Royalty and Streaming
While hedging is one way in which mining companies can monetise future gold production, a range of other sources of funding has emerged over the last decade. In recent years we have seen the growing significance of royalty and streaming deals offering mining companies, particular those developing a project, a secure source of capital for a portion of their future production.
A royalty agreement involves the mining company receiving an upfront payment in return for the counterparty (a royalty company, or maybe another mining company) having the right to receive a percentage of future gold production from the mining operation. A metal streaming deal involves a counterparty (a streaming or royalty company) receiving the right to purchase gold production – at a price determined when the agreement is struck – in return for a deposit. The primary difference between a royalty and a stream is that the latter includes fixed ongoing payments for each ounce of gold purchased. Also, unlike hedging, royalty and streaming deals will not bring gold to the market before it is mined.