Royalty Co's to Form Syndicate

Issue 145, November 2015

The world's largest royalty and streaming groups are clubbing together to form a syndicate, promising some of the sector's largest ever deals to date, Global Mining Observer reports.

The syndicate includes gold royalty group Franco-Nevada and silver streaming giant Silver Wheaton, but also looks set to include a variety of money managers, from pension funds to private equity, according to high level sources involved.

Orion Mine Finance, formerly part of copper trader Red Kite, and private equity firm Blackstone, one of the world's largest asset managers, are both angling to be included. Caisse de depot, the Quebec-based pension fund, is also “trying to piggyback” on deals negotiated by royalty groups, according to one chief executive, who has previously landed financing from the fund.

Glencore's Collahuasi copper mine in Chile, which has a thumping 68-year mine-life, is meanwhile the first mine in the syndicate's sights, promising a big-ticket deal for Glencore, as companies jostle for a share of the agreement.

Glencore is also in talks to sell a stream, equivalent to a bulk forward sale, over “non-core” gold and silver byproduct from its Antapaccay copper mine in Peru, Global Mining Observer reported in early September, citing sources on both sides of the process.

Mega-Deals

Heavily indebted mega-miners, including Glencore, Barrick, Vale and Teck, have all rapidly sold-off royalties and streams in recent months in the face of falling commodity prices, allowing royalty groups to pocket deals over some of the world's largest and lowest-cost mines.

Franco-Nevada and Silver Wheaton have both struck silver streams over the Antamina copper mine in Peru, which is co-owned by Glencore and Teck, whilst US-based Royal Gold, the third largest royalty and streaming group by market cap, has ploughed over $1.2bn into new agreements since May.

The deal bonanza has moved the sector to a net debt position for the first time in its history, but Franco-Nevada, Silver Wheaton and Royal Gold are still sitting on around $1bn of undrawn credit. By syndicating agreements, they look set to increase their collective firepower even further, tackling the surge of deals currently on offer.

“Carve-Up”

Syndication has already been seen in the royalty sector, but only on small to mid-sized deals. Franco-Nevada struck a $120m deal with Toronto-listed True Gold in Burkina Faso last year, in tandem with streaming company Sandstorm, whilst Altius Minerals brought Boston-based insurance group Liberty Mutual into a $460m royalty agreement in 2013.

Royalties and streams “carve-up pretty well,” says a former insider at Liberty, because they are infinitely divisible and cannot be diluted. “It's not like carving-up a company, where you have issues of control. In equity, you're quite sensitive about who else is an owner. With royalties, you don't much care.”

Syndication “can work and it can be easy to do and it does make sense,” says the chief executive of one streaming company, “especially on the larger transactions.” Splitting deals over massive, multi-decade mines such as Collahuasi and Antapaccay also chimes with the key benefit behind investing in royalties, giving companies a small slice of as big a pie as possible.

Pension funds and asset managers will add an unquantifiable pool of capital to the sector, but could increase competition. “We will see a wide range of players,” says one insider at a royalty and streaming company, leading the current process. “Whether that is good for us, or creates more competition, too early to say.”

“Whether that is good for us, or creates more competition, too early to say.”

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