Streaming agreement — cobalt deal analysis

Abstract

Streaming agreements between the Vale Mining and Metallurgical Company (MMC) and the Wheaton Precious Metals Corporation and Cobalt 27 streaming companies (hereinafter — Conic Metals Corporation) to raise funds for the development of the Voisey’s Bay nickel-copper-cobalt deposit have been considered. A streaming agreement, a relatively new type of transaction in the mining and metallurgical industry, characterizes the desire of investors who prepaid the agreement not only to guarantee the obtaining products, but also to delve deeply and extensively into the economy of the MMC, which, in turn, should make it possible to more accurately predict the marginality and liquidity of the obtained goods in the long run. Compared to an off-take agreement or commercial contract, the streaming agreement emphasizes the higher level of trust between the MMC and the streaming company. Currently, streaming agreements are common in precious metals production with extensive structured distribution, transparent pricing and maximum liquidity. The choice of cobalt was explained by high liquidity (the metal is traded on the London Metal Exchange) and favorable long-term fundamentals of the global market. The agreements under consideration are a pilot step for streaming companies to involve the so-called minor metals in their investment portfolio. The paper considers: the parties of agreements, the main characteristics of the deposit, the basic terms of the transactions, the advantages of the agreements for the MMC and streaming companies, and the risks. The analysis of the fundamental factors of the world market and dynamics of the world price for cobalt allows to clearly illustrate the prospects for the development of streaming agreements for minor metals. The reassessment of the demand for lithiu mion batteries from revolutionary to evolutionary one has occurred in light of the redefinition of the competitiveness of electric vehicles versus cars with internal combustion engines. On the supply side, high metal prices have predetermined the emergence of new technological solutions that simplified and reduced the cost of obtaining and using cobalt in the production of batteries. A radical change in fundamental factors leads to a revision of the long-term forecast for the balance of the cobalt market, world prices, and the marginality of streaming agreements.