in Table 183 below and were mined from the following sources: Canaccord Adams (Hackett, et al., 2006), J.P. Morgan Securities

Limited (Gardiner, et al., 2006), HSBC Global Research (McTaggart, et al., 2006), CIBC World Markets

(Humphrey, 2006), National Bank Financial (Jakusconek, et al., 2006), ABN-AMRO (Clifford, et al.,

2006), and Scotia Capital Equity Research (Durose, et al., 2006).

Table 183: Consensus silver price estimates at the time of the Yauliyacu silver stream

Firm 2006 2007 2008 2009 2010 LT Scotia Capital 7.25 7.50 7.75 ABN-AMRO 9.75 9.85 9.15 9.00 8.75 7.25 J.P. Morgan Securities Inc. 9.90 10.00 8.80 8.50 National Bank Financial 9.00 9.00 8.75 8.25 7.75 7.50 CIBC World Markets 10.00 11.00 8.50 7.50 Canaccord Adams 8.50 8.25 7.75 7.80 J.P. Morgan Securities Inc. 8.80 8.10 HSBC Global Research 8.50 9.00 7.75 Median Price 8.90 9.00 8.63 8.50 8.25 7.50

229

Consensus copper price estimates at the time of the Yauliyacu silver stream are in Table 184 below and were mined from the following sources: National Bank Financial (Jakusconek, et al., 2006), CIBC World

Markets (Cooper, et al., 2006), Prudential Equity Group, LLC (Tumazos, et al., 2006), RBC Capital

Markets (Phillips, et al., 2006b), Scotia Capital Equity Research (Kodatsky, et al., 2006), ABN-AMRO

(Clifford, et al., 2006), Canaccord Adams (Hackett, et al., 2006), J.P. Morgan Securities Limited

(Gardiner, et al., 2006), and HSBC Global Research (McTaggart, et al., 2006).

Table 184: Consensus copper price estimates at the time of the Yauliyacu silver stream

Firm 2006 2007 2008 2009 2010 LT National Bank Financial 1.95 1.65 1.35 1.15 0.98 0.98 CIBC World Markets 1.75 1.35 1.00 1.00 1.00 1.00 Prudential 2.00 1.75 1.50 1.08 1.08 1.08 RBC Capital Markets 1.85 1.40 1.60 1.75 1.00 1.00 Scotia Capital 1.45 1.20 1.00 1.00 1.00 1.00 RBS 1.95 1.40 1.05 0.90 1.00 1.00 Canaccord Adams 1.98 1.56 1.25 1.25 1.25 1.25 J.P. Morgan Securities Inc. 1.90 1.36 HSBC Global Research 2.00 1.44 1.30 1.10 0.95 0.95 Median Price (USD/lb) 1.95 1.40 1.28 1.09 1.00 1.00 Median Price (USD/tonne) 4299 3086 2811 2403 2205 2205

Consensus lead price estimates at the time of the Yauliyacu silver stream are in Table 185 below and were mined from the following sources: CIBC World Markets (Cooper, et al., 2006), National Bank Financial

(Howat, et al., 2006), RBC Capital Markets (Phillips, et al., 2006a), ABN-AMRO (Clifford, et al., 2006),

Canaccord Adams (Butler, et al., 2006), J.P. Morgan Securities Limited (Gardiner, et al., 2006), and

HSBC Global Research (McTaggart, et al., 2006).

230

Table 185: Consensus lead price estimates at the time of the Yauliyacu silver stream

Firm 2006 2007 2008 2009 2010 LT CIBC World Markets 0.52 0.36 0.28 0.28 0.28 0.28 National Bank Financial 0.48 0.46 0.43 0.40 0.35 0.35 RBC Capital Markets 0.45 0.40 0.35 0.30 0.25 0.25 RBS 0.48 0.36 0.36 0.45 0.52 0.32 Canaccord Adams 0.49 0.41 0.35 0.35 0.35 0.35 J.P. Morgan Securities Inc. 0.47 0.37 HSBC Global Research 0.48 0.40 0.35 0.28 0.25 0.25 Median Price (USD/lb) 0.48 0.40 0.35 0.33 0.32 0.30 Median Price (USD/tonne) 1058 882 772 716 694 661

Consensus zinc price estimates at the time of the Yauliyacu silver stream are in Table 186 below and were mined from the following sources: National Bank Financial (Jakusconek, et al., 2006), CIBC World

Markets (Cooper, et al., 2006), Scotia Capital Equity Research (Kodatsky, et al., 2006), ABN-AMRO

(Clifford, et al., 2006), RBC Capital Markets (Phillips, et al., 2006b), Canaccord Adams (Hackett, et al.,

2006), J.P. Morgan Securities Limited (Gardiner, et al., 2006), and HSBC Global Research (McTaggart, et al., 2006).

Table 186: Consensus zinc price estimates at the time of the Yauliyacu silver stream

Firm 2006 2007 2008 2009 2010 LT National Bank Financial 0.95 1.05 0.85 0.70 0.55 0.55 CIBC World Markets 0.90 0.75 0.50 0.50 0.50 0.50 Scotia Capital 0.80 0.84 0.55 0.55 0.55 0.55 RBS 1.05 0.95 0.80 0.65 0.70 0.55 RBC Capital Markets 1.00 1.20 1.00 1.00 0.50 0.50 Canaccord Adams 0.88 0.78 0.73 0.73 0.73 0.73 J.P. Morgan Securities Inc. 0.91 0.73 HSBC Global Research 0.93 0.80 0.65 0.61 0.52 0.52 Median Price (USD/lb) 0.92 0.82 0.73 0.65 0.55 0.55 Median Price (USD/tonne) 2025 1808 1598 1433 1213 1213

231

Stratoni

Consensus silver price estimates at the time of the Stratoni silver stream are in Table 187 below and were mined from the following sources: J.P. Morgan Securities Limited (George, et al., 2007), HSBC Global

Research (McTaggart, et al., 2007), Canaccord Adams (Butler, et al., 2007), Credit Suisse (Gagliano, et al., 2007a), Scotia Capital (Turnbull, et al., 2007), Deutsche Bank (Lewis, et al., 2007), and RBC Capital

Markets (Phillips, et al., 2007a).

Table 187: Consensus silver price estimates at the time of the Stratoni silver stream

Firm 2007 2008 2009 2010 2011 LT J.P. Morgan Securities Inc. 13.60 10.00 9.50 9.00 9.50 9.50 HSBC Global Research 12.25 10.25 9.00 7.50 7.50 7.50 Canaccord Adams 13.88 14.50 12.50 11.00 10.00 10.00 Credit Suisse 13.40 11.70 13.40 13.40 13.40 13.40 Scotia Capital 12.75 13.25 12.50 11.00 11.00 11.00 Deutsche Bank 13.60 14.22 RBC Capital Markets 12.75 13.00 13.50 14.00 14.00 14.00 Median Price 13.40 13.00 12.50 11.00 10.50 10.50

Consensus lead price estimates at the time of the Stratoni silver stream are in Table 188 below and were mined from the following sources: HSBC Global Research (McTaggart, et al., 2007), TD Newcrest

(Barnes, et al., 2007a), Canaccord Adams (Currie, et al., 2007), Deutsche Bank (Lewis, et al., 2007),

National Bank Financial (Howat, et al., 2007), Credit Suisse (Gagliano, et al., 2007a), and J.P. Morgan

Securities Limited (Gambardella, et al., 2007a).

232

Table 188: Consensus lead price estimates at the time of the Stratoni silver stream

Firm 2007 2008 2009 2010 2011 LT HSBC Global Research 0.68 0.45 0.35 0.32 0.32 0.32 TD Newcrest 0.80 0.70 0.50 0.40 0.35 0.35 Canaccord Adams 0.80 0.63 0.46 0.45 0.45 0.45 Deutsche Bank 0.76 0.63 National Bank Financial 0.75 0.60 0.50 0.40 0.35 0.35 Credit Suisse 0.71 0.61 0.30 0.30 0.30 0.30 J.P. Morgan Securities Inc. 0.65 0.43 Median Price (USD/lb) 0.75 0.61 0.46 0.40 0.35 0.35 Median Price (USD/tonne) 1653 1345 1014 882 772 772

Consensus zinc price estimates at the time of the Stratoni silver stream are in Table 189 below and were mined from the following sources: HSBC Global Research (McTaggart, et al., 2007), TD Newcrest

(Barnes, et al., 2007a), Canaccord Adams (Currie, et al., 2007), Deutsche Bank (Lewis, et al., 2007),

National Bank Financial (Howat, et al., 2007), Credit Suisse (Gagliano, et al., 2007a), Scotia Capital

(Rutten, et al., 2007), and J.P. Morgan Securities Limited (Gambardella, et al., 2007a).

Table 189: Consensus zinc price estimates at the time of the Stratoni silver stream

Firm 2007 2008 2009 2010 2011 LT HSBC Global Research 1.42 1.20 0.95 0.65 0.65 0.65 TD Newcrest 1.72 1.56 1.25 0.85 0.60 0.60 Canaccord Adams 1.53 1.33 0.94 0.65 0.65 0.65 Deutsche Bank 1.52 1.33 National Bank Financial 1.65 1.35 1.10 0.85 0.60 0.60 Credit Suisse 1.50 1.20 0.60 0.60 0.60 0.60 Scotia Capital 1.71 1.25 0.60 0.60 0.60 0.60 Median Price (USD/lb) 1.53 1.33 0.95 0.65 0.60 0.60 Median Price (USD/tonne) 3373 2921 2083 1433 1323 1323

233

Penasquito

Consensus silver price estimates at the time of the Penasquito silver stream are in Table 190 below and were mined from the following sources: RBC Capital Markets (Phillips, et al., 2007b), TD Newcrest

(Barnes, et al., 2007c), Morgan Stanley (Campbell, et al., 2007), Deutsche Bank Global Markets Research

(Willis, et al., 2007), J.P. Morgan Equities Ltd. (Gordon, et al., 2007), Canaccord Adams (Hackett, et al.,

2007), Credit Suisse (Gagliano, et al., 2007b), and Scotia Capital (Christie, et al., 2007).

Table 190: Consensus silver price estimates at the time of the Penasquito silver stream

Firm 2007 2008 2009 2010 2011 2012 LT RBC Capital Markets 12.75 13.00 13.50 14.00 14.00 14.00 14.00 TD Newcrest 14.00 14.50 Morgan Stanley 12.52 13.50 13.25 12.00 11.50 9.00 9.00 Deutsche Bank 13.60 14.22 13.10 10.19 9.26 7.80 7.80 J.P. Morgan Securities Inc. 13.00 12.00 10.00 10.00 Canaccord Adams 13.72 14.50 12.50 11.00 Credit Suisse 13.57 12.60 9.00 9.00 9.00 9.00 Scotia Capital 12.89 13.25 12.50 11.00 11.00 11.00 11.00 Median Price 13.29 13.38 12.80 11.00 11.00 9.00 9.00

Consensus gold price estimates at the time of the Penasquito silver stream are in Table 191 below and were mined from the following sources: Credit Suisse (Gagliano, et al., 2007b), RBC Capital Markets

(Phillips, et al., 2007b), Macquarie First South Research (Hall, et al., 2007), Canaccord Adams (Butler, et al., 2007), Scotia Capital (Christie, et al., 2007), J.P. Morgan Securities Inc. (Gambardella, et al., 2007b), and Morgan Stanley (Campbell, et al., 2007).

234

Table 191: Consensus gold price estimates at the time of the Penasquito silver stream

Firm 2007 2008 2009 2010 2011 2012 LT Credit Suisse 675 700 600 600 600 600 600 RBC Capital Markets 670 700 730 770 770 770 770 Macquarie Research 678 720 675 600 540 540 540 Canaccord Adams 679 725 Scotia Capital 669 720 650 575 575 575 575 J.P. Morgan Securities Inc. 664 716 Morgan Stanley 665 700 650 600 550 500 500 Median Price 670 716 650 600 575 575 575

Consensus lead price estimates at the time of the Penasquito silver stream are in Table 192 below and were mined from the following sources: Canaccord Adams (Hackett, et al., 2007), Macquarie Research

(Spartalis, et al., 2007), Credit Suisse (Gagliano, et al., 2007b), RBC Capital Markets (Phillips, et al.,

2007b), J.P. Morgan Securities Inc. (Gambardella, et al., 2007b), TD Newcrest (Barnes, et al., 2007b), and Morgan Stanley (Campbell, et al., 2007).

Table 192: Consensus lead price estimates at the time of the Penasquito silver stream

Firm 2007 2008 2009 2010 2011 2012 LT TD Newcrest 0.91 0.70 0.50 0.40 0.35 0.35 0.35 Morgan Stanley 0.87 0.75 0.60 0.50 0.48 0.40 0.40 Credit Suisse 0.93 0.85 0.35 0.35 0.35 0.35 0.35 RBC Capital Markets 0.85 0.65 0.50 0.40 0.30 0.25 0.25 J.P. Morgan Securities Inc. 0.92 0.70 Canaccord Adams 1.10 1.19 0.85 0.53 0.53 0.53 0.53 Macquarie Research 0.88 0.65 Median Price 0.91 0.70 0.50 0.40 0.35 0.35 0.35

235

Consensus zinc price estimates at the time of the Penasquito silver stream are in Table 193 below and were mined from the following sources: Canaccord Adams (Hackett, et al., 2007), Macquarie Research

(Spartalis, et al., 2007), CIBC World Markets (Hale-Sanders, et al., 2007), TD Newcrest (Barnes, et al.,

2007b), Morgan Stanley (Campbell, et al., 2007), Credit Suisse (Gagliano, et al., 2007b), Scotia Capital,

(Christie, et al., 2007), RBC Capital Markets (Phillips, et al., 2007b), and J.P. Morgan Securities Inc.

(Gambardella, et al., 2007b).

Table 193: Consensus zinc price estimates at the time of the Penasquito silver stream

Firm 2007 2008 2009 2010 2011 2012 LT Canaccord Adams 1.62 1.41 1.20 1.00 1.00 1.00 1.00 Macquarie Research 1.79 1.30 CIBC World Markets 1.70 1.70 TD Newcrest 1.64 1.50 1.25 0.85 0.60 0.60 0.60 Morgan Stanley 1.65 1.50 1.25 1.00 0.90 0.75 0.75 Credit Suisse 1.56 1.40 0.60 0.60 0.60 0.60 0.60 RBC Capital Markets 1.80 1.70 1.85 1.90 1.90 0.60 0.60 Scotia Capital 2.06 1.56 0.60 0.60 0.60 0.60 0.60 Median Price 1.68 1.50 1.23 0.93 0.75 0.60 0.60

Mineral Park

Consensus silver price estimates at the time of the Mineral Park silver stream are in Table 194 below and were mined from the following sources: Macquarie Research (Harris, et al., 2008), Deutsche Bank

(James, et al., 2008), J.P. Morgan Securities Ltd. (Gambardella, et al., 2008a), RBC Capital Markets

(Phillips, et al., 2008a), Credit Suisse (Gagliano, et al., 2008a), CIBC World Markets (Cooper, et al.,

2008), HSBC Global Research (McTaggart, et al., 2008a), and Scotia Capital (Christie, et al., 2008a).

236

Table 194: Consensus silver price estimates at the time of the Mineral Park silver stream

Firm 2008 2009 2010 2011 2012 2013 2014 2015 LT Macquarie Research 19.00 20.19 18.87 16.67 14.55 13.39 13.16 12.93 10.00 Deutsche Bank 16.28 15.70 14.20 12.00 10.70 8.80 8.80 8.80 8.80 J.P. Morgan Securities Inc. 16.08 15.18 RBC Capital Markets 16.75 17.00 17.50 16.50 15.00 15.00 15.00 15.00 15.00 Credit Suisse 15.83 17.25 11.67 11.67 11.67 11.67 11.67 CIBC World Markets 18.25 18.50 17.00 15.50 10.50 10.50 10.50 10.50 10.50 HSBC Global Research 14.00 13.50 12.75 12.00 12.00 11.00 11.00 11.00 11.00 Scotia Capital 15.50 16.00 16.50 14.00 13.50 13.00 12.00 12.00 12.00 Median Price 16.18 16.50 16.75 14.75 12.00 11.67 11.67 11.67 11.00

Consensus copper price estimates at the time of the Mineral Park silver stream are in Table 195 below and were mined from the following sources: Credit Suisse (Gagliano, et al., 2008a), TD Newcrest (Barnes, et al., 2008a), Scotia Capital (Smith, et al., 2008), Macquarie Research (Macquarie Research, 2008),

Bernstein Research (Keen, et al., 2008), National Bank Financial (Howat, et al., 2008b), J.P. Morgan

Securities Ltd. (Gambardella, et al., 2008a), RBC Capital Markets (Phillips, et al., 2008a), CIBC World

Markets (Cooper, et al., 2008), HSBC Global Research (McTaggart, et al., 2008a), ABN-AMRO (Edney, et al., 2008), and Deutsche Bank (James, et al., 2008).

Table 195: Consensus copper price estimates at the time of the Mineral Park silver stream

Firm 2008 2009 2010 2011 2012 2013 2014 2015 LT Credit Suisse 1.50 1.50 1.50 1.50 1.50 1.50 1.50 TD Newcrest 3.35 3.10 3.00 2.75 2.25 2.00 1.80 1.75 1.75 Scotia Capital 3.45 2.95 1.91 1.91 1.91 1.91 1.91 1.91 1.91 Macquarie Research 3.15 3.00 2.50 1.80 2.00 1.60 1.60 1.60 1.60 Bernstein Research 3.08 2.04 National Bank Financial 3.20 J.P. Morgan Securities Inc. 3.10 2.46 RBC Capital Markets 3.20 3.00 2.50 2.00 2.50 1.30 1.30 1.30 1.30 CIBC World Markets 3.00 2.75 Median Price 3.18 2.95 2.50 1.91 2.00 1.60 1.60 1.60 1.60

237

Consensus molybdenum price estimates at the time of the Mineral Park silver stream are in Table 196 below and were mined from the following sources: HSBC Global Research (McTaggart, et al., 2008b),

Morgan Stanley (De Alba, et al., 2008), National Bank Financial (Howat, et al., 2008a), Macquarie

Research (Yu, et al., 2008), Scotia Capital (Smith, et al., 2008), Bernstein Research (Keen, et al., 2008), and RBC Capital Markets (Phillips, et al., 2008a).

Table 196: Consensus molybdenum price estimates at the time of the Mineral Park silver stream

Firm 2008 2009 2010 2011 2012 2013 2014 2015 LT Scotia Capital 13.42 13.42 13.42 13.42 13.42 13.42 13.42 Bernstein Research 20.00 16.00 RBC Capital Markets 35.00 25.00 15.00 12.00 11.50 10.00 10.00 10.00 10.00 National Bank Financial 28.00 23.00 18.00 12.00 10.00 10.00 10.00 10.00 10.00 Macquarie Research 32.25 23.75 HSBC Global Research 24.50 17.50 15.50 14.00 Morgan Stanley 36.00 38.00 30.00 20.00 15.00 15.00 15.00 15.00 15.00 Median Price 30.13 23.38 15.50 13.42 12.46 11.71 11.71 11.71 11.71

Campo Morado

Consensus silver price estimates at the time of the Campo Morado silver stream are in Table 197 below and were mined from the following sources: RBC Capital Markets (Phillips, et al., 2008b), TD Newcrest

(Green, et al., 2008), Macquarie Research (Albino, et al., 2008a), Credit Suisse (Gagliano, et al., 2008b),

J.P. Morgan (George, et al., 2008), and National Bank Financial (Jakusconek, et al., 2008).

238

Table 197: Consensus silver price estimates at the time of the Campo Morado silver stream

Firm 2008 2009 2010 2011 2012 2013 2014 2015 LT RBC Capital Markets 17.50 16.50 15.00 15.00 15.00 15.00 15.00 TD Newcrest 16.01 15.75 15.50 15.50 15.50 15.50 15.50 15.50 15.50 Macquarie Research 19.00 20.19 18.87 16.67 14.55 13.39 13.16 12.93 10.00 Credit Suisse 15.83 17.25 11.67 11.67 11.67 11.67 11.67 11.67 11.67 J.P. Morgan Securities Inc. 16.47 15.18 10.00 10.00 10.00 10.00 10.00 10.00 10.00 National Bank Financial 18.50 18.00 17.00 16.00 14.50 14.50 14.50 14.50 14.50 Median Price 16.47 17.25 16.25 15.75 14.53 13.95 13.83 13.72 13.09

Consensus gold price estimates at the time of the Campo Morado silver stream are in Table 198 below and were mined from the following sources: Deutsche Bank (Fitzpatrick, et al., 2008), CIBC World

Markets (Cooper, et al., 2008), National Bank Financial (Jakusconek, et al., 2008), Credit Suisse

(Gagliano, et al., 2008b), RBC Capital Markets (Phillips, et al., 2008b), TD Newcrest (Green, et al.,

2008), Macquarie Research (Albino, et al., 2008a), and J.P. Morgan Securities Inc. (Gambardella, et al.,

2008b).

Table 198: Consensus gold price estimates at the time of the Campo Morado silver stream

Firm 2008 2009 2010 2011 2012 2013 2014 2015 LT Deutsche Bank 925 525 525 525 525 525 525 CIBC World Markets 1000 1200 National Bank Financial 925 900 850 800 725 725 725 725 725 Credit Suisse 950 1035 700 700 700 700 700 700 700 RBC Capital Markets 910 935 965 1000 1000 1000 1000 1000 1000 TD Newcrest 891 900 800 800 800 800 800 800 800 Macquarie Research 960 1050 1000 900 800 750 750 750 600 J.P. Morgan Securities Inc. 915 843 Median Price 925 935 888 800 763 738 738 738 713

Consensus copper price estimates at the time of the Campo Morado silver stream are in Table 199 below and were mined from the following sources: Credit Suisse (Gagliano, et al., 2008b), RBC Capital Markets

239

(Phillips, et al., 2008b), TD Newcrest (Barnes, et al., 2008a), J.P. Morgan Securities Inc. (Gambardella, et al., 2008b), Deutsche Bank (Fitzpatrick, et al., 2008), National Bank Financial (Howat, et al., 2008c),

Macquarie Research (Albino, et al., 2008a), CIBC World Markets (Cooper, et al., 2008), and HSBC

Global Research (McTaggart, et al., 2008c).

Table 199: Consensus copper price estimates at the time of the Campo Morado silver stream

Firm 2008 2009 2010 2011 2012 2013 2014 2015 LT Credit Suisse 1.50 1.50 1.50 1.50 1.50 1.50 1.50 RBC Capital Markets 3.20 3.00 2.50 2.00 2.50 1.30 1.30 1.30 1.30 TD Newcrest 3.38 3.10 3.00 2.75 2.25 2.00 1.80 1.75 1.75 J.P. Morgan Securities Inc. 3.75 3.06 Deutsche Bank 3.42 3.14 2.50 1.50 1.50 1.50 1.50 1.50 1.50 National Bank Financial 3.20 3.00 Macquarie Research 3.63 3.25 3.00 2.50 2.50 2.25 2.00 2.00 2.00 CIBC World Markets 3.65 4.00 3.50 1.75 1.75 1.75 1.75 1.75 1.75 HSBC Global Research 3.35 3.00 2.60 2.20 2.00 1.77 1.77 1.77 1.77 Median Price 3.40 3.08 2.60 2.00 2.00 1.75 1.75 1.75 1.75

Consensus lead price estimates at the time of the Campo Morado silver stream are in Table 200 below and were mined from the following sources: Credit Suisse (Gagliano, et al., 2008b), RBC Capital Markets

Macquarie Research (Moorhead, et al., 2008).

240

Table 200: Consensus lead price estimates at the time of the Campo Morado silver stream

Firm 2008 2009 2010 2011 2012 2013 2014 2015 LT Credit Suisse 0.35 0.35 0.35 0.35 0.35 0.35 0.35 RBC Capital Markets 1.20 0.80 0.60 0.40 0.35 0.30 0.30 0.30 0.30 TD Newcrest 1.21 0.60 0.40 0.40 0.40 0.35 0.35 0.35 0.35 J.P. Morgan Securities Inc. 1.19 0.79 Deutsche Bank 1.09 0.77 0.65 0.45 0.45 0.45 0.45 0.45 0.45 National Bank Financial 1.15 1.05 Macquarie Research 1.32 1.20 Median Price 1.20 0.80 0.50 0.40 0.38 0.35 0.35 0.35 0.35

Consensus zinc price estimates at the time of the Campo Morado silver stream are in Table 201 below and were mined from the following sources: Credit Suisse (Gagliano, et al., 2008b), RBC Capital Markets

(Phillips, et al., 2008b), J.P. Morgan Securities Inc. (Gambardella, et al., 2008b), TD Newcrest (Barnes, et al., 2008a), Deutsche Bank (Fitzpatrick, et al., 2008), National Bank Financial (Howat, et al., 2008c), and

Macquarie Research (Albino, et al., 2008a).

Table 201: Consensus zinc price estimates at the time of the Campo Morado silver stream

Firm 2008 2009 2010 2011 2012 2013 2014 2015 LT Credit Suisse 0.60 0.60 0.60 0.60 0.60 0.60 0.60 RBC Capital Markets 1.15 1.10 1.40 1.80 1.80 0.65 0.65 0.65 0.65 TD Newcrest 1.10 1.00 1.25 1.10 1.00 0.80 0.75 0.75 0.75 J.P. Morgan Securities Inc. 1.00 0.91 Deutsche Bank 1.04 0.96 1.05 0.82 0.82 0.82 0.82 0.82 0.82 National Bank Financial 1.10 1.05 Macquarie Research 1.08 1.00 1.10 1.20 1.40 1.50 1.30 1.20 1.00 CIBC World Markets 1.40 1.25 HSBC Global Research 1.04 0.92 0.81 0.77 0.78 0.77 0.77 0.77 0.77 Median Price 1.09 1.00 1.08 0.96 0.91 0.79 0.76 0.76 0.76

241

Keno Hill

Consensus silver price estimates at the time of the Keno Hill silver stream are in Table 202 below and were mined from the following sources: TD Newcrest (Green, et al., 2008), Canaccord Adams (Butler, et al., 2008), Macquarie Research (Albino, et al., 2008b), Scotia Capital (Christie, et al., 2008b), Deutsche

Bank (Clifford, 2008), Credit Suisse (Gagliano, et al., 2008c), and RBC Capital Markets (Phillips, et al.,

2008c).

Table 202: Consensus silver price estimates at the time of the Keno Hill silver stream

Firm 2008 2009 2010 2011 2012 2013 2014 2015 LT TD Newcrest 18.00 16.50 14.50 14.50 14.50 14.50 14.50 Canaccord Adams 17.94 16.65 15.70 14.75 14.00 14.00 14.00 14.00 14.00 Macquarie Research 15.86 17.14 17.86 16.07 14.29 14.38 14.91 15.31 12.00 Scotia Capital 16.48 18.00 17.50 16.00 15.00 13.00 12.00 11.00 11.00 Deutsche Bank 16.25 15.68 14.40 12.80 12.10 10.90 10.90 10.90 10.90 Credit Suisse 15.83 17.25 11.67 11.67 11.67 11.67 RBC Capital Markets 16.75 17.00 17.50 16.50 15.00 15.00 15.00 15.00 15.00 Median Price 16.37 17.07 17.50 16.04 14.40 14.00 14.00 14.00 12.00

Consensus lead price estimates at the time of the Keno Hill silver stream are in Table 203 below and were mined from the following sources: Scotia Capital (Christie, et al., 2008a), J.P. Morgan Securities Limited

(Parekh, et al., 2008), HSBC Global Research (Mak, et al., 2008), Morgan Stanley (Campbell, et al.,

2008), TD Newcrest (Barnes, et al., 2008b), Credit Suisse (Gagliano, et al., 2008c), Deutsche Bank

(Clifford, 2008), and RBC Capital Markets (Phillips, et al., 2008c).

242

Table 203: Consensus lead price estimates at the time of the Keno Hill silver stream

Firm 2008 2009 2010 2011 2012 2013 2014 2015 LT Scotia Capital 0.69 0.66 0.62 0.58 0.54 0.50 0.50 J.P. Morgan Securities Inc. 1.03 0.79 0.77 0.64 0.54 0.54 0.54 0.54 0.54 HSBC Global Research 1.03 0.80 0.70 0.60 0.55 0.45 0.45 0.45 0.45 Morgan Stanley 1.12 1.00 0.90 0.75 0.60 0.60 0.60 0.60 0.60 TD Newcrest 1.18 0.70 0.45 0.45 0.45 0.45 0.45 0.45 0.45 Credit Suisse 1.02 0.70 0.35 0.35 0.35 0.35 0.35 0.35 0.35 Deutsche Bank 1.02 0.81 0.65 0.55 0.52 0.50 0.50 0.50 0.50 RBC Capital Markets 1.05 0.80 0.60 0.40 0.35 0.30 0.30 0.30 0.30 Median Price 1.03 0.80 0.67 0.58 0.53 0.48 0.48 0.48 0.48

Consensus zinc price estimates at the time of the Keno Hill silver stream are in Table 204 below and were mined from the following sources: Scotia Capital (Christie, et al., 2008a), J.P. Morgan Securities Limited

(Parekh, et al., 2008), HSBC Global Research (Mak, et al., 2008), Morgan Stanley (Campbell, et al.,

2008), TD Newcrest (Barnes, et al., 2008b), Credit Suisse (Gagliano, et al., 2008c), and RBC Capital

Markets (Phillips, et al., 2008c).

Table 204: Consensus zinc price estimates at the time of the Keno Hill silver stream

Firm 2008 2009 2010 2011 2012 2013 2014 2015 LT Scotia Capital 0.85 0.84 0.83 0.82 0.81 0.80 0.80 J.P. Morgan Securities Inc. 0.93 0.88 0.98 0.98 0.88 0.88 0.88 0.88 0.88 HSBC Global Research 0.92 0.75 0.71 0.71 0.76 0.70 0.70 0.70 0.70 Morgan Stanley 1.04 1.15 1.05 1.00 0.80 0.80 0.80 0.80 0.80 TD Newcrest 0.97 0.95 0.75 0.75 0.75 0.75 0.75 0.75 0.75 Credit Suisse 1.22 1.00 0.60 0.60 0.60 0.60 0.60 0.60 0.60 Deutsche Bank 0.91 0.77 1.05 1.07 1.10 0.91 0.91 0.91 0.91 RBC Capital Markets 0.95 0.90 1.10 1.40 1.80 0.70 0.70 0.70 0.70 Median Price 0.95 0.90 0.91 0.91 0.82 0.78 0.78 0.78 0.78

243

Pascua-Lama

Consensus silver price estimates at the time of the Pascua-Lama silver stream are in Table 205 below and were mined from the following sources: Canaccord Adams (Butler, et al., 2009), Credit Suisse (Gagliano, et al., 2009), J.P. Morgan (Parekh, 2009), RBC Capital Markets (Walker, et al., 2009), Morgan Stanley

(Ravi, et al., 2009), Cormark Securities Inc. (Stein, et al., 2009), and National Bank Financial

(Jakusconek, et al., 2009).

Table 205: Consensus silver price estimates at the time of the Pascua-Lama silver stream

Firm 2009 2010 2011 2012 2013 2014 LT Canaccord Adams 14.10 16.50 15.50 14.50 14.00 14.00 14.00 Credit Suisse 16.14 17.80 11.67 11.67 11.67 11.67 11.67 J.P. Morgan Securities Inc. 13.90 13.40 10.50 10.00 10.00 10.00 10.00 RBC Capital Markets 13.25 13.50 13.00 13.00 13.00 13.00 13.00 Morgan Stanley 14.04 14.63 15.17 15.82 15.90 13.94 13.43 Cormark Securities Inc. 13.34 14.00 12.00 National Bank Financial 16.82 17.27 18.18 16.82 15.45 14.55 13.64 Median Price 14.04 14.63 13.00 13.75 13.50 13.47 13.22

Consensus gold price estimates at the time of the Pascua-Lama silver stream are in Table 206 below and were mined from the following sources: Canaccord Adams (Butler, et al., 2009), Credit Suisse (Gagliano, et al., 2009), Societe Generale (William, et al., 2009), Scotia Capital (Christie, et al., 2009), Morgan

Stanley (Spencer, et al., 2009), J.P. Morgan Securities Inc. (Cooke, et al., 2009), RBC Capital Markets

(Esterhuizen, et al., 2009), Cormark Securities Inc. (Gagliano, et al., 2009), Raymond James Ltd.

(Jaworski, et al., 2009), TD Newcrest (Green, et al., 2009), and Deutsche Bank (Martin, et al., 2009).

244

Table 206: Consensus gold price estimates at the time of the Pascua-Lama silver stream

Firm 2009 2010 2011 2012 2013 2014 LT Canaccord Adams 900 800 750 750 750 Credit Suisse 907 960 700 700 700 700 700 Scotia Capital 939 1000 1100 975 900 850 750 Societe Generale 910 1070 Morgan Stanley 1000 1000 1050 700 700 700 700 J.P. Morgan Securities Inc. 939 950 900 850 850 850 850 RBC Capital Markets 925 950 950 950 950 950 950 Cormark Securities Inc. 920 950 825 Median Price 925 960 900 825 800 800 750

Consensus copper price estimates at the time of the Pascua-Lama silver stream are in Table 207 below and were mined from the following sources: Canaccord Adams (Butler, et al., 2009), Credit Suisse

(Gagliano, et al., 2009), Scotia Capital (Christie, et al., 2009), Macquarie Capital Markets Canada Ltd.

(Albino, et al., 2009), Societe Generale (William, et al., 2009), Morgan Stanley (Spencer, et al., 2009),

CIBC World Markets (Parkinson, et al., 2009), Cormark Securities Inc. (Stein, et al., 2009), Raymond

James Ltd. (Jaworski, et al., 2009), and Deutsche Bank (Martin, et al., 2009).

Table 207: Consensus copper price estimates at the time of the Pascua-Lama silver stream

Firm 2009 2010 2011 2012 2013 2014 LT CIBC World Markets 2.00 2.00 2.00 2.00 2.00 Cormark Securities Inc. 2.00 2.75 3.00 Raymond James Ltd. 2.24 3.10 1.90 1.90 1.90 1.90 1.90 Deutsche Bank 1.91 2.01 2.40 2.80 Canaccord Adams 2.00 2.25 2.75 2.50 2.25 2.00 1.75 Credit Suisse 1.77 2.25 1.50 1.50 1.50 1.50 1.50 Scotia Capital 1.95 2.30 2.50 1.75 1.75 1.75 1.75 Macquarie Research 1.76 2.50 3.00 2.50 2.50 2.50 2.00 Median Price 1.95 2.30 2.45 2.00 1.95 1.95 1.83

245

Rosemont

Consensus silver price estimates at the time of the Rosemont silver stream are in Table 208 below and were mined from the following sources: Cormark Securities Inc. (Gray, et al., 2010a), TD Newcrest

(Barnes, et al., 2010), Deutsche Bank (Fitzpatrick, et al., 2010), RBC Capital Markets (Phillips, et al.,

2010), Canaccord Adams (Butler, et al., 2010), Paradigm Capital (Davidson, et al., 2010), Raymond

James Ltd. (Humphrey, et al., 2010), and Credit Suisse (Gagliano, et al., 2010).

Table 208: Consensus silver price estimates at the time of the Rosemont silver stream

Firm 2010 2011 2012 2013 2014 2015 LT Cormark Securities Inc. 13.75 13.75 13.75 13.75 13.75 TD Newcrest 17.50 17.50 16.50 15.00 13.00 13.00 13.00 Deutsche Bank 19.00 22.00 17.00 RBC Capital Markets 15.00 15.00 15.00 15.00 15.00 15.00 15.00 Canaccord Adams 20.50 18.50 17.50 16.50 15.50 15.50 15.50 Paradigm 14.00 14.00 14.00 14.00 14.00 14.00 14.00 Raymond James Ltd. 19.00 18.00 16.00 14.00 14.00 14.00 13.00 Credit Suisse 18.50 20.00 18.50 16.00 16.00 16.00 16.00 Median Price 18.50 18.00 16.25 15.00 14.00 14.00 14.00

Consensus gold price estimates at the time of the Rosemont silver stream are in Table 209 below and were mined from the following sources: Canaccord Adams (Wowkodaw, et al., 2010), Credit Suisse

(Gagliano, et al., 2010), Morgan Stanley (Ravi, et al., 2010), Cormark Securities Inc. (Gray, et al.,

2010b), Raymond James Ltd. (Humphrey, et al., 2010), TD Newcrest (Green, et al., 2010), Deutsche

Bank (Fitzpatrick, et al., 2010), and RBC Capital Markets (Phillips, et al., 2010), and TD Newcrest

(Barnes, et al., 2010).

246

Table 209: Consensus gold price estimates at the time of the Rosemont silver stream

Firm 2010 2011 2012 2013 2014 2015 LT Canaccord Adams 1000 900 850 850 850 Credit Suisse 1025 1000 1010 820 820 820 820 Morgan Stanley 1200 1125 1075 1025 975 900 750 Cormark Securities Inc. 1050 1100 850 850 850 850 850 Raymond James Ltd. 1250 1250 1150 1000 900 900 900 TD Newcrest 1100 1100 1000 900 900 900 900 Deutsche Bank 1150 1250 1000 1000 1000 1000 1000 RBC Capital Markets 1000 1000 1000 1000 1000 1000 1000 Median Price 1100 1100 1000 950 900 900 875

Consensus copper price estimates at the time of the Rosemont silver stream are in Table 210 below and were mined from the following sources: Canaccord Adams (Wowkodaw, et al., 2010), Credit Suisse

(Gagliano, et al., 2010), Morgan Stanley (Ravi, et al., 2010), Cormark Securities Inc. (Gray, et al.,

2010b), Raymond James Ltd. (Humphrey, et al., 2010), RBC Capital Markets (Phillips, et al., 2010),

Deutsche Bank (Beristain, et al., 2010), Scotia Capital (Smith, et al., 2010), J.P. Morgan Securities Inc.

(Parekh, et al., 2010), and Mackie Research Capital Corporation (Salmon, 2010).

Table 210: Consensus copper price estimates at the time of the Rosemont silver stream

Firm 2010 2011 2012 2013 2014 2015 LT Canaccord Adams 2.75 2.50 2.25 2.00 2.00 Credit Suisse 3.30 3.40 3.30 2.00 2.00 2.00 2.00 Morgan Stanley 2.30 3.18 3.38 3.40 3.50 2.70 1.95 Cormark Securities Inc. 3.25 3.50 3.00 2.50 1.75 1.75 1.75 Raymond James Ltd. 2.35 3.56 3.80 3.85 3.45 2.50 2.50 RBC Capital Markets 3.00 3.25 3.50 3.75 1.75 1.75 1.75 Deutsche Bank 3.00 3.50 3.00 Scotia Capital 3.55 2.14 2.14 2.14 2.14 2.14 2.14 Median Price 3.00 3.40 3.15 2.50 2.14 2.00 2.00

247

Consensus molybdenum price estimates at the time of the Rosemont silver stream are in Table 211 below and were mined from the following sources: Canaccord Adams (Wowkodaw, et al., 2010), Cormark

Securities Inc. (Gray, et al., 2010b), Credit Suisse (Profiti, et al., 2010), National Bank Financial (Howat, et al., 2010), RBC Capital Markets (Phillips, et al., 2010), Deutsche Bank (Beristain, et al., 2010), Scotia

Capital (Smith, et al., 2010), and TD Newcrest (Barnes, et al., 2010).

Table 211: Consensus molybdenum price estimates at the time of the Rosemont silver stream

Firm 2010 2011 2012 2013 2014 2015 LT Canaccord Adams 15.00 12.50 12.50 12.50 12.50 Cormark Securities Inc. 12.00 15.00 12.50 12.50 12.50 12.50 12.50 Credit Suisse 16.00 18.00 16.00 14.00 14.00 14.00 14.00 National Bank Financial 17.00 18.00 20.00 17.00 15.00 15.00 15.00 RBC Capital Markets 17.50 30.00 20.00 12.50 11.00 11.00 11.00 Deutsche Bank 15.00 16.00 16.00 Scotia Capital 16.50 13.48 13.48 13.48 13.48 13.48 13.48 TD Newcrest 20.50 24.50 25.00 20.00 16.00 14.00 14.00 Median Price 16.50 18.00 16.00 13.48 13.48 13.48 13.48

248

Appendix D

Calculation of Silver Wheaton Stream Cash Flows for 2012, Going Forward

Stream cash flows in this chapter have been developed in accordance with the process and procedures that were previously outlined in Section 4.3 with the exception of two assumptions:

 In the event that the latest technical report for any underlying mine/project was published prior to

2010, the latest proven and probable reserve tonnage and grades published on the Silver Wheaton

website (effective date of December 31, 2011) were taken for modelling purposes. Furthermore,

recovery factors and throughputs from the latest technical report were assumed for the purpose of

the cash flow model development. This was the case with three mines in particular; Neves-

Corvo, Aljustrel, and Los Filos.

 None of the project/mines underlying Silver Wheaton’s streams will close or ramp down

production within the LOM forecasted in the various technical reports and/or based on respective

proven and probable reserves published by Silver Wheaton.

The following sections will present the cash flow models of each silver stream from 2012 going forward, as well as their associated input parameters and any assumptions made in their development.

It should be noted that a flat silver price of US$30.00/oz was chosen for 2012 and onwards for the purpose of presenting these cash flow models. The primary purpose of this appendix is to exhibit the silver production models that underlie the cash flow models; varying silver price series were applied to

249 these production models in the body of this thesis to stress test the sustainability of Silver Wheaton's enterprise cash flow model.

Keno Hill

A LOM production schedule inclusive of mill throughput and head grade was used as the basis of the

Keno Hill silver stream cash flow model computation (Keller, et al., 2008 p. 4).

Table 212 shows the smelter terms used in the Keno Hill stream cash flow model (Keller, et al., 2008 p.

128.).

Table 212: Economic smelter terms for Keno Hill concentrates

Smelter Terms Lead con Zinc con Payable Ag 95% 65%

Metal process recovery factors used in the Keno Hill stream cash flow model were taken from the appropriate technical report (Keller, et al., 2008 p. 127).

Table 213 shows the Keno Hill silver stream cash flow model from 2012 going forward.

250

Table 213: Cash flow model for the Keno Hill mine from 2012 going forward

2012 2013 2014 2012 2013 2014 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Throughput Mt 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.020 - -

Ag Grade g/t 955 931 873 805 789 814 728 722 712 706 - -

Recoveries % Lead con 94.5% 94.5% 91.7% 91.7% 91.7% 91.7% 90.0% 90.0% 90.0% 90.0% - - Zinc con 2.7% 2.7% 3.2% 3.2% 3.2% 3.2% 4.1% 4.1% 4.1% 4.1% - -

Ag Produced Moz Lead con 0.65 0.64 0.58 0.53 0.52 0.54 0.47 0.47 0.46 0.42 - - Zinc con 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 - - 0.67 0.65 0.60 0.55 2.48 0.54 0.56 0.50 0.49 2.09 0.48 0.44 - - 0.92

Payable Ag Moz Lead con 0.62 0.60 0.55 0.51 0.50 0.51 0.45 0.45 0.44 0.40 - - Zinc con 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 - - 0.63 0.62 0.56 0.52 2.33 0.51 0.53 0.46 0.46 1.96 0.45 0.41 - - 0.86

SLW attributable Moz 0.58 0.49 0.22

Ag price USD/oz 30.00 30.00 30.00

REVENUE USD millions 17.5 14.7 6.5

TRANSFER FEE USD millions 2.3 1.9 0.9 Adjustment 1.00 1.00 1.01

NET CASH FLOW USD millions 15.2 12.8 5.6

Mineral Park

As a more recent technical report was unavailable as of the due date, the same technical parameters and payable silver schedule were used as described in the appropriate section of Appendix of this thesis. For the year 2012, silver production prior to refining deductions was taken as the 2012 production guidance value, as published by Mercator (Mercator Minerals Ltd., 2012).

251

Table 214 shows the cash flow model for the Mineral Park silver stream from 2012 going forward.

Table 214: Cash flow model for the Mineral Park mine from 2012 going forward

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Throughput Mt 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3 18.3

Ag Grade oz/t 0.09 0.09 0.09 0.08 0.08 0.08 0.08 0.08 0.08 0.07 0.07 0.07 0.07 0.07 0.06 0.06 0.06 - - - -

Total Ag Produced Moz 0.5 0.69 0.66 0.66 0.64 0.61 0.61 0.61 0.61 0.61 0.54 0.54 0.54 0.54 0.54 0.46 0.46 0.46 - - - -

Payable Ag Moz 0.4 0.66 0.63 0.63 0.61 0.58 0.58 0.58 0.58 0.58 0.51 0.51 0.51 0.51 0.51 0.44 0.44 0.44 - - - -

Con production Mt 0.1 0.08 0.14 0.14 0.12 0.11 0.10 0.09 0.13 0.09 0.09 0.08 0.08 0.08 0.07 0.07 0.07 0.07 0.07 0.06 0.06 0.03

Ag price USD/oz 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00

REVENUE USD millions 13.0 19.66 18.79 18.79 18.35 17.48 17.48 17.48 17.48 17.48 15.29 15.29 15.29 15.29 15.29 13.11 13.11 13.11 - - - -

TRANSFER FEE USD millions 1.0 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 - - - - NET CASH FLOW USD millions 11.3 17.10 16.32 16.30 15.89 15.11 15.09 15.07 15.05 15.02 13.12 13.10 13.09 13.07 13.05 11.16 11.15 11.13 - - - -

252

Zinkgruvan

Due to the fact that the Zinkgruvan mine has a long history of converting resources to reserves, the mining of all Measured and Indicated resources was assumed for the purpose of this thesis.

Table 215 and Table 216 show mineral reserves and resources current as of December 31, 2008 that were gathered for the purpose of a life-of-mine calculation (Silver Wheaton Corp., 2009 pp. 19, 23).

Table 215: Silver mineral reserves by ore type at the Zinkgruvan mine

Reserves Metal Mt g/t Moz Zinc 10.76 101.6 35.2 Copper 2.9 28 2.6

Table 216: Silver mineral resources by ore type at the Zinkgruvan mine

Resources Metal Mt g/t Moz Zinc 4.34 94.7 13.2 Copper 0.46 30 0.4

Based on the production forecast taken from the most recent available technical report and used as the basis for this stream cash flow calculation (Malmstrom, et al., 2008 p. 59), the silver mineral reserves and resources remaining as of year-end 2012 were calculated based on reported production. The results of this calculation are shown in Table 217.

253

Table 217: Remaining reserves at the Zinkgruvan mine in 2012

Production, Reserves, Metal 2009-2011 2012+ (Mt) (Mt) Zinc 2.9 7.9 Copper 0.2 2.7

Table 218 shows the silver process recovery by ore type used in the Zinkgruvan silver stream cash flow model calculation (Malmstrom, et al., 2008 pp. 61-62).

Table 218: Ag recovery by ore type at the Zinkgruvan mine

Ore Type Ag Recovery Zinc ore 70% Copper ore 78%

254

Table 219: Cash flow model for Zinkgruvan mine from 2012 going forward

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Reserves left Mt Zinc 8.2 7.3 6.3 5.4 4.5 3.4 2.5 1.5 0.54 3.8 2.8 1.8 0.8 Copper 2.7 2.5 2.2 1.9 1.6 1.3 1.0 0.7 0.35 0.05 1.2 0.9 0.6 0.3

Throughput Mt Zinc 0.9 1.0 0.9 0.9 1.1 0.9 1.0 1.0 1.0 1.0 1.0 1.0 0.8 Copper 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Ag grade g/t Zinc 76 71 80 88 82 74 86 71 71/113.5 113.5 113.5 113.5 113.5 113.5 Copper 27 26 26 25 27 22 28 26 26 26.9 26.9 26.9 26.9 26.9

Ag production Moz Zinc 1.5 1.7 1.6 1.8 2.0 1.5 1.9 1.6 2.0 2.6 2.6 2.6 2.1 0.0 Copper 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Total Ag production Moz 1.7 1.9 1.8 2.0 2.2 1.7 2.1 1.8 2.2 2.8 2.8 2.8 2.3 0.2

Payable Ag production Moz 1.6 1.8 1.7 1.9 2.1 1.6 2.0 1.7 2.1 2.6 2.6 2.6 2.2 0.2

Ag price USD/oz 30 30 30 30 30 30 30 30 30 30 30 30 30 30

REVENUE USD millions 48.7 52.8 50.3 56.2 63.3 48.5 60.3 51.1 63.7 79.4 78.6 78.6 67.0 5.9

TRANSFER FEE USD millions 6.7 7.4 7.2 8.2 9.3 7.2 9.1 7.9 9.9 12.5 12.6 12.7 11.0 1.0 Adjustment 1.07 1.08 1.10 1.12 1.13 1.15 1.17 1.18 1.20 1.21 1.23 1.25 1.26 1.28 NET CASH FLOW USD millions 41.9 45.4 43.1 48.1 54.0 41.2 51.1 43.3 53.8 66.9 66.0 65.9 56.0 4.9

Note that the year 2020 has estimated silver production from both reserves and resources. With 0.54 Mt remaining at the beginning of the year, it is assumed that the mining of resources would begin. Therefore, mill feed is estimated to be 0.54 Mt at 71 g/t Ag and 0.46 Mt at 113.5 g/t Ag.

255

San Dimas

A LOM production schedule from the relevant technical report was used as the basis for the San Dimas silver stream cash flow model calculation for 2012+ (Spring, et al., 2011 p. 107). This schedule includes mill throughput, silver grade, and process recovery. No silver deduction was assumed, as the only product that San Dimas produces is doré.

Table 220 shows the San Dimas silver stream cash flow model from 2012 going forward.

Table 220: Cash flow model for the San Dimas mine from 2012 going forward

2012 2013 2014 2015

Throughput Mt 0.78 0.85 0.85 0.85

Ag Grade g/t 315 314 310 307

Ag Recovery % 94% 94% 94% 94%

Ag Production Moz 7.4 8.1 8.0 7.9

Ag price USD/oz 30.00 30.00 30.00 30.00

REVENUE USD millions 221.4 242.0 238.9 236.6

TRANSFER FEE USD millions 29.9 33.0 32.9 32.9 Adjustment 1.04 1.05 1.06 1.07

NET CASH FLOW USD millions 191.5 209.0 206.0 203.7

256

Loma de la Plata

A LOM production schedule was used as the basis for the Loma de La Plata silver stream cash flow model (M3 Engineering & Technology Corporation, 2011 p. 125). As well, a silver process recovery of

72% was used in this cash flow model (M3 Engineering & Technology Corporation, 2011 p. 69). A payable silver factor of 96.5% was used, as well (M3 Engineering & Technology Corporation, 2011 p.

154).

The following assumptions were made in the development of the Loma de La Plata stream cash flow model:

 that low grade stockpile is processed and sold in last five years;

 that quoted silver grades are from copper-silver ore grades;

 that quoted smelter terms applicable to Loma de La Plata are those for the copper-silver

concentrate.

Finally, no concentrate production schedule was published and there was thus no information to base the silver deduction on. Therefore, no silver deduction was assumed in the model.

257

Table 221 shows the cash flow model for the planned Loma de La Plata silver stream from 2012 going forward.

Table 221: Cash flow model for the planned Loma de La Plata mine

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Throughput (ore) Mt 0.4 3.0 2.8 3.4 1.4 0.4 2.6 1.9 1.5 1.1 0.5 0.1 0.3 0.7 0.3

Low grade stockpile Mt 0.5 0.1 0.3 0.7 0.2 0.1

Ag grade g/t Ore 209.3 253.2 238.7 170.3 166.3 192.3 149.3 143.5 155.6 168.3 Low grade 77.8 95.5 70.3 61.3 59.4 53.7 77.8 95.5 70.3 61.3 59.4

Ag Produced Moz 2.1 17.6 15.7 13.4 5.3 1.9 9.0 6.2 5.3 4.2 0.0 0.0 0.0 0.9 0.2 0.5 1.0 0.5

Payable Ag Moz 2.0 17.0 15.2 12.9 5.1 1.9 8.6 6.0 5.1 4.0 0.0 0.0 0.0 0.9 0.1 0.5 1.0 0.4

SLW attributable Moz 0.3 2.1 1.9 1.6 0.6 0.2 1.1 0.7 0.6 0.5 0.0 0.0 0.0 0.1 0.0 0.1 0.1 0.1

Ag price USD/oz 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00

REVENUE USD millions 7.7 63.8 56.8 48.3 19.2 7.0 32.4 22.4 19.1 15.1 0.0 0.0 0.0 3.3 0.5 1.9 3.6 1.7

TRANSFER FEE USD millions 1.0 8.5 7.6 6.4 2.6 0.9 4.3 3.0 2.5 2.0 0.0 0.0 0.0 0.4 0.1 0.3 0.5 0.2 Adjustment

CAPITAL PAYMENT USD millions 32.4

NET CASH FLOW USD millions -25.7 55.3 49.3 41.9 16.6 6.1 28.1 19.4 16.5 13.1 0.0 0.0 0.0 2.9 0.5 1.6 3.1 1.4

258

Rosemont

A LOM production schedule inclusive of mill throughput and silver grade was used as the basis for the

Rosemont precious metal stream cash flow calculation (Huss, Conrad; M3 Engineering & Technology

Corporation, 2009 p. 117). A precious metal process recovery schedule was used in this cash flow model, as well (Huss, Conrad; M3 Engineering & Technology Corporation, 2009 p. 9). Smelter terms used in the

Rosemont stream cash flow model can be seen in Table 222 (Huss, Conrad; M3 Engineering &

Technology Corporation, 2009 p. 108).

Table 222: Economic smelter terms for the Rosemont mine

Smelter Terms Payable Ag 90% Payable Au 90%

259

Table 223 shows the cash flow model for the planned Rosemont precious metal stream from 2012 going forward.

Table 223: Cash flow model for the Rosemont mine from 2012 going forward

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

Metal recovered Moz Ag 2.3 2.6 1.9 2.9 1.7 2.6 2.5 2.7 3.2 2.6 2.9 1.5 1.9 2.3 2.6 2.7 2.6 2.8 2.4 2.6 0.5 Au 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.01 0.01 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.002

Payable metal Moz Ag 2.09 2.31 1.74 2.62 1.55 2.36 2.27 2.46 2.91 2.32 2.62 1.35 1.72 2.11 2.35 2.44 2.38 2.52 2.20 2.33 0.41 Au 0.01 0.02 0.01 0.02 0.01 0.02 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.002

Metal prices USD/oz Ag 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Au 1750 1675 1500 1400 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250

REVENUE USD millions 69.66 111.92 83.115 115.83 72.81 101.19 99.53 100.71 115.8 97.34 106.11 58.84 73.64 89.19 95.86 97.49 96.82 101.65 89.66 90.08 16.06

TRANSFER FEE USD millions Ag 8.15 9.00 6.78 10.32 6.18 9.48 9.22 10.07 12.04 9.68 11.04 5.75 7.39 9.15 10.27 10.74 10.58 11.32 9.96 10.62 1.87 Au 5.67 8.10 6.08 7.77 6.20 7.51 8.00 6.38 6.44 6.93 6.56 4.86 5.79 6.74 6.35 5.95 6.46 6.52 6.11 4.74 0.956 Adjustment 1.00 1.00 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 Total 13.8 17.1 12.9 18.1 12.4 17.0 17.2 16.4 18.5 16.6 17.6 10.6 13.2 15.9 16.6 16.7 17.0 17.8 16.1 15.4 2.8

Capital Payment USD millions 230

NET CASH FLOW USD millions - 230 61.5 102.9 76.3 105.5 66.6 91.7 90.3 90.6 103.8 87.7 95.1 53.1 66.3 80.0 85.6 86.7 86.2 90.3 79.7 79.5 14.2

260

Yauliyacu

A LOM production schedule inclusive of throughput, silver grades, and recoveries to concentrate for the various ore types was used as the basis for the Yauliyacu silver stream cash flow model (Burns, et al.,

2011 p. 102). Additionally, a payable silver factor of 95% was assumed in this model in the absence of published data in Burns et al. Table 224 shows the cash flow model for the planned Yauliyacu silver stream from 2012 going forward.

261

Table 224: Cash flow model for the Yauliyacu mine going forward

2012 2013 2014 2015 2016 2017 2018 2019 2020

Throughput Mt 1.33 1.35 1.37 1.40 1.44 1.47 1.51 1.54 1.58

Ag Grade g/t 82.5 82.5 91.7 95.4 117.9 124.3 129.0 135.7 135.0

Ag Recovery % Pb con 51% 53% 54% 48% 49% 57% 51% 56% 48% Zn con 7% 7% 6% 6% 6% 6% 5% 6% 6% Cu con 22% 23% 23% 20% 31% 24% 30% 25% 31%

Ag Production Moz Pb con 1.81 1.91 2.18 2.08 2.65 3.35 3.18 3.75 3.28 Zn con 0.25 0.24 0.25 0.26 0.32 0.34 0.34 0.42 0.42 Cu con 0.77 0.81 0.91 0.86 1.68 1.40 1.89 1.69 2.14 Total 2.82 2.96 3.34 3.20 4.65 5.09 5.41 5.85 5.84 Deficit/Surplus 1.93 1.79 1.41 1.55 0.10 -0.34 -0.66 -1.10 -1.09 Sub-total Deficit 1.93 3.72 5.13 6.68 6.78 Sub-total Surplus -0.34 -1.00 -1.75 -2.19

Payable Ag 2.68 2.81 3.18 3.04 4.42 4.84 5.14 5.56 5.55

Ag price USD/oz 30 30 30 30 30 30 30 30 30

REVENUE USD millions 80.4 84.4 95.3 91.1 132.5 145.2 154.1 166.7 166.5

TRANSFER FEE USD millions 10.8 11.5 13.0 12.6 18.4 20.3 21.7 23.6 23.8 Adjustment 1.04 1.05 1.06 1.07 1.08 1.09 1.1 1.11 1.12

NET CASH FLOW USD millions 69.6 72.9 82.2 78.5 114.1 124.9 132.4 143.1 142.7

Cozamin

A LOM production schedule inclusive of mill throughput and silver grades was used as the basis for the

Cozamin silver stream cash flow model (Doerksen, et al., 2009 p. 6).

262

Table 225 and Table 226 show silver recoveries to the various concentrate types and economic smelter terms for Cozamin concentrates, used in the stream cash flow model, respectively (Doerksen, et al., 2009 p. 99).

Table 225: Ag recoveries by concentrate type for the Cozamin mine

Ag Recoveries Cu concentrate 56% Zn concentrate 2% Pb concentrate 16%

Table 226: Economic smelter terms for the Cozamin mine

Smelter Terms Concentrate Payable Ag Cu 95% Zn 70% Pb 95%

As no concentrate production schedule has been provided, no deductions were assumed in the payable silver calculation.

Table 227 shows the cash flow model for the Cozamin silver stream from 2012 going forward.

263

Table 227: Cash flow model for the Cozamin mine from 2012 going forward

2012 2013 2014 2015 2016 2017

Throughput Mt 1.02 1.02 1.02 1.02 0.73 0.26

Ag Grade g/t 68 53 51 48 43 38

Ag production Moz Cu con 1.24 0.97 0.93 0.88 0.57 0.18 Zn con 0.04 0.03 0.03 0.03 0.02 0.01 Pb con 0.36 0.28 0.27 0.25 0.16 0.05

Payable Ag Moz Cu con 1.18 0.92 0.89 0.83 0.54 0.17 Zn con 0.00 0.00 0.00 0.00 0.00 0.00 Pb con 0.00 0.00 0.00 0.00 0.00 0.00 Total 1.18 0.92 0.89 0.83 0.54 0.17

Ag price USD/oz 30.00 30.00 30.00 30.00 30.00 30.00

REVENUE USD millions 35.4 27.6 26.6 25.0 16.2 5.0

TRANSFER FEE USD millions 4.8 3.8 3.6 3.5 2.3 0.7 Adjustment 1.01 1.02 1.03 1.04 1.05 1.06

NET CASH FLOW USD millions 30.7 23.9 22.9 21.5 13.9 4.3

Minto

A LOM production schedule inclusive of mill throughput, silver grades, recovery to concentrate, and concentrate production was used as the basis of the Minto stream cash flow model (Scott, et al., 2011 p. xii). Table 228 shows the precious metal recovery to concentrate used in the cash flow model.

264

Table 228: Metal recovery to concentrate for the Minto mine

Recovery to concentrate Ag recovery 74% Au recovery 70%

Table 229 economic smelter terms used in the Minto precious metal stream cash flow model (Scott, et al.,

2011 p. ix).

Table 229: Economic smelter terms for the Minto mine concentrate

Smelter Terms Ag deduction 30.00 g/dmt

Additionally, the following assumptions were made in the cash flow model development:

 payable gold factor of 95%;

 and a silver recovery to concentrate of 74%.

Table 230 shows the cash flow model for the Minto precious metal stream from 2012 going forward.

265

Table 230: Cash flow model for the Minto mine from 2012 going forward

2012 2013 2014 2015 2016 2017 2018 2019 2020

Throughput Mt 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 0.7

Ag Grade g/t Ag grade 7.2 5.4 10.0 5.8 5.7 2.9 3.2 2.2 2.2 Au grade 0.7 0.7 1.5 0.6 0.7 0.3 0.3 0.2 0.2

Contained Metal in Con Moz Ag 0.2 0.2 0.3 0.2 0.2 0.1 0.1 0.1 0.03 Au 0.02 0.02 0.05 0.02 0.02 0.01 0.01 0.01 0.003

Concentrate Production Mt 0.1 0.1 0.1 0.1 0.1 0.04 0.03 0.03 0.01 Ag grade g/t 118.5 99.7 106.7 109.8 103.5 81.5 103.9 87.6 87.6 Au grade g/t 10.9 12.2 15.1 10.7 12.0 8.0 9.2 7.5 7.5

Payable Metal in Con Moz Ag 0.18 0.12 0.23 0.14 0.13 0.06 0.07 0.05 0.02 Au 0.02 0.02 0.04 0.02 0.02 0.01 0.01 0.01 0.003

SLW attributable Moz Ag 0.2 0.1 0.2 0.1 0.1 0.1 0.1 0.05 0.02 Au 0.02 0.02 0.04 0.02 0.02 0.01 0.01 0.01 0.003

Ag price USD/oz 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00

Au price USD/oz 1750 1750 1675 1500 1400 1250 1250 1250 1250

REVENUE USD millions 41.2 39.5 68.9 30.5 32.7 12.8 13.2 8.7 4.2

TRANSFER FEE USD millions Ag 0.7 0.5 0.9 0.6 0.5 0.2 0.3 0.2 0.1 Au 6.2 6.3 11.4 5.5 6.5 2.8 2.8 1.9 0.9 Adjustment 1.0 1.0 1.0 1.0 1.1 1.1 1.1 1.1 1.1 Total 6.9 6.8 12.4 6.0 7.0 3.0 3.1 2.1 1.0

NET CASH FLOW USD millions 41.2 39.5 68.9 30.5 32.7 12.8 13.2 8.7 4.2

Pascua-Lama

A LOM production schedule inclusive of mill throughput, silver grades, metallurgical recovery, and concentrate production was used as the basis for the Pascua-Lama silver stream cash flow model (Barrick

Gold Corp., 2011 pp. 129-130). As no smelter terms were provided in the relevant technical report and the previously cited Elliott et al provided no such information, the model assumes that all silver recovered

266 to concentrate and doré is payable. Note that the attributable silver production figure for 2012 is composed of the combined production from the Pierina, Veladero, and Lagunas Norte mines in the absence of commercial production at Pascua-Lama, as per the original silver purchase agreement.

267

Table 231 shows the cash flow model for the Pascua-Lama silver stream from 2012 going forward.

Table 231: Cash flow model for the planned Pascua-Lama mine from 2012 going forward

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036

Ag produced Moz 30.0 30.5 40.8 54.4 25.3 12.2 12.8 28.6 31.8 40.3 39.1 31.4 27.8 17.6 16.2 15.9 9.0 9.5 7.9 8.9 7.3 17.0 16.3 8.7

SLW attributable Moz 2.4 7.5 7.6 10.2 13.6 6.3 3.1 3.2 7.2 7.9 10.1 9.8 7.9 6.9 4.4 4.1 4.0 2.2 2.4 2.0 2.2 1.8 4.2 4.1 2.2

Ag price USD/oz 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00

REVENUE USD millions 72.0 225.2 229.1 306.4 408.0 190.1 91.7 95.8 214.6 238.3 302.2 293.4 235.8 208.4 131.8 121.6 119.2 67.2 71.3 58.9 66.9 55.0 127.1 122.2 65.4

TRANSFER FEE USD millions 9.4 29.3 29.8 40.2 54.1 25.5 12.4 13.1 29.6 33.1 42.4 41.6 33.7 30.1 19.2 17.9 17.7 10.0 10.7 9.0 10.3 8.5 19.8 19.2 10.4 Adjustment 1.00 1.00 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20 1.21 1.22

NET CASH FLOW USD millions 62.6 195.9 199.3 266.1 353.9 164.6 79.3 82.7 185.1 205.1 259.8 251.9 202.0 178.3 112.6 103.7 101.5 57.1 60.5 50.0 56.7 46.5 107.3 103.0 55.0

268

Penasquito

A LOM production schedule inclusive of mill throughput, silver grades, and concentrate production was used as the basis of the Penasquito silver stream cash flow model (Belanger, et al., 2010 pp. 18 - 3).

From Belanger et al, it can be seen that Penasquito ore can be separated into two primary types: oxide ore for treatment by heap leaching and sulphide ore for treatment by flotation. As ore feed by ore type was not provided anywhere in Belanger et al, a weighted average calculation had to be performed to arrive at a single useable silver recovery factor to both lead and zinc concentrates. Table 232 shows the data used to perform this calculation; ore composition by lithology (Bryson, et al., 2007 p. 11) and silver recoveries by to concentrate by lithology (Belanger, et al., 2010 pp. 16 - 3). Note that in the absence of updated information, data for ore composition by lithology was assumed to be unchanged between the publication of Bryson et al (2007) and Belanger et al (2010).

Table 232: Ore composition and silver recovery to concentrate at the planned Penasquito mine

Sulphide Ore Composition by Lithology Breccia Intrusives Sedimentary Percentage 61% 6% 33% Ag Recoveries Breccia Intrusives Sedimentary Lead concentrate 65% 63% 58% Zinc concentrate 15% 14% 5%

Table 233 shows the results of the aforementioned calculation; weighted average silver recovery to concentrate.

269

Table 233: Weighted average silver recovery to concentrate from sulphide ore at the Penasquito

mine

Weighted average Ag recoveries Pb concentrate 62.6% Zn concentrate 11.6%

Note that the weighted average silver recoveries to concentrate were used in the Penasquito cash flow model.

Table 234 and Table 235 show the silver recovery to doré from oxide ore (Belanger, et al., 2010 pp. 16 -

3) and oxide ore reserves (Belanger, et al., 2010 pp. 1 - 10) used in the cash flow model, respectively.

Table 234: Silver recovery from oxide ore at the Penasquito mine

Oxide Ore Recoveries Penasco 28% Chile Colorado 22% Average 25%

Table 235: Proven & probable oxide ore reserves at the Penasquito mine

Oxide Proven & Probable Reserves Mt g/t Moz 67.8 16.8 36.55

270

Note that the oxide ore reserves listed above were used to estimate the oxide ore production schedule in the cash flow model.

271

Table 236 shows the cash flow model for the Penasquito silver stream from 2012 going forward.

Table 236: Cash flow model for the Penasquito mine from 2012 going forward

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Throughput Mt Sulphide 47.6 47.4 47.6 47.5 47.6 47.5 47.4 47.5 47.6 47.5 47.5 47.5 47.4 47.4 47.5 47.4 47.5 47.5 47.4 47.5 47.0 Oxide 31.0 31.0 5.8 ------

Ag grade g/t Sulphide 26.9 24.8 30.6 29.3 31.3 25.4 24.7 28.7 27.2 25.1 29.9 25.6 25.8 23.7 24.7 24.0 21.1 21.8 24.5 29.7 26.6 Oxide 16.8 16.8 16.8 ------

Ag production Moz Pb con 25.7 23.7 29.3 28.0 30.0 24.2 23.6 27.4 26.0 24.0 28.5 24.4 24.6 22.6 23.6 22.9 20.1 20.8 23.4 28.4 25.2 Zn con 4.8 4.4 5.4 5.2 5.6 4.5 4.4 5.1 4.8 4.5 5.3 4.5 4.6 4.2 4.4 4.3 3.7 3.9 4.4 5.3 4.7 Oxide 4.2 4.2 0.8 ------Total 34.7 32.3 35.5 33.2 35.5 28.8 28.0 32.5 30.9 28.4 33.9 29.0 29.2 26.8 28.0 27.2 23.9 24.7 27.7 33.6 29.8

Payable Ag Moz 33.0 30.7 33.7 31.5 33.8 27.3 26.6 30.9 29.3 27.0 32.2 27.5 27.8 25.5 26.6 25.8 22.7 23.4 26.4 31.9 28.3

SLW attributable Moz 8.2 7.7 8.4 7.9 8.4 6.8 6.6 7.7 7.3 6.7 8.0 6.9 6.9 6.4 6.6 6.5 5.7 5.9 6.6 8.0 7.1

Ag price USD/oz 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00

REVENUE USD millions 247.4 229.9 253.1 236.4 253.2 204.9 199.3 231.5 220.0 202.5 241.2 206.5 208.1 191.2 199.3 193.6 170.2 175.9 197.6 239.6 212.6

TRANSFER FEE USD millions 32.2 30.2 33.6 31.6 34.2 28.0 27.5 32.2 30.9 28.7 34.5 29.8 30.3 28.1 29.5 28.9 25.7 26.7 30.3 37.1 33.2 Adjustment 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.1 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20

NET CASH FLOW USD millions 215.3 199.7 219.5 204.7 219 176.9 171.8 199.3 189.1 173.8 206.7 176.7 177.8 163.1 169.7 164.7 144.5 149.1 167.3 202.5 179.4

272

Stratoni

Due to the absence of critical technical information in the latest relevant technical report prepared by

Forward et al, a recovered metal schedule was used as the basis for the Stratoni silver stream cash flow model for 2012+ (Forward, et al., 2010 p. 41). A payable silver factor of 95% was assumed in the cash flow model, which is presented in Table 237, below.

Table 237: Cash flow model for the Stratoni mine from 2012 going forward

2012 2013 2014 2015

Ag production Moz 1.4 1.5 1.5 1.5

Payable Ag Moz 1.3 1.4 1.4 1.4

Ag price USD/oz 30.0 30.0 30.0 30.0

REVENUE USD millions 39.2 42.8 42.8 42.8

TRANSFER FEE USD millions 5.3 5.8 5.8 5.9 Adjustment 1.03 1.04 1.05 1.06

NET CASH FLOW USD millions 34.0 37.0 37.0 36.9

Campo Morado

A LOM production schedule for the Campo Morado project provided in the most recent technical report

(Godden, et al., 2010 p. 148) is very difficult to comprehend and vet. As such, the author opted to build a model using indisputably clear technical parameters, as gleaned from Godden et al.

273

As shown in Table 238 and Table 239, reserves and resources current as of December 31, 2011 were gathered to aid in the life of mine calculation (Nyrstar N.V., 2012 p. 4). The “average case” processing recovery for silver of 45% was used in this cash flow model (Godden, et al., 2010 p. 147).

Table 238: Proven & probable reserves at the planned Campo Morado mine

Proven & Probable Reserves Mt Ag g/t 1.03 162.7

Table 239: Measured & indicated resources at the planned Campo Morado mine

Measured & Indicated Resources Mt Ag g/t 9.63 161.73

Using a processing rate of 1,500 tpd (Godden, et al., 2010 p. 2) the approximate annual processing rate of the Campo Morado mine was estimated in Table 241.

Table 240: Mill processing rates at the planned Campo Morado mine

Mill Processing Rate Value Unit 1500 tpd 0.5475 Mtpa

274

Assuming the mining of all resources and reserves, the approximate life of mine for the Campo Morado mine is shown in Table 241, below.

Table 241: Approximate LOM calculation for the planned Campo Morado mine

Reserves & Approx. LOM Resources (years) 10.66 19.47

The following additional assumptions were made in the development of the Campo Morado silver stream cash flow model:

 smelter terms from Stone et al, as previously outlined in Table 151 and ;

 no further production of lead concentrate;

 and weighted average silver smelter recovery of 75% for both copper and zinc concentrates.

275

Table 242 shows the cash flow model for the Campo Morado silver stream from 2012 going forward.

Table 242: Cash flow model for the planned Campo Morado mine from 2012 going forward

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Throughput Mt 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

Contained Ag Moz 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3

Payable Ag Moz 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

SLW attributable Moz 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7

Ag price USD/oz 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00

REVENUE USD millions 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7

TRANSFER FEE USD millions 2.8 2.8 2.9 2.9 2.9 3.0 3.0 3.0 3.0 3.1 3.1 3.1 3.2 3.2 3.2 3.2 3.3 3.3 3.3 Adjustment 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.1 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18

NET CASH FLOW USD millions 18.9 18.8 18.8 18.8 18.8 18.7 18.7 18.7 18.6 18.6 18.6 18.6 18.5 18.5 18.5 18.4 18.4 18.4 18.4

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Neves-Corvo

In the absence of more recent technical information, a technical report published in October 2007 by

Wardell Armstrong was used as the source of technical information in the development of the Neves-

Corvo silver stream cash flow model. Mineral reserves were first gathered to aid in the calculation of an approximate mine life (Lundin Mining Corp., 2012), as shown in Table 243 below. The more conservative mine life of ~12 years was used for the purpose of this cash flow model.

Table 243: Proven & probable mineral reserves at the Neves-Corvo mine

Proven & Probable Ore Type Mt g/t LOM Cu 24.1 40 12.1 Zn 22.7 70 28.4

Metallurgical recoveries of silver to zinc concentrate and copper-lead concentrate (both produced at the zinc plant) and to copper concentrate produced at the copper plant are presented in Table 244 (Wardell

Armstrong International Limited, 2007 pp. 49-50, 42).

Table 244: Silver recoveries to concentrate at the Neves-Corvo mine

Ag Recoveries Zn con 16.1% Cu/Pb con 31.7% Cu plant con 35.0%

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The following assumptions were made in the development of the Neves-Corvo silver stream cash flow model:

 a payable silver factor of 95% for all concentrates;

 2 Mtpa out of a maximum 2.5 Mtpa throughput for the copper plant;

 and 0.8 Mtpa out of a maximum 1 Mtpa throughput for the zinc plant.

Table 245 shows the cash flow model for the Neves-Corvo silver stream from 2012 going forward.

Table 245: Cash flow model for the Neves-Corvo mine from 2012 going forward

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Throughput Mt Zn plant ore 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 Cu plant ore 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Ag grade g/t Zn plant ore 70 70 70 70 70 70 70 70 70 70 70 70 Cu plant ore 40 40 40 40 40 40 40 40 40 40 40 40

Contained Ag Moz Zn con 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 Cu/Pb con 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 Cu plant con 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 Sub-total 1.76 1.76 1.76 1.76 1.76 1.76 1.76 1.76 1.76 1.76 1.76 1.76

Total Ag contained Moz 1.76 1.76 1.76 1.76 1.76 1.76 1.76 1.76 1.76 1.76 1.76 1.76

Payable Ag Moz 1.67 1.67 1.67 1.67 1.67 1.67 1.67 1.67 1.67 1.67 1.67 1.67

Ag Price USD/oz 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00

REVENUE USD millions 50.2 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8

TRANSFER FEE USD millions 6.6 6.6 6.7 6.8 6.8 6.9 7.0 7.0 7.1 7.2 7.2 7.3 Adjustment 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12

NET CASH FLOW USD millions 43.6 46.2 46.1 46.1 46.0 46.0 45.9 45.8 45.8 45.7 45.6 45.6

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Aljustrel

As the Aljustrel mine is now owned by a private company, the only technical report from which to garner essential data was published in October 2007. Shown in Table 246 below, silver reserves were assumed to be those published on the Silver Wheaton website, current as of December 31, 2011 at the time the data was collected in late 2012. The silver grade quoted in Table 246 was used throughout the LOM cash flow model, as it is the most up-to-date figure available. As well, a metallurgical silver recovery factor of 30% was assumed, as quoted on the same webpage from the Silver Wheaton website (Silver Wheaton Corp.,

2011b). Additionally, a payable silver factor of 95% was assumed for all concentrates and a mill throughput of 1.2 Mtpa was assumed.

Table 246: Proven & probable silver reserves at the Aljustrel mine from 2012 going forward

Proven & Probable Reserves Ore Type Mt g/t Moz Cu 10.6 16.1 5.5

Given the above reserves and assumptions an approximate life of mine calculation was completed, as show in Table 247 below.

Table 247: LOM calculation for the Aljustrel mine

Throughput LOM (years) (Mtpa) 1.2 8.8

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Table 248 shows the cash flow model for the Aljustrel silver stream from 2012 going forward.

Table 248: Cash flow model for the Aljustrel mine from 2012 going forward

2012 2013 2014 2015 2016 2017 2018 2019 2020

Throughput Mt Cu ore 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.0

Ag grade g/t Cu ore 16.1 16.1 16.1 16.1 16.1 16.1 16.1 16.1 16.1

Ag contained Moz 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Payable Ag Moz 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.1

Ag Price USD/oz 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00

REVENUE USD millions 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 4.4

TRANSFER FEE USD millions 0.70 0.70 0.71 0.72 0.73 0.73 0.74 0.75 0.63 Adjustment 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09

Capital Payment USD millions

NET CASH FLOW USD millions 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 3.8

Los Filos

No technical report could be found regarding the Los Filos mine, resulting in the use of reserves, silver grade, and metallurgical recovery figures garnered from the Silver Wheaton website (Silver Wheaton

Corp., 2011b). A process recovery of 5% was assumed and reserves and silver grade shown in Table 249, below. Additionally, no smelter deduction was assumed as the only product at Los Filos is doré.

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Table 249: Silver reserves at the Los Filos mine and approximate LOM calculation

Mt Ag (g/t) Moz LOM 312.17 5.3 53.6 12.29

Table 250 shows the cash flow model for the Los Filos silver stream from 2012 going forward.

Table 250: Cash flow model for the Los Filos mine from 2012 going forward

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Throughput Mt 25.4 25.4 25.4 25.4 25.4 25.4 25.4 25.4 25.4 25.4 25.4 25.4

Grade g/t 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3

Payable Moz 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Ag Price USD/oz 30 30 30 30 30 30 30 30 30 30 30 30

REVENUE USD millions 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5

TRANSFER FEE USD millions 0.89 0.89 0.90 0.91 0.92 0.93 0.94 0.95 0.95 0.96 0.97 0.98 Adjustment 1.05 1.06 1.07 1.08 1.09 1.1 1.11 1.12 1.13 1.14 1.15 1.16

NET CASH FLOW USD millions 5.61 5.60 5.59 5.58 5.57 5.56 5.56 5.55 5.54 5.53 5.52 5.51

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Appendix E

Pertinent Background Information of Silver Wheaton's Operating Partners

Lundin Mining

Just prior to the Zinkgruvan silver purchase agreement, Lundin had acquired the Zinkgruvan mine on

June 2, 2004 from Rio Tinto Plc (Rio Tinto) for approximately $100 million. The acquisition was financed through a public equity offering in Canada and Sweden. At the time, Lundin owned an option on a separate advanced exploration project, the Norrbotten Gold-Copper Project, as well as a 37% position in North Atlantic Natural Resources AB (NAN) who owned and operated the producing

Storliden Zinc/Copper Mine (Lundin Mining Corporation, 2004).

At the time of the Zinkgruvan silver purchase agreement, Lundin was a growing junior mining company that had recently acquired its first producing property while trying to option in to another property through the spending of exploration money. Lundin had recently issued equity to fund the purchase of the

Zinkgruvan mine, its cash position as of September 30, 2004 (two months before the stream deal) was

$25.7 million37, and it held no debt (Lundin Mining Corporation, 2004).

Glencore

At the time of the Yauliyacu silver purchase agreement, the Yauliyacu mine had been operating continuously for over 100 years. Glencore was a private company and few details regarding its cash position or market value were known. As such, there will be no section regarding the impact of this

37 Using an FX rate of 1.26 CAD=1.00 USD for September 30, 2004 (IMF)

282 stream deal on Glencore as a corporation and a corporate WACC of 10% was assumed for the purposes of this section.

European Goldfields Limited

At the time of the Stratoni silver purchase transaction, EGU had recorded its first earnings period in company history, generated from Stratoni mine revenue. Production ramp-up at the Stratoni mine was still underway and was scheduled to continue throughout FY 2007, requiring an undisclosed capital expenditure. Other development projects operated by EGU at the time were expected to require approximately $270 million of initial capital, over the course of several years (European Goldfields

Limited, 2006).

At the time of the transaction, EGU had a cash position of approximately $34 million and held no debt.

EGU had not completed any significant financings in the previous year, and had approximately 118 million fully-diluted, in-the-money shares outstanding (European Goldfields Limited, 2007).

Goldcorp

Approximately nine months prior to the Penasquito silver stream transaction, Goldcorp had issued 283.2 million common shares in partial consideration of the purchase of Glamis Gold Ltd. (Glamis), a junior gold mining company. This transaction partly contributed to Goldcorp’s ascent to the status of a senior gold producing company. At the time of the silver stream, Goldcorp had a cash position of $282.5 million and held $540 million in long-term debt (Goldcorp Inc., 2007).

283

Mercator Minerals

At the time of the Mineral Park silver stream transaction, Mercator was commercially producing copper from its leaching and SX/EW operations at Mineral Park. Plans were in place to construct a full sulphide flotation mill and concentrator. Mercator had completed an equity financing approximately 13 months prior to the Mineral Park stream deal whereby it issued 8.3 million common shares, increasing its share base by approximately 13%. At the time of the deal, Mercator had a cash position of $104.5 million and held a total of approximately $121.5 million in debt, comprised of both equipment loans and secured notes (Mercator Minerals Ltd., 2007).

Farallon

At the time of the Campo Morado silver stream transaction, Farallon had a cash position of $15.9 million and held $2.5 million in debt. In January 2008, approximately four months prior to the stream deal,

Farallon completed a prospectus financing and a private placement whereby ~30.7 million and ~8.2 million shares were issued, respectively. This represented a 13.6% increase of its shareholder base at the beginning of FY 2008. At the time of the deal, Farallon was an exploration company attempting to develop the Campo Morado property and had no producing operations (Farallon Resources Ltd, 2008).

Alexco

At the time of the deal, Alexco was a junior exploration company with no producing operations and no income. Alexco had a cash position of $6.2 million38 and held no debt (Alexco Resource Corp., 2008).

In the year preceding the silver purchase transaction, Alexco had issued 1.5 million shares in an equity financing (Alexco Resource Corp., 2008). Alexco was in the process of advancing the Keno Hill project

38 Using a FX rate of 1.06 CAD=1.00 USD for September 30, 2008 (IMF)

284 to commercial production and was seeking financing during the beginning of the latest global economic recession.

Barrick

As of the deal date, Barrick was a multi-national, major gold mining corporation with several producing mines, $2 billion in cash, and $5 billion in debt. With excellent stock liquidity and ~1.1 billion fully- diluted shares outstanding priced at $42.45 on the deal date, Barrick likely would have been able to easily raise money through equity offerings (Barrick Gold Corp., 2009).

Augusta

At the time of the Rosemont stream deal, Augusta had no producing operations or income. In the year prior to the Rosemont deal, Augusta issued a total of approximately 17.6 million common shares in a private placement and prospectus offering, increasing the previous share base by 20%. Augusta had a cash position of $6.25 million and held approximately $45.80 million in debt. The Rosemont project was

Augusta’s flagship project and the asset in its portfolio that was the closest to achieving commercial production (Augusta Resource Corporation, 2010).

285