The cost of stream financing for copper miners Report

Insight 02 September 2015

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Report summary

Project financing through streaming and royalty contracts was fairly inconsequential in 2004. Since then, these contracts have cumulatively injected US$10.3 billion into the mining sector. When considering mines affected by a streaming or NSR contract (roughly 5% of our copper mine coverage, or 2Mlb) we conclude that at the C1 cash cost level, the inclusion of streaming contracts results in a 15c/lb paid Cu increase in costs due to the lower net revenue received from precious metals.

Executive summary
- Valuation and cost of stream and NSR financing
- Streaming and NSR contracts have become less profitable for providers
- Valuations suggest streaming is increasingly attractive for producers
  - A positive shift in the cost of capital for miners
- The impact of stream finance is relatively small on the global cost curve
  - Copper Mine Cost Model (CuMAM) and adding stream/royalty contracts into a scenario
  - Sensitivity to the inclusion of an NSR royalty or streaming contract
- Conclusions and outlook
- Appendix
  - Background – Streams/royalty agreements, an alternative form of financing
  - A brief history of share price performance of streaming/royalty companies compared to copper and gold miners

Tables and charts

This report includes 10 images and tables including:

Base case metal price assumptions
Bear case metal price assumptions
Bull case metal price assumptions

Valuations for 31 streaming and royalty contracts – valued under our base case scenario
The cost of stream financing for copper miners: Image 1
Degree of contract leverage to metal price changes (Bull versus Bear case scenario)
Relationship between life of contract (LoC) yields and capital raised from 2004 until 2015
C1 cash cost sensitivity for mines affected by stream financing
C3 cost sensitivity for mines affected by streaming and royalty financing
Indexed price performance of the major stream/royalty financiers compared with copper and gold miners