Franco-Nevada says demand high for stream, royalty deals

Tue Mar 27, 2012 4:10pm EDT

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* Most deals will be in $50 mln-$150 mln range

* Sees one deal per year in $500 mln-$1 bln range

* Juniors struggling to get debt, equity financing

* Mid-tiers using royalties as part of financing package

By Julie Gordon

TORONTO, March 27 (Reuters) - Demand from mining companies for alternative financing like stream deals or royalties is at an all-time high, but deals over $500 million will be few and far between, with most happening in the mid-tier market, the head of a leading royalty company said on Tuesday.

With share prices lagging, miners are wary of turning to equities markets to raise money and are looking at all alternatives, Franco-Nevada Corp Chief Executive David Harquail said at the Reuters Mining and Steel Summit in Toronto.

"We've never had as many calls coming in from people looking at some sort of financing for their projects," he said. "It is clear that people are trying to avoid the equity market."

With most major players able to finance development through their own cash flow, the biggest market right now is mid-tier producers looking to use a royalty or stream as part of a financing package that may also include equity and debt.

"I think there's going to be a lot of business done in the $50 to $150 million range for some of these smaller development projects," said Harquail. "They see royalty financing as part of a three-way."

He pointed to the example of a $50 million deal the company struck in February whereby it will buy both an equity stake in Lake Shore Gold and a royalty interest on the sale of minerals from its Timmins West complex in northern Ontario.

With royalty deals, Franco-Nevada provides an instant cash injection in exchange for a set percentage of future profits, while with a stream deal miners get upfront cash in exchange for agreeing to sell future by-product production at a set price.

Demand for royalty and stream deals is highest from the exploration companies, said Harquail, as they have less traction in the equity market and simply cannot raise debt.

As for the massive deals with top producers that put Franco-Nevada and rival Silver Wheaton on the map, those will likely be far less common, he said.

"I expect maybe one per year where the royalty companies are providing something north of $500 million to $1 billion on a specific project," said Harquail. "One this year and one per year going forward from what I see in the pipeline right now."

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