An Economic and Financial Deconstruction of the Commodity Streaming Business Model
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The objective of this thesis is to evaluate the viability of the commodity streaming business model, both as a standalone enterprise and as a financing service for exploration and mining companies. A silver streaming company, Silver Wheaton, was chosen as the subject of a case study to accomplish this and nine silver streams that it acquired in its first eight years from 2004-2012 were analysed and evaluated. Using publicly available technical data, cash flow models were developed for all of the mines and development projects with which Silver Wheaton made agreements during this time period. Subsets of these cash flows were isolated to represent the positions of both Silver Wheaton and its operating partners in each transaction. The Capital Asset Pricing Model and its associated economic metrics were employed and calculated for all of the isolated stream cash flow models to evaluate the expected financial gain or loss to each party for every deal. Cash flow models were developed using two silver price series; one conservative and one bullish price series. These were compiled through the aggregation of price forecasting data from mining equity research reports published in the months leading up to each transaction. It was found that the business model resulted in poor financial outcomes for Silver Wheaton and excellent financial outcomes for its operating partners in over 50% of the transactions it concluded, when evaluated at conservative silver prices. Conversely, when evaluated at bullish silver prices it resulted in excellent financial outcomes for Silver Wheaton and extremely poor financial outcomes for its operating partners in every instance. Given that today silver is produced primarily as a by-product to gold and base metals, the business model has a uniquely large target market when focusing on silver and has been replicated to varying degrees of success by other companies, both with silver and other commodities. It provides a viable alternative to traditional financing avenues for exploration and mining companies during all periods of the mining business cycle and is positioned to grow in significance as a form of mine and project financing.