Resource World Magazine

28 www.resourceworld.com F E B R U A R Y / M A R C H 2 0 1 9 S eymour Schulich, the philanthropist and former Franco-Nevada Corp. [FNV-TSX, NYSE] Chairman once told me that mining is "basically a mug's game." The tongue-in-cheek remark was an attempt to explain why he and partner Pierre Lassonde chose a business strategy that offered leverage to gold mining with - out exposing them to the risks associated with finding orebodies and raising the money needed to develop them. Their solution was to acquire royalty interests in mining properties that are based on the value of production or net proceeds received by the operator but do not require the holder to participate in the management of the mine or finance the costs associated with mining. Royalties differ from metal purchasing agreements known as streams that provide the streaming company with the right to purchase all or a portion of one or more metals produced from the mine at a pre-set price in exchange for an upfront deposit. When Schulich and Lassonde acquired a 4% cut of revenues plus royalties on Barrick Gold Corp.'s [ABX-TSX, NYSE] Goldstrike Mine in Nevada in 1985, the investment initially seemed risky. But it proved to be a business masterstroke, cre - ating fabulous wealth for Franco-Nevada and its shareholders. At that time, royalty companies were a rarity and it wasn't until 2004 that metal streaming transactions were adopted into Canada law. Now, junior mining investors are plac - ing a premium on successful royalty and streaming businesses. In a recent review of the top 100 junior mining companies (as measured by market cap) PwC Canada said two of the top five – Cobalt 27 Capital Corp. [KBLT-TSXV, 270-FSE] and Maverix Metals Inc. [MMX- TSXV; MACIF-OTC] – use streaming and royalty arrangements. They are far from being alone. By 2017, the combined market cap of stream and royalty companies had grown to $34 billion, according to Sandstorm Gold Ltd. [SSL-TSX; SAND-NYSE American], itself a successful pioneer in the royalty business. "Streaming companies are much less risky than traditional mining companies. So it's a good place to invest,'' said Randy Smallwood, CEO of Wheaton Precious Metals Corp. [WPM-TSX, NYSE], one of the world's largest precious metals stream - ing companies. Wheaton has streaming agreements covering 19 operating mines and nine development stage projects. These include Vale SA's [VALE-NYSE] Salobo Mine in Brazil, Glencore AG's Antamina Mine in Peru and Goldcorp Inc.'s [G-TSX; GG-NYSE] Penasquito Mine in Mexico. "We have a risk profile that is very similar to just owning ounces, but we deliver organic growth, we deliver accre - tive growth, and we pay a dividend," Smallwood said. "But we don't have the same risks as a traditional mining company does because our costs are fixed." Metal streaming transactions have become increasingly popular because the model has proven to be a relatively fast and low cost route to securing non-dilu - tive financing. Vale SA, the Brazilian mining giant, is using a streaming agreement with Cobalt 27 Capital and Wheaton Precious Metals to fund an expansion that will extend the life of its Voisey's Bay nickel mine in Labrador. In return for a US $690 million payment to Vale, Cobalt 27 and WPM will be entitled to 75% of the finished cobalt production from Voisey's Bay, starting in 2021. A streaming company such as Wheaton, with 35 employees, differentiates itself from a company like Franco-Nevada that owns royalty interests in mining projects because it tends to play a management role, particularly when the original stream - ing agreements need to be adjusted for any reason. Silver and gold currently account for 100% of Wheaton's annual revenue ($843 million in 2017). Royalties & Streaming – A win-win project development strategy by Peter Kennedy MINING

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