Lexpert Special Editions

STREAMING AND ROYALTY FINANCING With many mining stocks down as much as 70 per cent from positions prior to the crash, many companies are reluctant to issue new equity – presuming there are even buyers for it – because such low prices will sharply dilute current shares. Current shareholders are angry enough. It all means mining executives have never been more desperate to find alternative forms of financing. Coming to the rescue have been royalty and metal streaming firms. It's gotten to the point, say some lawyers practising in the mining sector, where such providers of capital are heading toward being a mainstream source of funding rather than an alternative desperate measure. Ian Arellano, a partner and co-head of Torys LLP's International Initiative, says that when he attended the Prospectors & Developers Association of Canada (PDAC) Convention in Toronto last March, mine executives were busy "talking to folks in the streaming and royalty business. They were booked solid. Meeting after meeting after meeting. So clearly there is a lot of demand. So this is a golden moment, no pun intended, for the streamers and the royalty companies. They can pick and choose and take the most attractive projects." Gary Litwack, counsel with McCarthy Tétrault LLP in Toronto whose practice focuses on commercial transactions and financing in the mining industry. He says the "creativity and ingenuity" of firms like Vancouver-based Silver Wheaton Corp. have made miners increasingly comfortable with alter- Innovative Financing in g Challenging Times With traditional debt and equity hard to come by, alternative financing, like streaming and royalty deals, are becoming mainstream BY ANTHONY DAVIS FOR MINING COMPANIES, especially the juniors, it's been the pits digging around for new capital in all the usual places: the banks and equity markets. Investors big and small have been holding their noses at issuances of new mining equity since the 2008 global financial crash. At the same time, creating a perfect storm that blew away most available sources of cash and credit, lenders began giving miners the cold shoulder when they came looking for loans to fund exploration, expansions or new projects. The old food-chain model, where big mining companies tended to snap up the intermediates, and the intermediates the juniors, has ground to a near standstill, as the bigger firms have lost their appetite. In fact, with economies still stalled in most countries and uncertainty still jangling lender and investor nerves, things are actually worse now for the mining industry than five years ago. 6 LEXPERT | 2013/14 | WWW.LEXPERT.CA native financing deals. A Canadian invention in mine finance, metal streaming deals began with Silver Wheaton in 2004, now the largest such company in the world. Streamers tend to do larger deals than royalty companies. The streamers give mining companies upfront capital to help complete ready or near-ready construction of projects in exchange for the right to buy produced metal at a pre-determined fixed price for the life of a mine. In essence, streaming companies, explains Arellano, "have been at the vanguard of creating the space where they said we are going to reallocate the risks between investors and mining companies." When investors buy shares in a mine company, he explains, as equity owners they take the same operating risks as the company. Those include unexpectedly increased operating costs, reduced metal prices or perhaps political risks in the countries where they operate. Streaming compa-

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