DENVER – A niche form of mining industry finance is emerging as the new go-to funding for miners bowed by debt, another sign of the sector’s distress as it plods through the fourth year of a commodities’ downturn.
Glencore, the world’s third-biggest miner, is in talks to raise more than $1 billion in so-called “streaming” deals, coming on the heels of transactions by No.1 gold producer Barrick Gold and diversified miner Teck Resources .
More such deals are expected as shareholders, ratings agencies and lenders pressure miners to slash debt amid a gloomy commodity price outlook and as other debt-cutting tools such as asset sales, dividend cuts and share issues are not enough.
Until now so-called “streaming” finance – upfront funds for miners in exchange for a portion of a mine’s future output – has most commonly been used by mid-sized miners with limited access to capital to fund mine builds.
That the world’s biggest miners are now prepared to do deals that see them giving up a portion of their future production, earnings and cashflow to cut debt is a reflection of their limited options.
“It is a sign of the times,” said Andrew Kaip, an analyst at BMO Capital markets.
“Equity markets are to a large degree closed… Miners are looking for alternatives. Unfortunately this is an alternative of last resort,” he said.
Companies providing stream financing, including U.S.-based Royal Gold Inc and Toronto’s Franco-Nevada, say they have never been busier.
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