Royalty & Streaming Deal Flow Exceeds $13bn

Issue 105, November 2014

Continued from Page 1

...company reported quarterly revenue of $107.6m on Wednesday, a 9 per cent increase on last year.

New Capital

Critics of the sector have argued that rather than pumping new money into the mining industry, it is simply diverting capital that may otherwise be invested directly in mine operators. Despite sitting on cash of $715m and undrawn credit of $500m, Franco-Nevada closed a $500m equity raise in August, consistently using equity to fund new deals.

“Right now, the royalty-streaming companies are able to raise money,” says John Gravelle, global head of mining at accountancy PwC. “That's a good thing for the mining industry,” he argues, making capital available to operators at a time when other funding sources are constrained.

Smallwood says streaming has only become widely accepted as a financing option in the last 18 to 24 months and “fully expects” its share of all mining finance to grow to 4 or 5 per cent. “There's a natural cap in terms of how much non-core product companies are willing to sell into a stream or royalty, so it would surprise me if it ever got above 10 per cent.”

The headline figures include equity-funded deals and takeovers within the sector, such as Franco-Nevada's takeover of Gold Wheaton in 2011, but exclude Franco's oil and gas deals, totalling $740m, or ongoing payments per ounce paid under streaming contracts.

Consolidation

Smaller royalty groups such as Altius, Sandstorm and Anglo Pacific account for around 8 per cent of all capital deployed by the sector historically, excluding bit-part royalty investors, such as fund managers Red Kite or BlackRock, which last month lost over $100m on a botched royalty deal in Sierra Leone.

“One of the problems that the juniors have is they're apt to take a bit more risk on smaller scale projects and the track-record hasn't been good,” Randy Smallwood says, pointing to Silver Wheaton's C$190m ($147m) buyout of Silverstone Resources in 2009. “This was a company that made some risky investments and had one of them fail.”

His comments draw inevitable parallels to Sandstorm Gold, down 21 per cent in the last week and 80 per cent in 2 years on a string of frustrated deals, including the collapse of counterparty Colossus.

“Most of the smaller companies' projects are much higher risk than we would normally take,” Smallwood says, “but if the price is right, we can afford to take that risk.”

“The best time to buy is when everyone is selling.”

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A Gift to Mining Finance: Pierre Lassonde

"Get naked on the freeway and opportunity will come. Be seen and be in the way of opportunity."