Santeri Analyzes Stream Financing Innovations
with Case Study of Pretium's Brucejack Project
June 16, 2016
Denver, Colorado – Santeri Strategies LLC (“Santeri”) announces the publication of an independent case study providing an examination of the equity, debt, and stream financing that Pretium Resources Inc. (“Pretium”) has employed to complete funding for construction of the Brucejack mine. The study posits that the terms of the financing present Pretium with the opportunity to be the star of a coming M&A show, and concludes with a proposition of how such a scenario could unfold.
As streaming deals have become an increasingly popular form of mine finance, it is generally understood that streamers secure upside exposure to market prices, mine production, and discovery while bearing limited-to-no risk on operating cost increases and future capital expenditures. However, there are also intrinsic benefits and leveraged incentives created for the streamer which are not plainly seen by the terms set out in the term sheet. This asymmetric risk profile comes at a cost to someone: the mining company. The study includes a detailed look at the inherent mathematics of stream agreements, the consequences to the mining company, and potential mitigation measures.
More details regarding the content of the case study can be found in the Abstract below.
As shown by this study, the complexities of today's mine finance deals require expertise in evaluating the terms from the mining company's viewpoint. Mining companies face the challenge of raising needed funds while also efficiently managing capital allocation decisions, including debt repayment, share buybacks, dividends, organic capital projects, and M&A opportunities. Santeri provides economic consulting services, taking the side of the mining company in assessing these considerations. It utilizes dynamic financial modeling to understand the full impact of financing proposals and capital spending options and engages in collaborative thinking on the available alternatives so that mining companies can make the best decisions for the benefit of their shareholders.
As the gatekeepers of the Earth’s resources, mineral deposit owners hold the keys to our future. The long-term health of the industry is dependent on protecting the value of those resources through sound capital management and financing decisions. Economic analysis is then of vital importance. The better we understand the deals, the better decisions we can make. And ultimately, understanding begets innovation.
Santeri Studies - Abstract
Pretium's Master Plan?
How a Feat of Financing Could Turn Brucejack into the Star of an M&A Show
Pretium executed a heroic capital raise in a challenging environment where much of the rhetoric surrounding access to capital centered on balance sheets being burdened by debt and equity markets being restricted. Pretium’s financing was anchored by a $540 million funding package completed with a syndicate of private funds in Orion Mine Finance (“Orion”) and Blackstone Tactical Opportunities (“Blackstone”) and drew on a suite of components including equity, debt, and stream financing.
As the broader industry context has propelled alternative forms of financing into the forefront of the mining sector, streaming in particular has taken the spotlight. Closer examination of the stream financing model will demonstrate that it is built on principles from which a number of mathematical conclusions can be drawn, and that the limits of traditional valuation models prohibit both the full value proposition to the streamer and the full risk profile taken on by the miner in these transactions from being appropriately captured.
This study illustrates each of those principles, delineating the platform on which the stream capital provider stands for leveraged return and subsequently expounding the potential entanglements streams can impose on the mine operator.
Analyzing the specific terms of Pretium’s financing arrangement will show that the series of stream repurchase options included within the agreement provide a novel form of defense against these intrinsic dangers.
After examining the financial considerations Pretium will face as it advances Brucejack toward commercial production, Santeri proposes that Brucejack value can be secured by soliciting a takeover bid, a play that could relieve the impending liquidity crunch and may be supported by favorable transaction timing as an industry landscape of trimmed exploration budgets and declining grades fosters M&A activity.
The study concludes with a viable, though hypothetical, scenario put forth by Santeri in which Zijin Mining Group (“Zijin”) and Barrick Gold Corporation (“Barrick”) make a joint takeover bid for Pretium in a transaction that would benefit all three parties by fulfilling their respective strategic objectives.
The author of this report is not a registered analyst or advisor with any financial exchange or any other regulative body. In accordance with the U.S. Investment Advisers Act of 1940 the information contained herein and within this report is for illustration and discussion purposes only and is not a recommendation, an offer to sell, or a solicitation of any offer to buy, an interest in any affiliated entity or fund, nor should it be construed or used as investment, tax, ERISA, or legal advice.
The information contained herein and within this report may not be complete and is subject to change without notice; no representation is made with respect to its accuracy, completeness or timeliness and it may not be relied upon for the purposes of entering into any transaction. In addition, certain information has been obtained from third party sources and, although believed to be reliable, the information has not been independently verified and its accuracy or completeness cannot be guaranteed.
All projections, valuations, and statistical analyses are provided for illustrative and educational purposes only. They may be based on subjective assessments and assumptions and may use one among several alternative methodologies that produce different results and, to the extent that they are based on historical information, they should not be relied upon as an accurate prediction of future performance.
This material is not intended to represent a comprehensive overview of any law, rule, transaction, or regulation. Santeri Strategies LLC and the author of this report make no representation or warranty as to the accuracy of the information contained herein and within this report and shall have no liability, howsoever arising to the maximum extent permitted by law, for any loss or damage, direct or indirect, arising from the use of this information by anyone relying on this material.
All information used herein and within the report has been obtained from publicly available sources.
Certain definitions, assumptions, facts and figures, including but not limited to, Proven and Probable Mineral Reserves and Measured and Indicated Mineral Resources are defined as per the Feasibility Study and Technical Report Update on the Brucejack Project, Stewart, BC (“Feasibility Study”) generated by Tetra Tech and published June 19, 2014, which is available at www.pretivm.com.
Companies mentioned in this report include:
Anglo American plc
Barrick Gold Corporation
Black Hawk Mining Inc.
Blackstone Tactical Opportunities
Central Sun Mining Inc.
Kaminak Gold Corporation
Newhawk Gold Mines Ltd.
Orion Mine Finance
Pretium Resources Inc.
RBC Capital Markets
Royal Gold, Inc.
Silver Standard Resources
Sprott Asset Management Inc.
Zhaojin Mining Industry Co.
Zijin Mining Group
The author of this report does not hold direct ownership of Pretium Resources Inc. shares but does hold either direct ownership of company shares or indirect ownership through exchange traded funds in several of the companies referenced herein and within the report. Indirect ownership through exchange traded funds may include Pretium Resources Inc.
All opinions are completely independent and have not been influenced by any company in any manner. This report has not been commissioned by any third party and no compensation, financial or otherwise, has been received for its authorship.
The name Santeri, Serial No. 86/910,753 and the Santeri Cube Logo, Serial No. 86/910,758 are service marks owned by Santeri Holdings LLC and are used under license.
All material contained herein and within the report is Copyright 2016 Santeri Strategies LLC, all rights reserved. Use, copying, reproduction, distribution, display or transmission in any form by any means, without the express written permission of Santeri Strategies LLC is prohibited.