Sandstorm & Silver Wheaton Back Syndicated Deals
Issue 66, November 2013
The world’s dominant streaming and royalty groups are all broadly in support of making syndicated investments, providing large enough deals can be found.
Last week, Franco-Nevada’s chief executive David Harquail told Global Mining Observer that “at some point, we should be acting like commercial banks. We could do multi-billion dollar syndicated deals and share the risk.” In response to his comments, Nolan Watson, founder of streaming group Sandstorm, echoed Harquail’s sentiment and said Sandstorm would be willing to join syndicated deals in the future.
Ahead of thanksgiving in the US, Royal Gold was unavailable for comment, whilst Silver Wheaton’s president Randy Smallwood cautioned that any agreement would have to be very large for the risk sharing of syndication to be worthwhile. “We’d definitely consider it,” he said, “if we saw a project that we felt was too large for us to take on ourselves. Unfortunately we don’t see a lot of deals of that size. We see more opportunity than risk.”
In February, Silver Wheaton paid $1.9bn for gold byproduct from mines operated by Brazil’s Vale, eclipsing the streaming and royalty industry’s total investments in any prior year. According to accountancy PwC, royalty type deals account for only 1.1 per cent of all mining finance, but with debt and equity markets largely closed to the mining industry, the sector has enjoyed a rise to prominence.
The streaming model has injected over $9bn into the mining industry since its inception in 2004, whilst HudBay’s $1.7bn Constancia mine in Peru has been majority funded by alternative sources of capital. Silver Wheaton has committed up to $885m to HudBay’s expansion efforts, with a further $135m raised in equipment finance from Caterpillar.
Originally founded to tap precious metals revenue off the low market multiples of base metals miners, Silver Wheaton has increasingly expanded into earlier stage assets, using milestone contingent payments and offset or recourse clauses to mitigate the risk of permitting and construction.
The move captures the upside inherent to earlier stage deposits, whilst widening the breadth of companies the streaming industry can cater to, increasing its potential size. Earlier this month, Silver Wheaton struck its earliest stage deal to date, paying between $2m and $149m for up to 10 per cent of gold from Sandspring Resources’ Toroparu deposit, Guyana, currently under feasibility study.
Smallwood expects to agree to “a few more” deals of a similar size in the first half of next year. “We’ve looked at a lot of projects since we started the initiative and there wasn’t many that passed muster, but there’s definitely some other companies that we’re excited about.”
Some of the industry’s smallest investments, including Franco’s Goldstrike royalty in Nevada and Sandstorm’s Aurizona stream in Brazil, have proved the most profitable, but ever larger transactions may be an unavoidable symptom of the industry’s growth. Franco-Nevada, Sandstorm and Silver Wheaton have combined cash of over $990m, with a further $1.6bn in undrawn credit facilities.
“The market isn’t consistent,” Smallwood says. “It’s constantly variable and for us to work within that market we have to be ready to change.”
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