Evaluating the Kemess Stream sold by Centerra Gold in 2018

Bell, Peter (2018): Evaluating the Kemess Stream sold by Centerra Gold in 2018.

Abstract

In a streaming contract, a mining company sells future revenues derived from a mine. Typically, the mining company sells the revenue for a secondary metal rather than the primary economic driver of the project. This paper considers a particular stream known as the “Kemess Stream”, where a public company called Centerra Gold Inc. sold future silver production from the Kemess Project to a private financial company. The Kemess Stream represents a typical streaming contract and provides an instructive example as a modelling exercise. This paper shows how to calculate the economics of the stream in detail based on economic reports published by Centerra Gold and discusses general principles reflected in the deal terms.

• Item Type: MPRA Paper
• Commentary on: Bell, Peter (2018): Valuation Simulation for a Net Smelter Return Royalty on a Mining Project.
• Language: English
• Keywords: Engineering Economics, Mining, Streaming, Finance
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C00 - General; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C69 - Other; C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs; C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs > C81 - Methodology for Collecting, Estimating, and Organizing Microeconomic Data ; Data Access; D - Microeconomics > D2 - Production and Organizations; D - Microeconomics > D3 - Distribution > D39 - Other; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D59 - Other; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; F - International Economics > F3 - International Finance; F - International Economics > F6 - Economic Impacts of Globalization; F - International Economics > F6 - Economic Impacts of Globalization > F64 - Environment; G - Financial Economics > G0 - General > G00 - General; G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation; G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; H - Public Economics > H2 - Taxation, Subsidies, and Revenue; K - Law and Economics > K2 - Regulation and Business Law; K - Law and Economics > K2 - Regulation and Business Law > K23 - Regulated Industries and Administrative Law; L - Industrial Organization > L7 - Industry Studies: Primary Products and Construction > L72 - Mining, Extraction, and Refining: Other Nonrenewable Resources; N - Economic History > N5 - Agriculture, Natural Resources, Environment, and Extractive Industries; N - Economic History > N5 - Agriculture, Natural Resources, Environment, and Extractive Industries > N50 - General, International, or Comparative; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q32 - Exhaustible Resources and Economic Development; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q33 - Resource Booms; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics; Y - Miscellaneous Categories > Y1 - Data: Tables and Charts

References

Bell, Peter Newton, 2014. "Effects of streaming loans for commodity producers," MPRA Paper 59818, University Library of Munich, Germany.

Bell, Peter, 2018. "Valuation Simulation for a Net Smelter Return Royalty on a Mining Project," MPRA Paper 87683, University Library of Munich, Germany.

Centerra Gold (May 17, 2018). Centerra Gold Announces US$200 Million Sale of Royalty Portfolio and Kemess Silver Stream. Retrieved from https://s3.amazonaws.com/cg-raw/cg/news-releases/nr-20180517.pdf

DiFilippo, D.V. (2015). AN ECONOMIC AND FINANCIAL DECONSTRUCTION OF THE COMMODITY STREAMING BUSINESS MODEL (Masters dissertation). Retrieved from https://qspace.library.queensu.ca/bitstream/handle/1974/12706/DiFilippo_Daniel_V_201501_MASc.pdf

Golder Associates Ltd.200-2920 (July 12, 2017). Technical Report for the Kemess Underground Project and Kemess East Project, British Columbia, Canada. Retrieved from https://www.centerragold.com/operations/kemess/technical-reports