Miners look to streaming deals
Need for cash overwhelming specialty firms
TORONTO — The world’s mining companies are so desperate for cash that more are selling their future metal production, drawing interest from investors willing to bet that the worst commodity slump in a generation is near a bottom.
Producers including Glencore Plc and Barrick Gold Corp., seeking to shore up weakened balance sheets, are looking to tap “streams” of metal from existing mines in a financial transaction that was previously used mostly for early-stage exploration. While the number of socalled streaming deals has more than doubled as prices tumbled over the past four years, the need for cash is outpacing the capacity of a handful of specialists like Franco-Nevada Corp. and Silver Wheaton Corp. who are the main sources of funding.
Macquarie Capital Markets Canada Ltd. says unmet demand for deals may reach $6 billion US, even as Franco- Nevada pledged to tap a $1 billion US credit line to fuel more transactions. The growing need for mine financing is drawing interest from fund managers hoping to acquire secure supplies of metal at low prices for years to come. Blackstone Group and Caisse de Depot et Placement Du Quebec are among the investors already involved in ventures related to streaming.
“This is an environment where capital scarcity has required the entirety of the mining community to think outside the traditional box,” said Oskar Lewnowski III, the founder and chief executive officer at Orion Mine Finance Group, a privateequity firm in New York that has invested in streaming deals, including transactions that involved Blackstone.
The 40 per cent plunge in gold prices from a record in 2011 has coincided with a surge in business for companies that buy production streams, according to Michael Siperco, a Macquarie analyst. Franco-Nevada, Silver Wheaton and Royal Gold Inc. completed more than $8 billion US of deals over the past four years, compared with about $3 billion US in the previous four, when metal prices were soaring, Siperco said.
While returns before now haven’t been high enough to lure many pension funds, that’s starting to change as some seek to partner with — or invest directly in — streaming companies.
Last year, Osisko Gold Royalties Ltd. sold equity stakes to Caisse and Fonds de Solidarite des Travailleurs du Quebec