Bankers see low metals prices as bonanza for streaming finance firms

By Euan Rocha
TORONTO, March 9 (Reuters) - The prolonged slump in metal
prices could turn out to be a long-term bonanza for streaming
companies that have rapidly emerged as the go-to financiers for
debt-laden miners, say top industry bankers.
Streaming companies such as Franco-Nevada FNV.TO , Royal
Gold RGLD.O and Silver Wheaton SLW.TO provide upfront funds
for miners in exchange for a portion of a mine's future output.
For years mid-sized miners with limited access to capital had
turned to these companies to fund construction of typically
middling assets, often deemed not lucrative enough to woo top
miners.
While larger miners often previously scorned such deals, the
extended metal price rout has dented their balance sheets and
forced them to book massive writedowns and trim debt in the face
of ratings downgrades.
This has pushed many of the world's largest miners such as
Glencore GLEN.L , Barrick Gold ABX.TO and Teck Resources
TCKb.TO , to turn to streaming companies for deals on some of
their most attractive, low-cost, long-life assets in a bid to
raise cash.
The latest deals are game changers for streaming companies,
despite the typically low returns they generate, said bankers
speaking at the PDAC mining convention.
"If a very high quality asset goes to market, it'll sell at
a very good valuation, because they're very hard, or impossible
to replicate in many cases," said Peter Collibee, Scotiabank's
head of mining. "So are the rates of return too low? I'd argue
not, because of the uniqueness of these assets."
Although streaming firms could lose money in the event of
failure of the projects or companies they fund, bankers say the
positives outweigh the negatives. They see major upside in many
of the tier one assets streaming firms have struck deals around,
as additional exploration could significantly expand reserves at
those mines.
"It's long been said the best place to find a mine is right
beside another mine, and just look at the land packages some of
these streaming transactions have captured," said RBC's head of
mining David Shaver.
Streaming firms doing these deals also have "very low costs
of capital," notes TD's Deputy Chair of Investment Banking Rick
McCreary. He said streams on top tier assets should generate a
lot of cash flow when commodity prices turn higher, and he
expects a sharp turn higher eventually, given the paucity of new
finds.
"I've been doing this for 30 years and I've never seen a
rate of exploration success this low," said BMO's co-head of
mining Egizio Bianchini.