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Silver stock joins big gold companies raising capital despite tough market

Silver Wheaton, leading silver stock, joins the growing numbers of listed gold names - Alamos Gold is the latest - easily raising fresh capital amid generally stricken markets.

Author: Barry Sergeant
Posted: Tuesday , 27 Jan 2009

JOHANNESBURG -

Silver Wheaton, seen by a number of investors as the "No 1 silver proxy", has announced a CAD 250m bought deal, at CAD 8 a share, joining a growing number of listed gold stocks successfully raising fresh capital, among them Alamos Gold, which has just announced a CAD 75m bought deal at CAD 8 a share. The deals highlight the ranking of gold stocks as the world's best-performing equities subsector; silver stocks rank in second place.

The average gold stock, of 250 selected listed names around the world, has risen by around 111% from lows seen in October and November 2008. The MSCI Barra dollar index for all world equities, by contrast, has risen by just 11% from recent lows. Dollar gold bullion ranks as the world's best "underperforming" commodity, trading at just 13% below its record highs, seen in March 2008.

Silver, by contrast, is trading 44% below its highs. In the words of one London-based specialist precious metals analyst, silver can be "described as ‘gold with leverage', outperforming during upswings and underperforming in down markets. In the first half of 2008 an ounce of gold bought between 50 and 55 ounces of silver. In October and November this ratio moved out to 84 silver ounces to one gold ounce and has now moved back to 75".

Silver Wheaton's raising will be used to repay the company's revolving debt facility and for general corporate purposes, thus addressing the company's slightly strained balance sheet, which had CAD 365m of debt at the end of September 2008. Analysts anticipate that Silver Wheaton will produce around 15m ounces of silver this year, up sharply from 11.4m in 2008. The company enjoys a fixed, and low, operating cost around USD 4 an ounce; at current prices around USD 12 for silver, that points to cash flow of at least USD 100m this year.

Alamos, a leading Tier III gold name, is raising capital for working capital and general corporate purposes. The most recent capital raisings for gold names, and now at least one silver name, include that by Kinross Gold, one of the world's best performing gold stocks, and a member of the prestigious global Tier I gold equity group, which last week announced a public offering of 20.9m shares at a price of USD 17.25 per share, to raise a possible USD 361m. In the event of an over-allotment option on a further 3.1m shares being exercised, the amount raised could increase to USD 451m. Just two months ago Kinross bought a 6m ounce gold deposit in Chile for USD 250m.

Harmony Gold, the world's fifth biggest gold miner by ounces produced, announced on 22 December the raising of ZAR 979m before costs, by placing 10.5m shares at an average price of ZAR 93.20 each between 25 November and 19 December 2008. The fresh capital is earmarked mainly to further pay down Harmony's debt, which is targeted, on a net basis, to be around zero by mid-2009.

Among other capital raisings, during November, Agnico-Eagle, a leading Tier II gold digger, raised USD 252m; Red Back, a top Tier II name, announced that it had raised CAD 60m, upsized from CAD 40m "in response to strong investor demand". This past Friday, Red Back announced a CAD 150m bought deal, placing 20m shares at CAD 7.50 each, with an over-allotment of 2m shares potentially available at the same price.