On 31 December 2007, the Group entered into an agreement with Penoles through which it is entitled to receive the proceeds received by the Penoles Group in respect of the refined silver sold from the Sabinas Mine (Sabinas), a base metals mine owned and operated by the Penoles group, for an upfront payment of US$350 million. In addition, a per ounce cash payment of $2.00 in years 1 to 5 and $5.00 thereafter (subject to an inflationary adjustment commencing on 31 December 2013) is payable to Penoles.
Under the contract, the Group has the option to receive a net cash settlement from Penoles attributable to the silver produced and sold from Sabinas, to take delivery of an equivalent amount of refined silver or to receive settlement in the form of both cash and silver. If, by 31 December 2032, the amount of silver produced by Sabinas is less than 60 million ounces, a further payment is due from Penoles of US$1 per ounce of shortfall.
The Silverstream contract represents a derivative financial instrument which has been recorded at fair value and classified within non-current and current assets as appropriate. Changes in the contract's fair value, other than those represented by the realisation of the asset through the receipt of either cash or refined silver, are charged or credited to the income statement.
In the year ended 31 December 2008 total proceeds received were US$31.7 million (2007: US$nil).