Private equity, pension funds eye more metal streaming deals

Mon Dec 14, 2015 3:58pm EST
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By Nicole Mordant and Euan Rocha

VANCOUVER/TORONTO Dec 14 (Reuters) - Private equity and pension funds may provide the next wave of funding to the slumping mining sector through metal streaming deals as dedicated funding sources struggle to raise their own cash, industry sources said.

With many miners unwilling to issue equity given their weakened shares amid falling commodity prices, streaming may help them avoid credit downgrades and fund new mines.

About $4.5 billion worth of these deals, an alternative form of financing where miners are paid cash upfront for future output, have been inked this year, making 2015 a record year for metals streaming as miners slash debt five years into a commodities downturn.

But the bumper deal-making year has reduced the coffers of dedicated stream funders like Silver Wheaton Corp, which face their own challenges raising additional debt and equity.

Private equity groups and institutional investors, who are already minor players in the market, say this dynamic is likely to drive up returns, creating an opportunity to expand their presence.

"While the classical mineral royalty and streaming companies are tight on funds, you're going to see private equity and other investment type groups step up to the plate," said Douglas Silver, portfolio manager at Orion Resource Partners, a U.S.-based mining-focused private equity group.

Silver declined to disclose how much Orion would put into streaming deals in 2016, but said it intends to do more than in 2015. Orion, along with its partners, pumped more than $200 million into streaming transactions in 2015, equal to about half of that done by private equity and fund managers, according to a Thomson Reuters analysis of publicly announced deals.

Two sources at two North American-based institutional investors who declined to speak on the record as it is not fund policy to talk to the media, said they are interested in doing streaming deals if the price is right.   Continued...