Although something similar, streaming and royalty agreements can be distinguished. Streaming involves the sale of physical products by the mining company, while the investor has the right, under licensing agreements, to participate in the future revenues of the producer`s project. In addition, a licensed investor will generally not make current payments to get its share of revenue, while a streamer is required to make current payments for delivered products (although generally at a tight price). As has already been explained, streaming agreements have increasingly become a capital raising mechanism as an alternative to debt and equity financing, particularly for exploration and junior companies with limited budgets, which prevent them from entering into loan agreements with traditional financial institutions – which generally involves the provision of full packages of securities that generally require traditional project financing. However, in practice, the operator is also required to provide the purchaser with basic security under streaming agreements, at least with respect to the obligation to supply the metal and the obligation to repay the deposit. A licensing and streaming company has several advantages such as diversificationDiversificationDiversification is a technique of allocating portfolio or capital resources to a variety of investments. The objective of diversification is to reduce losses, high margins and lower risk risksIn financingThe risk is the likelihood that actual results will differ from expected results. In the Capital Asset Pricing Model (CAPM), risk is defined as volatility in returns. The concept of “risk and return” is that riskier assets should have higher returns, in order to compensate investors for increased volatility and risk. Because these companies invest in many mines at once, if one of them fails, they can still receive revenues from other mines. They can also diversify risk by investing in mines at different stages. Instead of investing only in mines in production, these companies are also buying mining shares that are still under development. Due to several, about 200 mines at different stages of development, royalties and streaming companies are less affected when some of the mines are not able to generate revenue.
Furthermore, in streaming agreements, it is particularly important that the operator guarantees and guarantees the buyer the legal and exclusive ownership of the streaming metal; the absence of charges and other rights in favour of third parties; and the legal opportunity to value, produce and sell the metal in streaming with preferential and exclusive rights. These include compliance with all relevant environmental, health and safety and other applicable rules, as well as compliance with all legal authorizations necessary for the use and production of the metal in electricity during the duration of the agreement, which implies the absence of legal disputes with the surrounding municipalities (known as the “social licence” for the operation of a mining project). Persistent volatility in commodity prices has made it more difficult for mining companies to access traditional forms of debt and equity financing. To finance the capital of new projects or to expand existing projects, mining companies need to acquire alternative and creative financing solutions. Metals Streaming is a possible solution, born in America in 2004 and supported by Silver Wheaton, Franco Nevada and Royal Gold Inc. While this type of alternative financing is relatively new to the Australian market, it is a proven financing structure that could appeal to supporters of the junior-midcap mining industry.