Denver (Kitco News) -With the mining industry navigating its way through some tough times, streaming companies find themselves in a strong position to bolster their streams at a discount.
Silver Wheaton Corp. (TSX, NYSE: SLW) and Sandstorm Gold Ltd. (TSX: SSL, NYSE MKT: SAND) both see these current times as very opportunistic for their respective companies.
“This is a time that’s good for us; there’s a lot of opportunity on the streaming side out there,” Randy Smallwood, president and chief executive officer of Silver Wheaton told Kitco News at the Denver Gold Forum. “In this market, with equities as punished as they have been over the last while, companies are hesitant to issue equity, to finance their own growth going forward. We compete against equities as a source of funding.”
Nolan Watson, president, chief executive officer and chairman of Sandstorm, said they managed to benefit from a similar situation.
“We’re actually a company that was born out of the tough times; we launched the company at the beginning of 2009, during the financial crisis, and the best deals we still have in our company today are the ones we acquired in 2009,” Watson told Kitco News. “This is the perfect environment to try and find deals.”
While streaming companies are in an enviable position at the moment, both executives said they are aware that they need to be cautious before jumping into deals. Metals streaming companies provide an upfront payment to a mining company in need of equity for a project in exchange for a percentage of the metal produced from that project.
There are “definitely lots of opportunities out there. We are interested, but we still maintain our own criteria for quality, and, unfortunately, (there are) projects out there that are just a little bit weak,” Smallwood said.
“We’re going to be very patient. We have $100 million cash on hand. We are eventually going to deploy that capital, but we’re going to do it in an intelligent way and in a measured manner,” Watson said. “We have a number of deals in the works, but we are very shy of pulling the trigger on things right now until we’re getting closer to a bottom.”
The oft-talked about, and still-to-be-located, market bottom for the mining sector has not yet arrived, according to both streaming companies.
“I think there’s a bit higher probability that there’s a few more down side moves before we see upside,” Watson said. “That’s just being driven by sentiment in the U.S., everyone’s worried about tapering and increasing interest rates. I don’t think the U.S. matters as much when it comes to gold in the long term; they’re not the fundamental buyers anymore.”
While Smallwood is reluctant to peg a bottom, and he said it’s clear that the mining industry is suffering.
“We see fourth quartile producers out there suffering right now, especially in the silver space,” he said. “A lot of silver companies are having a tough time making money, or being cash-flow positive in terms of their own assets. If you go in the gold space, you see expansions being postponed, new developments being pushed off.
“I never like to say if it’s a bottom, but I am confident that we’re closer to a bottom than a top,” he added .
Silver Wheaton is the largest precious metals streaming company in the world with stream stretching across the Americas and Europe.
Sandstorm is a fast growing gold streaming company with streams located across the Americas.
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By Alex Létourneau of Kitco News firstname.lastname@example.org