Are Aussies Finally Coming Around to Royalties and Streaming Deals?
Several recent deals suggest the typically tough market is open for royalty and streaming business
Australia has typically been a no-go zone for the major royalty and streaming companies, but times appear to be changing.
In mid-February, Wheaton Precious Metals (TSX: WPM) and BHP (ASX: BHP) signed the world’s largest-ever precious metals streaming deal over the silver produced at the Antamina copper mine in Peru.
Wheaton vice president, corporate development Neil Burns told the Mining Forum Europe in Zürich last week that Australia appeared to be opening up to royalty and streaming companies.
“It’s interesting, because although Antamina is not located in Australia, BHP certainly is based there,” he said.
“And we did hear that that really got the attention of companies in Australia to have such a large transaction done in the streaming space.
“I’ve heard that after they made their announcement, all the other mining companies in Australia that were having their conference calls, [streaming] came up in questions, and to my pleasure, they all responded that certainly, they would look at streaming.”
Wheaton followed the BHP deal up with its first stream in Australia with copper developer KGL Resources (ASX: KGL) over the Jervois project in the Northern Territory.
The US$300 million agreement covers the silver and gold by-products to be produced from the proposed mine.
“We have been looking in Australia for quite some time,” Burns said.
“There’s been a bit of apprehension in the country about streams due to some streams that didn’t go well – more royalties than streams – years ago, but we think there has been some difficulty in Australia with taking on onerous debt and having hedge books blow up.
“There’s been a number of those instances. I think they’re really recognising the benefit of streaming and the lower risk that comes with it, so I’m hoping to see a lot more opportunities.”
Echoing Burns’ comments was Royal Gold Inc’s (NASDAQ: RGLD) senior VP, corporate development Dan Breeze, who indicated the company would look to Australia for new opportunities.
“The market is very robust,” he said.
“I think that the transaction that Wheaton and BHP announced really cast a spotlight on that potential area of growth in terms of minor metals in these massive deposits.
“Australia’s been a very hard market for us to break into for legacy reasons, and that’s changing.”
Franco in Australia
Late last year, Franco-Nevada Corporation (TSX: FNV) CEO Paul Brink visited Australia and vowed the company planned to grow its business there.
That plan has started to bear fruit with the company announcing a A$220 million funding package with Minerals 260 (ASX: MI6) over the 4.5 million ounce Bullabulling gold project near Kalgoorlie in Western Australia.
Franco-Nevada already held a 1% royalty over certain Bullabulling tenements but paid A$170 million to increase its total royalty over the project to 2.45%.
Franco-Nevada also invested A$50 million in Minerals 260 by subscribing for a 4.9% stake at an issue price of A45c per share, a 7% premium to the last closing price.
Speaking at a Resources Rising Stars event in Adelaide this month, Minerals 260 managing director Luke McFadyen said the deal was Franco-Nevada’s largest ever royalty acquisition in Australia
“We have busted the myth that royalties are not attractive funding options for developers in Australia,” he said.
“The usual path is you ring your broker, you discount your stock by 10% or 20% and you go all over again.
“One of the reasons why this was attractive to us is because it didn’t follow that.
“It priced the stock at a premium. The royalty was priced at what we would be at in production, not today, and since the stock has gone up 50% since that announcement just a few weeks ago, we think that’s validation that it was the right decision for the board to do.”
More deals flowing
Earlier this month, Alicanto Minerals (ASX: AQI), which recently acquired the Mt Henry gold project in WA, secured an A$18.1 million funding package from Stria Lithium Inc (TSXV: SRA).
The funding package comprised an upfront cash payment of A$5 million from Stria in return for a 1% net smelter return royalty over Mt Henry, 4 million Stria shares, valued at A$3.1 million; and the potential for a further A$10 million cash investment from Stria if Alicanto reports a resource of at least 2 million ounces at more than 0.8 grams per tonne gold.
The deal represents the first royalty for Stria, which is run by the former Trident Royalties team.
Chalice Mining (ASX: CHN) is developing the large Gonneville deposit outside of Perth which will produce palladium, platinum, nickel, copper, cobalt, gold and silver.
Managing director Alex Dorsch said the company had received interest from royalty and streaming companies.
“I think the streamers and royalty companies are still predominantly looking for precious metals deals and that is really where the focus is, but certainly we are hearing about base metal streams becoming a thing as well,” he said in an interview.
“For us, obviously, we’ve got three co-products, three by-products, so the by-products are very, very obvious things for us to look at in terms of financing.”