Streaming Agreements Mining

In any event, regardless of the laws in force in the streaming contract, securities relating to assets located in a given country must normally be granted according to the formalities imposed in that country and, as a general rule, subject to local law. In Chile, for example, in Chile, as in other civil code jurisdictions, securities are granted by a public action carried out in Chile before a notary, since the mortgage and deposit pledges must be registered with certain companies in order to be valid (i.e. the mortgage and penalty register of the custodian of the mines concerned and the register of pawns without the register of transfers and the identification service). Persistent volatility in commodity prices has made it more difficult for mining companies to access traditional forms of debt and equity financing. To finance the capital of new projects or to expand existing projects, mining companies need to acquire alternative and creative financing solutions. Metals Streaming is a possible solution, born in America in 2004 and supported by Silver Wheaton, Franco Nevada and Royal Gold Inc. While this type of alternative financing is relatively new to the Australian market, it is a proven financing structure that could appeal to supporters of the junior-midcap mining industry. In addition to restrictions on the sale of shares or share rights through the operator, which the purchaser may require of the operator`s shareholders or parent companies as an additional guarantee, streaming agreements generally include restrictions on changing the control of the parties. Despite the current relevance and existence of streaming agreements in the mining industry, there are some drawbacks for the parties involved in these transactions.7 For example, there may be a negative impact on the operator`s cash costs, because once there is a streaming agreement, by-product credits cannot be deducted from operating costs.

Even if an operator agrees to sell a percentage of the production of a certain metal in streaming, the buyer will benefit from operating extensions, although the amount of the down payment and the fixed price remain unchanged and therefore there will be no additional capital contribution from the buyer. This price variability can also adversely affect the operator if the purchase price of the streaming metal is set too low in relation to the market price, with no possibility of adjusting the fixed price after the conclusion of the agreement. In 2004, Wheaton River Minerals Ltd. shareholders acknowledged that the company did not receive the same value for its by-product silver production as primary producers, and were therefore created as an independent company of Silver Wheaton Corp. to maximize revenues from such by-product production2, through a business model derived in part from licensing agreements , which were then the main focus of complex transactions in the mining industry. Flow finance transactions are generally very tax-sensitive, and pricing is based on some supposed tax treatment. Therefore, when structuring the transaction, careful planning is required, often on a multi-judicial basis. Transaction agreements must also look at how to deal with changes to the tax treatment.

Depending on the payment structure of the purchase price or consideration, the parties may agree that the operator has the authority to enter into agreements with third parties, provided that these agreements are negotiated on economically reasonable terms and that the operator takes all economicly appropriate measures to assert its rights and remedies under the takeover agreement.