Royalty companies that raked in cash from strong precious metal prices in the last three years look poised to drive a wave of deal activity in the Canadian mining sector, especially among junior players hungry for financing.
These companies, which fund projects in return for a portion of future revenues, generated huge amounts of cash flow from existing deals as the price of gold and silver soared since the beginning of 2009.
Now, with the recent pullback in precious metal prices and slumping stock markets, they could be the saviors for small and mid-tier miners who are eager to grow but strapped for capital.
Europe's debt crisis and slowing Asian growth have tempered banks' appetite for lending. And miners are not keen to issue equity when their share prices are severely depressed, leaving few alternatives to royalty and stream deals to fund project development.
"A lot of the juniors we work with are looking at turning over whatever rock they can in order to get financing. They are exploring it," said Krisztián Tóth, a partner with law firm Fasken Martineau in Toronto.
"But as to whether they are going to get it is really going to come down to the quality of the project."
Miners typically try to avoid royalty and stream deals, as they tend to negate any future upside from rising metal prices.
In royalty deals, financiers provide cash upfront in return for a set percentage of future income. In-stream deals miners get cash in exchange for agreeing to sell by-products in the future at a discounted price.
Royalty companies like Franco-Nevada Corp. (FNV:TSX), Silver Wheaton Corp, Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX), Sandstorm Gold and Anglo Pacific Group now find themselves in the perfect spot to strike new deals and secure their own future growth. . .View Full Article