Gold streaming involves an agreement in which a financial company provides money to a mining company in advance and acquires the right to buy the excavated gold at set discounted prices in the future.
From an investment point of view, it is a novel way to add gold to your financial portfolio and has a number of benefits. Read on to find out more about gold streaming.
The difference between gold mining and gold streaming
The actual process of gold mining is very complex. It requires time, money, and skills to mine gold from the earth. Gold streaming, on the other hand, is a simplified version of the gold mining process covering its major aspects.
A mining company explores for goldfields, builds gold mines in the region, excavates the gold, and sells it in the market. It also must maintain the region long after it has stopped the excavation process. Clearly, the whole process requires a substantial amount of funding.
A gold streaming company is a type of Investment Company which does not actually get involved in the entire mining process. On top of this, it provides finances to a mining company to build the mine, expand the mine or run its business. In exchange, it buys the metal at a a fraction of the current price.
The agreement between a mining company and a streaming company can be inked at any stage, from the point when the mine is still to be constructed to the point when the mine is producing gold. Many streaming deals involve the sale of by-product metals that are less important to the mine cash flow. An example would be a stream on the gold by-product produced at a copper mine.
Different models of the gold streaming business
The mining company provides gold at a predetermined lower value to the streaming company. The value can be a constant value or a percentage of the actual value. The negotiations completed upfront and are tied to the output of a specific gold mine. Some streaming deals are capped at a certain number of ounces.
Generally, streaming companies may arrange for only a portion of theentire finance package. Thenbank loans are used to finance the balance of the deal. The debt is repaid with cash flow or the mining company issues stock to re-pay the loan amount. The streaming deal stays in place, often for the life of the mine or until the predetermined number of ounces have been delivered.
A deal between the streaming company and mining company can be done at any stage. The following are the two most common scenarios in the gold streaming business.
When the mine is under development
If the deal is made when the mine is under development, the streaming company pays over a span of time and may include milestone targets for the mining company.
When the mine is operational
If the deal is made when the mine is under operation, the miner agrees to deliver gold at a price lesser than the market value in exchange of financial support for the mining process or mine expansion. At this stage, the stream has less risk so the price paid for the delivered gold might be higher.
This article contains the author's opinions. These are not investment-related recommendations. Do not consider the article as any type of commercial solicitation or an investment product offer.
About the Company
Ely Gold Royalties Inc. is a Vancouver-based emerging royalty company with development assets focused in Nevada and the Western US. Its current portfolio includes 33 Deeded Royalties and 21 Optioned Properties including two separate royalties on the Isabella Pearl Mine. The portfolio is currently generating significant revenue.
Ely Gold’s royalty portfolio includes producing royalties, fully permitted mines, mines under construction and development projects that are being permitted for mine construction.