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Two mining royalty firms have teamed up in a financing deal for the first time, a signal their business is evolving and more cooperation is likely across this sector in the future.
Franco-Nevada Corp. and Sandstorm Gold Ltd. announced this week that they will jointly provide at least US$100-million to True Gold Mining Inc. for the company’s Karma gold project in Burkina Faso. The transaction has two key elements: a fixed repayment in gold, and a long-term streaming agreement in which the royalty companies will acquire a portion of the gold from Karma.
It is a small deal, but insiders said it provides a glimpse of how this business is rapidly changing as royalty deals start to resemble more conventional project financing.
The major royalty firms (Franco, Silver Wheaton Corp., Royal Gold Inc. and Sandstorm) have become an increasingly crucial source of capital for emerging mining companies over the last several years. They have stepped up and done a large number of transactions as the banks became reluctant to deal with any single-asset miners.
Traditionally, the royalty companies provided capital to miners in exchange for a passive royalty on future production. Over the last decade, they also did more active streaming deals, in which they acquired gold and silver from the projects they invested in.
And just recently, they have moved into the traditional debt finance space that the banks are vacating, according to Franco chief executive David Harquail. As they make that transition, he believes it is logical for them to work together and share the risk on transactions, just as banks would.
“It’s a sign of maturity in our sector that we start acting like commercial banks and spread the risk involved in individual deals,” he said in an interview.
In Franco-Nevada’s last three transactions, including the True Gold financing, it demanded fixed repayments, similar to a bank loan. The repayments are made in gold over five or six years before a more typical royalty or streaming arrangement kicks in.
“It’s almost like a commercial loan,” Mr. Harquail said. “We didn’t have that type of feature [in this business] a year ago.”
For the rest of this article, click here: http://business.financialpost.com/2014/08/12/gold-royalty-firms-franco-nevada-sandstorm-gold-team-up-for-first-time-as-business-evolves/