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Streaming Agreement

However, there are greater advantages to entering into streaming agreements. On the operator`s side, the deposit received under the purchase price can be distributed freely and without dilution of the shareholders` equity shares; the obligation to sell the metal in streaming is subject to the implied condition that the metal is actually manufactured without the purchaser intervening in the transaction; and, more importantly, they allow the operator to monetize non-nuclear products before they are even produced. In addition, they can be perfectly combined with other forms of financing without affecting the operator`s borrowing capacity, since in most of these agreements the streamed metal is a by-product of the operator`s core business. While streaming agreements allow mining companies to add value to non-nuclear products, they also restrict the operator`s exposure to streamed metal6 Given the long-term duration of streaming agreements (over 20 or 25 years) unless their lifespan is limited, the parties may include the operator`s right to purchase part of the metal streaming in a limited period after the start of metal deliveries. In certain circumstances, for example. B, failure to meet production objectives, insolvency or other delays, the operator is required to reimburse the buyer for the uncredited amount of the deposit. If such a repayment obligation is not properly structured, the streaming agreement can be characterized as a non-traditional debt instrument for rating purposes. In this context, the competent rating company may .B. if the repayment of the deposit includes the payment of interest, 4 While the obligations of the mining company arising from a streaming agreement are generally not guaranteed, the streaming company can of course benefit from a guarantee, in the event that it is normally linked to the relevant project values from which the metal is produced. As explained above, the idea of streaming agreements is due to the fact that mining companies have not received enough value – or no value at all – for non-nuclear products. Therefore, in virtually all of these agreements, the streaming metal is a by-product obtained from an operator`s base metal mine project (i.e.

gold or silver from copper processing). In addition to the fact that an otherwise unvalued or undervalued asset generates added value, streaming agreements on by-products allow the operator to combine these operations with other types of financing for their primary metal production, without affecting their credit capacity. It is customary that volatility in the commodities sector has made it more difficult for mining companies to access traditional forms of debt and equity, and as a result, streaming has increased to about $19 in 2016 out of $20 in the royalty/streaming sector worldwide. This is because it is seen as a good way to raise funds when market conditions are volatile and debt financing is difficult to insure. For the streaming company, it is a way to invest in mining companies without being exposed to operational risk. Streaming companies typically invest in several mines around the world, and this diversification ensures that the failure of a mining company does not affect their portfolios. Other forms of financing that mining companies might consider when raising capital are debt financing, equity financing, asset sales and licensing financing. The table below shows the pros and cons of these types of financing over streaming financing. The central point associated with streaming agreements is that the mining company may inadvertently place too little price on the streaming product and therefore not benefit from a subsequent increase in its market value.