July 15, 2016 / 4:50 PM / 3 years ago

Red-hot rally in gold and silver cools streaming deal bonanza

VANCOUVER/TORONTO (Reuters) - Soaring gold and silver prices have clipped a deal-making spree for metals streaming companies - the mining financiers that provided a lifeline to the cash-strapped industry in recent years.

An employee picks up a gold bar at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna August 26, 2011. Oegussa processes some 100 tons of various precious metals and generates a turnover of 300 million euros a year. REUTERS/Lisi Niesner

With bullion up 25 percent since January, precious metals miners are once again able to raise money in the equity markets, reducing the need to obtain funds in exchange for a portion of future mine output at discounted prices.

“Streaming companies were almost the savior of the industry,” said John Ing, president of brokerage Maison Placements Canada, but the price rally has seen them “relegated to the back of the line.”

Global gold companies have raised nearly $3.2 billion in equity, up 16.5 percent jump on the year, Thomson Reuters data shows.

Meanwhile, the value of top streaming deals fell nearly 40 percent to some $640 million in the first five months of 2016 versus 2015, Scotiabank estimates.

Higher metals prices mean miners have less need for new funds to repair debt-laden balance sheets. Last year, top global miners including Barrick Gold Corp and Glencore Plc did streaming deals.

Miners typically prefer equity over streaming deals to avoid giving up a portion of future output that becomes more valuable as metals prices rise.

The downturn in deals for the streaming industry, which evolved from niche to mainstream amid booming demand, coincides with a swathe of new competition.

Pension funds, private equity groups and hedge funds such as Elliott Management Corp, which is backing former Barrick finance chief Shaun Usmar’s new Triple Flag Mining Finance venture, have all joined the fray.

“(Streaming companies’) opportunity universe has shrunk to where now it’s the base metal companies that might still need that type of transaction,” said portfolio manager Joe Foster at New York-based Van Eck, a major institutional investor in the precious metals sector.

To be sure, a few big deals may be in the works this year, especially for base metal miners still grappling with weak prices such as copper <CMCU3?, according to industry players.

There is speculation that Glencore is weighing stream deals on its stakes in the Vasilkovskoye gold mine in Kazakhstan and the Collahuasi copper mine in Chile. Glencore declined to comment.

But deals will likely fall short of last year’s $4.3 billion bonanza.

“It’s just a little bit softer than what it was last year on quality and quantity,” said Tony Jensen, chief executive officer of streaming and royalty firm Royal Gold Inc, which signed deals worth $1.4 billion in 2015.

“There will be times where we just don’t do things. It may just be too expensive for us.”

Franco-Nevada Corp CEO David Harquail said his company might do more oil and gas streaming or royalty deals this year.

Streaming companies have benefited from the price uptick as well, getting higher prices for the discounted metals they bought and raising more than $1.6 billion in equity for future deals.

In addition, companies’ stock prices have risen, though not as high as the Philadelphia Gold and Silver Index, which is up 132 percent.

There is about $4 billion worth of streaming opportunities, estimates Silver Wheaton Corp CEO Randy Smallwood, mostly from copper miners wanting to stream the gold by-product from their mines.

“It is the base metal prices that drive our business opportunities,” he said. “Those guys still need capital. 2016 is not over yet.”

Editing by Marguerita Choy

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