SANTERI STUDIES

This case study is provided as a service to the mining industry as it provides an in-depth analysis of stream financing.  The better we understand the deals, the better decisions we can make. 

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June 16, 2016

Executive Summary

Against the backdrop of a prolonged pricing downturn, Pretium pulled off a heroic $700 million capital raise to fund mine construction at its Brucejack property.   With a colorful cast of characters and several prominent industry themes interwoven throughout its evolving storyline, a closer look into Pretium offers a compelling window of insight into the world of mine finance and strategic planning.  With Brucejack set to take the stage, this study will:​

  • Provide an overview of the Brucejack Project with a specific focus on the $540 million funding package completed with Orion Mine Finance and Blackstone Tactical Opportunities comprised of equity, debt, and stream financing components.

 

  • Illustrate key features of the stream financing model from the capital provider’s perspective including its inherent capital efficiency, its powerful margin structure, and its leveraged underlying exposure, which combine to posture the streamer for compounded capital returns.

 

  • Illustrate consequential implications of the stream financing model to the mine operator including potential time value decay, perverse pricing incentives, profit erosion, dilution, and an intrinsically unknown and unknowable cost of the stream.

 

  • Review the specific terms on which Pretium took the financing, finding that while it largely fits the feature profile of a conventional stream an innovative layer of protection has been incorporated through a series of stream repurchase options.

 

  • Review the management decisions Pretium will face during mine start-up as a result of those financing terms, with pending option exercise and loan maturity dates as early as December 31, 2018.

 

  • Propose that Pretium can secure Brucejack value by making an M&A play; a strategic move that could relieve the impending liquidity crunch and be supported by favorable transaction timing as a constructive industry landscape fosters M&A activity.

 

  • Put forth a scenario where Zijin Mining Group and Barrick Gold Corporation leverage their Strategic Cooperation Agreement to make a 100% takeover bid for Pretium, using their joint liquidity position to repay Pretium’s maturing term loan and repurchase the 8% stream production interest currently in place.

 

  • Conclude by detailing how Pretium, Zijin, and Barrick each contribute critical value in this hypothetical transaction scenario while each party also achieves its stated corporate objectives with:

 

  • Pretium reaching commercial production at Brucejack, capturing asset value and delivering return to shareholders, while retaining long-term exposure to the asset through Barrick shareholdings.

 

  • Zijin providing access to deep Chinese financial capital pools along with competitive intellectual capital platforms, while growing its resource base and geographically diversifying its global footprint.

 

  • Barrick providing region-specific and world-class operating expertise as it replenishes reserves in a reasonably priced acquisition that preserves its balance sheet health and allows it to capitalize on the relative value of its shares. 

We have a simple conviction:

Metals are the foundation of civilization.  

All pillars of societal advancement are completely dependent on the mining industry. As the gatekeepers of the Earth's resources, mineral deposit owners hold the keys to our future.  They must protect those resources through the financing and capital allocation decisions they make.

 

The world depends on it.

 
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June 16, 2016

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