Now, we shift our focus to some recent case studies showcasing the potential benefits of royalty and streaming models, offering new opportunities for both investors and mining companies. By exploring these case studies, we aim to uncover how miners can structure deals for success, drawing strategic lessons that maximise growth and sustainability. Let the music play on as we explore how royalty and streaming deals are striking the right chord in the mining sector.

Goldstrike: A billion-dollar hit

One of the most celebrated examples of royalty financing is Franco-Nevada’s agreement with the Goldstrike operation located in north-eastern Nevada in the US. In 1986, Franco-Nevada invested $2 million to acquire a royalty on Goldstrike, a mine with 600,000 ounces of gold reserves at the time. Just three years later, a major discovery boosted reserves to 20 million ounces, transforming Goldstrike into one of the world’s largest and most profitable gold mines. Over the life of the mine, Goldstrike went on to produce over 44,4 million ounces of gold, a staggering return for Franco-Nevada. The royalty has paid Franco-Nevada more than $1 billion in revenue, returning 500x on the initial investment.

This transaction highlights the upside potential of royalty financing. Mining investors can learn from Franco-Nevada’s early entry and strategy of securing long-term royalties. By doing so, they can secure initial funding to develop their assets without diluting ownership. This deal also shows the value of retaining flexibility and setting up agreements that allow for future increases in reserves. When negotiating, junior miners should look for clauses that allow for adjustments based on future discoveries or changes in the mineral resource base.

Sandstorm Gold’s $45 million royalty on the Houndé gold mine

In a landmark $45 million deal, Sandstorm Gold, a global leader in providing upfront financing to gold mining companies, acquired a 2% net smelter return (NSR) royalty on the Houndé gold mine in Burkina Faso. Operated by Endeavour Mining Corporation, the Houndé mine has become a flagship operation in West Africa, recognised for its exceptional production rates and low operating costs.

Since its commercial production began in 2017, the mine has delivered outstanding results, averaging 235,000 ounces of gold annually at an all-in sustaining cost of $610/oz during its initial four years. The mine’s robust performance ensures steady returns for Sandstorm Gold and supports the mine’s aggressive exploration and expansion plans.

This case study highlights the mutually beneficial nature of the NSR royalty arrangement, with Sandstorm Gold gaining reliable cash flow and Endeavour Mining Corporation receiving the financial support necessary for further exploration and development in the highly lucrative Kari North and South tenements.

Empress Royalty expansion on the Manica Gold Project

In January 2022, Empress Royalty Corp. (Empress) increased its royalty on gold sales from the Manica project in Mozambique, operated by Mutapa Mining & Processing LDA (MMP), from 2,25% to 3,375%, with an additional payment of $1 million under a previously executed royalty purchase agreement. This increased royalty applies to gold sales up to a total of 95,000 ounces, after which the percentage will reduce to 1,125% and continue in perpetuity. The agreement is secured by a first-ranking security interest in certain MMP assets, ensuring Empress’s position is protected throughout the duration of the project.

The Manica project, located in the Odzi-Mutare-Manica Greenstone Belt, consists of several key deposits, including Fair Bride, Guy Fawkes, Boa Esperanza and Dots Luck, on Xtract Resources Plc’s (Xtract) mining concession. MMP has entered into a collaboration with Xtract, where MMP will build, finance and operate a carbon-in-leach (CIL) plant to process ore from Xtract’s concession under a profit-share arrangement. This strategic partnership provides Empress with enhanced exposure to future gold production while maintaining a secure financial stake in the project, showcasing the potential of royalty and streaming agreements to generate long-term, stable returns.

This case study highlights the strategic benefits of royalty financing in providing both upfront capital and long-term revenue streams for mining projects. By increasing its royalty stake from 2,25% to 3,375%, Empress demonstrated how royalty agreements can be adjusted to reflect the evolving potential of a project. This flexibility allows investors to increase their exposure to a project’s upside while offering miners the necessary funding to continue development without diluting ownership. The partnership between MMP and Xtract and the profit-sharing arrangement to build and operate the CIL plant, further illustrates how royalty deals can align the interests of various stakeholders, ensuring that all parties benefit from increased production and project success.

The strategic benefits of royalties and streaming

The examples above illustrate the immense potential of royalty and streaming financing. These deals allow mining investors to unlock capital for exploration, development and expansion without taking on debt or diluting ownership. Below, we outline why miners should consider integrating these models into their financial toolkits.

Unlocking capital without dilution

Traditional financing structures often necessitate the sale of equity, leading to ownership dilution and a corresponding reduction in control over mining assets. In contrast, royalty and streaming agreements provide upfront capital without requiring miners to relinquish ownership interests, thereby preserving their stake in the project. This structure is particularly advantageous for junior miners, who frequently encounter challenges in securing funding through conventional debt or equity financing.

Moreover, these agreements serve as a critical source of capital for exploration and development activities, allowing mining companies to accelerate project timelines and enhance resource delineation. Given that junior miners may lack the financial capacity to obtain traditional loans, royalty and streaming arrangements offer an alternative means of securing funding while mitigating financial strain and supporting long-term project sustainability.

Reducing risk for investors

Royalty and streaming agreements offer a risk-mitigated investment structure by linking returns directly to production, ensuring that investors generate revenue only when the mine is producing. Unlike traditional equity investments, which are subject to broader market volatility and company performance, royalty and streaming contracts provide predictable, production-based returns. This model is particularly advantageous for investors seeking exposure to the mining sector without assuming operational risks, such as cost overruns, regulatory compliance issues, or commodity price fluctuations. For junior miners, these agreements provide an essential capital infusion without the burden of fixed debt repayments, allowing them to focus on resource development while ensuring that investors benefit from potential resource expansion and production growth.

Long-term stability

Streaming agreements, in particular, offer long-term revenue predictability, making them an attractive alternative to volatile equity markets or short-term financing solutions. By securing an ongoing stream of revenue tied to future production, mining companies can plan and execute long-term growth strategies without the constant pressure of refinancing or seeking additional funding. This stability is especially beneficial in cyclical commodities markets, where price fluctuations can disrupt traditional financing structures. Additionally, for investors, streaming deals provide exposure to mining assets without direct operational liabilities, ensuring a steady return even in fluctuating economic conditions. As a result, both miners and investors benefit from a financing model that promotes sustainable expansion and financial resilience.

Keeping the Beat Alive in African Mining

Royalty and streaming financing models are gaining traction in the African mining sector, particularly for junior miners who are often overlooked by traditional financing methods. By exploring these models and learning from global case studies, these mining companies can tap into an alternative source of funding that mitigates risks while providing long-term growth potential.

Incorporating streaming and royalty deals into their financing strategy enables miners to secure capital for development, reduce financial strain, and build lasting partnerships. These models offer a pathway to success that strikes the right chord for both investors and mining companies, unlocking new possibilities and driving Africa’s mining industry forward.