Mining’s future is up for sale

Streaming has evolved far beyond its initial role as a financing method for cash-strapped miners. Today, deals worth billions of dollars and a secondary market for rights to future metal production have transformed streams into an asset class on their own. Wheaton Precious Metals recently paid $4.3 billion for a silver stream from BHP’s share of production at the Antamina mine in Peru.

Smaller transactions have attracted private-equity firms and specialist companies that buy and sell existing streams and royalties. A stream allows a financier to provide upfront capital in exchange for a share of a mine's future metal production at a fixed or discounted price. A royalty typically grants the holder a percentage of a mine's revenue or production without requiring additional capital.

Miners favor streaming because it can provide substantial funds without issuing many shares or over-leveraging with traditional debt. However, as the market has grown, valuation, trading, and packaging of streams have become more complex, expanding the business beyond mine financing. Generation Mining, a Canadian developer, found that a metal stream from Wheaton was a significant part of its Marathon copper-palladium project in northern Ontario.

Generation Chairman Kerry Knoll explained that while some investors oppose streaming due to potential upside loss, it is preferable to diluting shareholder value by selling more shares. The mining industry is seeing a larger and more active market for streams, even as some Australian miners are becoming more accepting of them. Factors driving the growth of streaming include record high metal prices, which make previously uneconomical projects viable, and tighter equity costs for miners.

Rising metal prices also make streaming cost-effective, but there is a limit to their value, as Wheaton reviews over 100 opportunities per year.