![]() ![]() In contrast, royalty deals are normally commodity agnostic and based on overall project revenues the royalty company never actually “sees” the commodities that the mine produces, but rather just receives a share of the revenue generated (the royalty). Thus, miners receive payment on delivery for streamed physical volumes. In return for this up-front cash payment (the “deposit balance”), the streaming partner secures a share of future production at an agreed-upon discounted price, which may be fixed or alternatively a floating percentage of the prevailing spot price. Streaming deals are normally focused on specific commodities produced by a particular project, such as precious-metal by-products from a base-metals project. There are some distinct differences between the two types. Metal streaming-and-royalty contracts are transactions under which mining companies sell future production or revenues in return for an up-front cash payment. This article was a collaborative effort by Scott Crooks, Siddharth Periwal, Oliver Ramsbottom, Elijah Saragosa, and Jessica Vardy, representing views from McKinsey’s Metals and Mining Practice. Metal streaming and royalties: An introduction Expansion in this form of alternative financing, coupled with increasing focus on growth by management teams, leads us to believe that streaming-and-royalty financing is poised for strong growth over the next decade. While the growth in private debt and equity has been below expectations, one form of alternative financing that has blossomed has been streaming-and-royalty financing. ![]() As a result, many industry commentators predicted the emergence of private debt and private equity. In the post-boom environment, many mining companies found it challenging to raise capital from either the public-debt or public-equity markets. Growth projects were inevitably over budget (and often behind schedule), and M&A deals were often completed at lofty premiums-but, in hindsight, they often were executed at the top of the market, resulting in value destruction. Following the commodity downturn in 2014, many miners were forced to focus on cost-out initiatives, deleveraging balance sheets and returning cash to shareholders who had become disillusioned with the industry’s track record. ![]()
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