Metals and mining company, Vale SA (ADR) (NYSE:VALE), inked another gold purchase deal with Silver Wheaton in its Salobo Mine in Brazil. The latest deal means that Silver Wheaton will have 50% stake in Salobo mine for its entire lifetime. Silver Wheaton announced stock offering to raise funds for the additional acquisition of a stake in Salobo mine. Vale is expected to benefit from guaranteed sale of significant amount of gold produced from the mine.
Vale SA (ADR) (NYSE:VALE) agreed to cede another 25% in Salobo mine to Silver Wheaton. In a separate deal signed in 2013, Silver Wheaton acquired 25% in the mine, which means its total stake following the latest deal is 50%.
The acquisition will add 70,000 ounces of gold to Silver Wheaton a year for the first 10 years and 60,000 ounces of gold a year for the first 30 years. Silver Wheaton announced plans to sell stock worth $800 million to finance the latest acquisition.
$900 million cash injection
The earlier acquisition cost Silver Wheaton $1.33 billion. In the latest one, Vale SA (ADR) (NYSE:VALE) will receive $900 million in cash consideration for ceding 25% in Salobo mine. The new deal with Silver Wheaton means that Vale will be able to sell gold in Salobo mine at a fair market price.
Lukewarm quarterly results
In the most recent quarter, Vale SA (ADR) (NYSE:VALE) lost $1.85 billion, representing $0.36 a share. That was better than a loss of $6.45 billion or $1.26 a share in the same period a year earlier. Vale’s woes can be traced to weak Brazilian currency, soft metal prices and tepid demand. According to Chris LaFemina of Jefferies LLC, the major challenge for Vale is falling iron ore prices.
Analysts at Credit Suisse have recently cut their target price on the stock of Vale to $7 from $7.50. The analysts maintained “underperform” rating on the stock.
Shares of Vale SA (ADR) (NYSE:VALE) have declined more than 21% so far in 2015.