Financing has been tough for juniors lately: Cash generated from financing activities in Canada fell 34% this year compared with last year, according to a recent report by PricewaterhouseCoopers.
Randy Smallwood, CEO of Silver Wheaton – the world’s largest precious metals streaming company – says that in his thirty years in the mining industry, he’s “never seen it this bad.”
But a stream financing model for juniors may be the silver lining during these cash-strapped times.
Silver Wheaton just signed its first early deposit gold stream agreement with exploration company Sandspring Resources.
Under the $148 million deal, Sandspring will get $13.5 million upfront to complete feasibility work, after which Silver Wheaton will have the right to buy 10% of the life-of-mine gold producion from the Toroparu project in Guyana. If Silver Wheaton elects not to proceed with the gold stream, Sandspring will return all but $2 million of the advanced funds.
This model allows Silver Wheaton to take advantage of high-quality, earlier stage projects. Meanwhile, Sandspring gets access to critical funds without diluting share holder value.
According to Smallwood, early deposit gold stream agreements are the “most attractive forms of financing for juniors.”
“Previously, prior to the feasibility study, the only source of capital has been the public markets,” Smallwood told MINING.com.
But Silver Wheaton is picky, and Smallwood is not looking to strike a deal with just any company.
“There’s a lot of projects out there that shouldn’t be financed,” the CEO said. His team spent a lot of time picking the right one – putting a lot of emphasis on the firm’s management team.
“We wouldn’t be there if we were’t very confident,” he said.
Silver Wheaton plans on executing more of these deals but the CEO wouldn’t say with which companies.
“There is an option, just make sure your project is as good as you say.”
As for business as usual, Silver Wheaton’s primary focus remains regular precious metal stream agreements. The company recently struck a $135 million deal with Hudbay to acquire 50% of its gold production from the Constancia project. Silver Wheaton for already has an arrangement 100% of the life of mine silver production.
Ultimately, Smallwood sees more value in silver for two reasons. For one, the uses of silver are much broader: Half of its consumption is attributed to industrial applications including high efficiency electronics and antibacterial products. Silver’s market position is also more volatile than gold – which can be both a blessing and a curse.