So began independent analyst and director Ray Goldie's "detective story" to the financing in junior markets session on Monday evening at the Prospectors and Developers Association of Canada's annual convention, being held virtually this year.
He said royalties were still a valid financing tool for juniors but voiced caution through his tale, which involved a junior company discovering a deposit but being unable to raise the capital for further development.
It sold the deposit to a major in exchange for cash and an NSR, which is where its concerns arose and Goldie was called in.
Under his calculations using various considerations, Goldie said the company's NSR varied by up to about 50% from the expected US$790.27 per tonne based on the gross value of metals in ore.
Goldie said NSR pitfalls, particularly for polymetallic deposits, included juniors not knowing what smelter fees were being charged, which mineral went into which concentrate and whether there were any deleterious elements.
"As in all good detective stories, should I consider the possibility of poison?" Goldie mused.
He said some academics had recently "looked deeply into an alternate universe" where metals occurred not as metal sulphides but as metal tellurides.
Known as TAABS, these included tellurides, arsenides, antimonides, bismuthides and stannides, some of which were "regrettably poisonous" to both people and to the efficient operation of smelters, Goldie said.
This was what had reduced the value of the junior company's NSR, which Goldie said illustrated his point that under an NSR "you hold all the risk that nasties and other metallurgical issues could reduce its value".
A slide from Ray Goldie's presentation to PDAC 2021
He said juniors "can and should" use royalties as a financing tool for the exploration of polymetallic properties but he recommended creating royalties on the gross value of the ore, not on the NSR.
Royalty and streaming company Franco-Nevada's SVP Eaun Gray said it was an interesting idea.
"But we think we play a very important role in this space by financing with royalties," he said in the following discussion.
"We often find, you know, the equity markets can be open and then they can slam shut right in your face … and an NSR royalty is a free, tried and tested form of finance."
A Mining Journal Select 365 panel recently heard the royalty-streaming space had matured into a broadly accepted source of finance, with opportunities for deployment continuing despite competition from buoyant equity markets.
Gray said Franco-Nevada drafted agreements to specifically address areas including deleterious elements and hidden charges.
"Overall I would say we're an important player," Gray told the PDAC convention, regarding options for finance for juniors.
"And we like to think that by being involved early helps add validation to the project."
The gold-focused streaming and royalty company has a 398-strong portfolio on producing, advanced and exploration assets.
It's due to release its 2020 results after market close tomorrow.
