Miners want blended funding solutions 7 min read
Precious metal streaming agreements are taking centre stage in Australian and global mine financing, especially following KGL Resources’ recent US$300 million gold and silver stream with Wheaton Precious Metals. No longer the awkward younger sibling to traditional commercial bank debt, streams are now a credible and strategic tool for project financing and capital management in Australia—embraced by both new developers and mature producers.
This Insight explains what you need to know about an increasingly popular model.
Key takeaways
- In Australia, streaming agreements are moving from a niche instrument to a central pillar of mine financing. In a typical structure, a mining company receives an upfront cash deposit and agrees to deliver a fixed share of future production—usually of a by-product such as gold or silver—at a pre-agreed discounted price.
- Because payments are linked to production and realised in metal rather than cash, streams can be more flexible than conventional debt, and offer stream investors (both traditional streamers and, increasingly, mining private equity funds) leveraged exposure to commodity prices.
- Miners favour streams because they reduce equity dilution, align payments with production ramp‑up, and can be executed faster and oftentimes with fewer covenants than traditional project finance.
- Streams, royalties and offtakes each allocate risk and cashflows differently: streams involve discounted metal purchases, royalties provide revenue‑linked cash payments, and offtakes secure the sale of physical product from the mine.
- Private capital is becoming increasingly active in streaming because it provides long‑dated exposure to metal prices and production growth without accompanying operational control.
- As streaming and royalty financing become more prevalent in Australian mining and finance, its success is likely to drive further growth, including to support new projects. We have seen this with a number of transactions that Allens has recently acted on, including KGL Resources' US$300 million stream agreement with Wheaton Precious Metals and Minerals 260's A$220 million strategic funding package with Franco-Nevada.
What exactly is a stream?
At its core, a stream (or precious metals purchase agreement) is a contract for the sale and purchase of metal, to be delivered in the future, in exchange for an upfront cash deposit.
A common structure involves the streamer paying a deposit to the miner (often to finance construction of the project), and the miner selling to the streamer a defined percentage of metals produced from that project in the future. The streamed metal is generally gold or silver that arises as a by‑product of copper, nickel or other base‑metal operations.
The sale price for the produced metal is typically either a fixed amount per ounce or a discount to the prevailing spot price. Each delivery during the life of the stream will pay down the deposit, or, in some structures, a portion of the sale price will be applied towards the outstanding deposit and the remainder will be paid in cash on delivery, as an ongoing production payment. Generally, the obligation to deliver metal to the streamer is derived from deliveries of physical product to the miner's offtake partners.
Title to the metal transfers to the streamer on delivery, and the streamer realises its margin when it sells the metal (on the spot market or otherwise).
Importantly, the delivery of metals such as gold or silver by the miner under the stream is not settled in physical metals, but by depositing credits into metals accounts that the streamer holds. The miner satisfies its delivery obligations either by depositing the credits it receives following refining of the produced metals, or by purchasing the required number of metals credits from bullion banks to then deposit them with the streamer.
Why miners (still) like streams
Over time, streaming has become a staple of mine finance, particularly in North America, because it aligns cashflows with mine ramp‑up realities, compared with the fixed amortisation burden of debt. The lack of standardisation is a feature, not a bug: streams are highly bespoke and can incorporate buy‑back rights for the miner, staged deposits tied to milestones, metallurgical adjustments, step‑downs once a threshold number of ounces are delivered, and termination mechanics linked to long‑stop dates or change of control.
For developers, streams address three persistent problems.
- They reduce dilution relative to equity, preserving upside for shareholders.
- They match the timing of payments with production: when production is lower or delayed, fewer ounces are delivered; when production is strong, delivery rises in tandem. That production‑linked profile can potentially be easier to underwrite than fixed debt service during ramp‑up.
- Streams can be executed comparatively quickly, generally with fewer operational covenants than traditional project financing bank debt, providing certainty to construction schedules.
These advantages have become more salient in periods when public markets are volatile and bank appetite is selective.
Many development‑stage financings are now assembled as hybrid capital stacks that blend senior secured project debt; equity; and one or more of: a precious‑metals stream, a cash royalty and, sometimes, a limited offtake prepayment or convertible instrument. The architecture of these stacks matters as much as price. Streamers typically prefer to take security alongside senior lenders, with negotiated standstill periods, enforcement waterfalls, account‑control arrangements and hedging priority set out in an intercreditor deed.
Offtake, royalty or stream?
Although streaming, royalty and offtake agreements may look similar, and can sit side by side in mining finance, they distribute risk, cashflows and control in different ways.
A stream is, both economically and at law, a sale and purchase of future metals, settled in metals credits, and its return is fundamentally linked to commodity prices and realised production.
By contrast:
- a royalty is a contractual cash entitlement to a sum of money equivalent to a specified share of project revenue (or, in some variants, profits), generally settled in money rather than metal, and the royalty holder does not take title to product; and
- an offtake is a long‑term sales contract under which the buyer agrees to purchase a portion of physical mine production at market or formula pricing; unless paired with a prepayment, it does not inject large amounts of project capital.
Security arrangements also differ. Streamers are often granted security, and sit alongside senior lenders, subject to agreed rules about enforcement, standstills, and priorities for repayment and hedging. Royalty holders might be unsecured or, in more customised deals, share in security (such as tenement mortgages) but on a lower‑ranking basis. Offtakers are normally unsecured trading partners unless they have provided prepayment or inventory finance, in which case they may also take security and join the broader creditor group. Depending on the nature of any security being taken, foreign streamers will need to consider whether there are Foreign Investment Review Board implications.
None of these instruments gives the financier day‑to‑day control of the mine. Streams and royalties mainly require the miner to provide information, abide by construction timelines, meet minimum work programs and limit hedging (so that the financier’s upside isn’t reduced by forward sales). On the other hand, offtake agreements focus on product quality, delivery logistics, sampling and testing, pricing formulas and, where relevant, 'take or pay' or shortfall mechanics.
Tax and accounting treatment is another point of difference. Streams are generally taxed consistently with sales of future metal. A key consideration from a tax perspective is whether the upfront payment (ie the deposit) is taxable on receipt, or is taxable as and when applied towards the purchase price for metals, as described in the streaming agreement. Generally, properly drafted streaming agreements should not be subject to Australian withholding tax. Royalties are usually characterised for tax purposes as payments referable to production, or revenue from sales of produced metal, and certain royalties (often referred to as 'override royalties') can be subject to ‘natural resource withholding tax’ at a rate of up to 30% for offshore recipients. Metals sold under offtake agreements are generally taxed as and when the metals are sold at the agreed purchase price.
Proper drafting of the relevant agreement is critical to mitigate undesired tax outcomes and to support the intended tax characterisation—eg a poorly drafted streaming agreement could conceivably be taxed like an interest bearing loan and be subject to interest withholding tax at a rate of 10%.
Private equity becoming a key player in streaming
The modern streaming model began in the late 1980s, and was later scaled by traditional royalty and streaming companies such as Franco‑Nevada, Wheaton Precious Metals and Triple Flag. Over the past decade, tighter senior bank lending, volatile equity markets and the growing need to fund minerals critical to the energy transition have accelerated the shift toward streams and royalties as additions to the financing toolkit. As a result, miners, especially junior developers, now increasingly look for blended funding solutions, combining stream or royalty financing with project debt and equity in hybrid financing packages.
Simultaneously, the investor landscape is expanding. In addition to the traditional North American streaming and royalty companies, private equity and private capital funds are, more and more, exploring streaming as a way to acquire long‑term exposure to metal prices and production growth without themselves taking operational control of mines, often in conjunction with debt or equity investment packages.
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