Page 9 - gmj138-Jan-Mar-20-mag-web_Neat

The streamers are coming

by Dominic Piper

he direction of most gold deal-flow in 2019 was from
TAustralia to North America but there is one corner of the
sector angling for a reversal of that trend this year.
The North American streaming and royalty sector has
outperformed its mining peers over the last decade with
companies such as Wheaton Precious Metals Inc and
Sandstorm Gold Ltd posting strong profits and growth in
recent years.
While royalty agreements date back throughout mining’s
financing history, streaming is a relatively new form of
funding. Emerging in the mid-1990s, it is based on the
concept of crystallising the inherent value of often ignored
by-product production. Streaming companies will purchase
a percentage of the by-product metals produced by a mine
for an upfront payment plus additional payments when the
metal is delivered.
According to Randy Smallwood, president of Wheaton,
the world’s largest precious metals streaming group, the
structure allows for closer partnerships than traditional
royalty contracts.
Randy Smallwood
“Other than the royalty payments, there is generally little
relationship between the mine operator and the royalty
company. The mine operator receives an upfront payment cash flow when mining companies are struggling to access
in return for a royalty on all expected future production,” capital.”
Smallwood told GMJ. “Typically, the percentage is fixed in
The poor performance of mining-related junior stocks in the
the terms of the contract and does not change. Streaming is
last five years has meant there is little appetite for investment
an ongoing long-term relationship that includes opportunities
in North America. This has led juniors and mid-tier miners
to adjust terms if necessary, as circumstances change over
to seek out alternative forms of project financing; an ideal
the life of a mine.
opportunity for companies like Wheaton and Sandstorm.
“Streaming agreements can also provide the mining
“The bulk of mining finance has traditionally come from
company with more funds upfront compared to a royalty
the specialist funds which invest specifically in mining and
agreement because a royalty valuation is generally reduced
particularly gold,” Ward explained. “In Canada, most of
by higher levels of taxation.”
these specialist funds have shut or are a shadow of their
It has been highly successful with the company now valued former selves. They have experienced seven straight years
at $US12.3 billion. In the September quarter, Wheaton of redemptions and have no capital available to invest. They
produced 184,868oz gold equivalent at operating costs of are defending a core group of companies and are now even
$US424/oz, allowing it to post $US140 million in operating selling core things as well as the redemptions continue. So,
cash flow and $US70 million in net earnings for the period. if a junior comes along looking for project capital, they have
Rival Sandstorm has also enjoyed a stellar year. The no room.”
company was expected to post record cash flow for 2019 Ward said the structural change presented more opportunities
and is forecasting free cash flow of $US80 million in 2020. for his company.
Sandstorm chief executive Nolan Ward told GMJ market “The ultimate funder of these funds are the big pension and
dynamics were creating favourable conditions for streamers endowment funds, sovereign wealth funds, etc. who now
and royalty companies. prefer more passive forms of investment which don’t track
“It has been a good year for us,” he said. “We have got smaller mining companies. It means we are getting junior
a few deals done this year and we are pleased with our companies coming to us more frequently knowing that we
performance. It is a perfect storm to be recording record are willing to invest based on our own valuation.”

Page 9