How Precious Metals Streaming Works by Jeff Desjardins, Visual Capitalist
Miners seeking new capital have always had a variety of options: they could issue new shares, take out a loan, enter into joint-venture agreements, or divest non-core assets.
However, in the last decade, a new option has emerged called “precious metals streaming” – in which streaming companies essentially offer capital up front to mining companies in exchange for metal later. If properly executed, the end result is a win for both parties that can ultimately provide value to investors.
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Precious Metals Streaming
Today’s infographic from Silver Wheaton explains the precious metals streaming model, and the arbitrage opportunity that creates value for both the streamer and the miner seeking to acquire capital:
The aforementioned arbitrage opportunity in precious metals streaming is key.
For a traditional base metal miner, the majority of forecasted mine revenue may come from a metal like copper or nickel. However, along with those “target” metals, smaller amounts of gold and silver may be produced from the deposit as well.
Investors would still value those by-product precious metals in a base metal miner’s portfolio, but the metals may be typically valued at an even higher multiple in a precious metal streamer’s portfolio. This allows the base metal miner to transfer these future “streams” to the streamer in exchange for up-front capital, which can be a win-win scenario for both parties.
In other words, miners use streaming to acquire non-dilutive financing, and to extract value from non-core assets. This allows them to deploy capital on purposes more central to their strategy. Major miners such as Teck, Barrick Gold, Vale, and Glencore all sold streams in 2015.
Meanwhile, streaming companies have been very successful since this model was first pioneered 12 years ago. They are getting gold and silver at a discount, and this has created significant amounts of value for investors over the last decade. Today, there are many valuable streaming companies out there, including the major ones such as Silver Wheaton, Royal Gold, and Franco-Nevada.