Posted 24th April 19
Mining streaming can be a popular area of interest for investment, and is a regularly employed method of raising funds for mining companies and continuing mining operations. So what is mining streaming?
Gold streaming describes a financial transaction in which a company provides funds to a mining company for the right to buy a percentage of the mine’s future gold output at reduced prices in the future. This potential output is known as a “stream”, and is sometimes a by-product of a base-metals mining operation, rather than the main interest or mining goal. Effectively, the streaming agreement allows a mining company to monetise its future production prior to production commencing.
This is a very different way of investing into gold and precious metals and can come with some potential benefits. The streaming company (or streaming investor) does not have to run the mine, or related businesses, giving them a hands-free operation – however, the ability of the streaming company to recoup their investment does rely on the successful operation and management of the mine. An agreement between a mine and a streaming company can also be reached at any point, from a mine that’s still only in the planning phase to one that is already producing the required materials.
Although every streaming agreement is unique and subject to specific terms, the basic approach is often similar across the industry, with agreements tied to the production of specific mines in specific locations rather than general mining companies. The funding provided by the streaming company is usually acquired in a number of ways, from loans to the sale of stocks or bond investments, and capital can be raised in advance or even during the process.
If a streaming investment is in support of a mine in development, the payments from the streaming company may be spread out over time and include milestone targets for the miner. Every streaming deal is different, but the streaming company generally won’t receive any precious metals until that particular mine starts operating. If the opportunity is in support of a mine that’s currently operating, then the miner delivers the commodity in question to the streaming company according to the particular terms of the agreement. Once the commodity is delivered, the miner will be paid for it at the agreed-upon price or percentage fee, rather than the current spot price.
Streaming companies then sell the gold to generate revenue. In practice, however, many streaming companies choose to keep some gold in reserve. Selling less gold than is available to be sold can help smooth out performance over time, providing a cushion in case streaming partners face production shortfalls, or allowing for additional gold to be sold if commodity prices falter.
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