The way it works is relatively simple . Streaming contracts focus on a specified amount of metal to be delivered – either the primary precious metal produced by the project or the by-product of a base metals project . Royalties contracts typically last for the life of the project and are based on the future project revenues – not precious metals specific , but just a percentage of revenue .
Q . WHAT ARE THE IMPLICATIONS FOR THE MINING INDUSTRY ?
» This is a significant shift , as mining companies have historically used a mixture of equity and debt to raise capital for the construction , expansion and development of their assets . In a highly liquid market this worked , with IPOs and project financing providing ample funds . However , In the last decade , those funding sources have been significantly constrained and , in some cases , dried up altogether .
Q . WHAT HAS BEEN THE IMPACT OF STREAMING ON THE MARKET ?
» This has led to an increased role for creative solutions from capital providers . Companies such as Franco Nevada , Silver Wheaton and Raptor Capital International have come into play – the latter mandated Bedford Row Capital to deploy a US $ 500mn investment in 25 gold financing projects , with the first tranche ( US $ 30mn ) coming to a close shortly .
The appeal of precious metals streaming and royalty contracts in comparison to equity is clear . There is no dilution to existing shareholders that have invested funds to get the project to the development stage . In addition , a listed mining company may be trading below net asset value which would make an equity deal even more dilutive . Finally , streaming is especially attractive to mining companies with a by-product because it is not core to its investors .
Q . WHAT ARE THE ADVANTAGES OVER DEBT FINANCING ?
» A mining company ’ s ability to finance its project with debt is dependent on having a bankable feasibility study , which are expensive and for smaller projects they are prohibitively expensive . Streaming and royalty contracts are less risky than a debt arrangement because they are settled in the commodity itself rather than cash , so there is no exposure to metal price fluctuation , and it typically contains less covenants than a debt deal .
In short , precious metals streaming and royalty contracts have the potential to create win-win scenarios where both investors and mines thrive .
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