April 8, 2013 | By Tekoa Da Silva
I had the chance to speak with one of the youngest CEOs in mining, Nolan Watson, President, CEO, and Director of Sandstorm Gold. Nolan was one of the first employees of streaming giant Silver Wheaton, and has since founded Sandstorm Gold, which manages a rapidly growing portfolio of streaming agreements similar to those structured by Silver Wheaton.
It was a fascinating interview, as Nolan shared insight into the growing industry of streaming deals (which also has its critics), as well as the current challenges facing resource project finance.
According to Sandstorm, a streaming deal is defined as, ”financing for [a] gold mining company looking for capital, and in return…[the company offers] the right to purchase a percentage of the ‘life of mine’ gold produced at a fixed price.” (Editors note: This is similar to production hedging, although with a different financial structure.)
Commenting on the strength of the streaming industry, Nolan said, “We’re bullish on the space, [and] we think that streaming is going to become a ‘go-to’ way of financing commodity companies going forward. It’s a space where investors have shown that they are willing to allocate more capital at better valuations…[and] in many instances [it's] becoming a cheap form of capital [for mining companies] because streaming companies themselves can get a cheaper form of capital in the form of lower equity costs…So it really is becoming a self-fulfilling prophecy, where streaming is becoming in vogue.”
The model has led to strong year-over-year increases in Sandstorm Gold’s share price, but the streaming model isn’t without its critics. Legendary mine operator Rob McEwen told our program in late February that, “Operating companies today should stop selling royalties [and] stop selling metal streams…rather than viewing [them] as an easy way to raise funds.” By selling metal streams, operators are “giving away the best portion of their profit segment,” explained McEwen.
But despite this differing opinion, Nolan remains steadfast in his believe that, “There are going to be more and more streaming deals done, [and] more and more companies are going to do them…I expect the streaming industry, which was nowhere ten years ago, and has a combined market cap of $20-30B of the existing streaming companies today…to [exceed] $100B or more over time.”
While this growth remains to be seen, another fascinating aspect of streaming companies is the deal-flow they are exposed too, offering them a deep look at the financial organs of the resource industry.
Commenting on the state of junior mining, Nolan explained that, “The exploration market has been effectively shut down…Junior exploration companies are more or less on hiatus and putting their exploration projects on ice. Development companies [with] small market caps and large capex…can’t raise the money to push their projects forward…and their market caps have absolutely collapsed…[which for us] means there are a few [opportunities].”
As the scorching desert of junior finance remains at high-noon, streaming companies like Nolan’s Sandstorm Gold represent one of the only water wells in town. That water may come at a hefty price to operators explain some of the critics, but nonetheless, it is a segment of the mining industry which should be closely followed.
To listen to Nolan’s full interview commentary, left click the following link and/or right click and “save target as” or “save link as” to to your desktop:
To learn more about Nolan Watson and Sandstorm Gold, visit: SandstormGold.com
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Tekoa Da Silva
Bull Market Thinking