Stream Financing In Nigeria: An Alternative Financing Strategy For Mineral Title Holders

Nigeria's mining sector is experiencing renewed attention, yet liquidity constraints remain a significant challenge for mineral title holders seeking to develop mining assets. Understandably, traditional bank financing or equity injections may be insufficient or too costly, particularly for promoters without extensive track records or cash reserves. This legal update discusses the mechanics of stream financing as an alternative to traditional bank financing or equity injections.

1. What is Stream Financing?

Stream financing is a form of alternative financing whereby an investor or “streamer” provides upfront capital in exchange for a contractual right to purchase a portion of future mineral production, typically at a discounted price. While the arrangement is commercially attractive for mineral title holders, it is also a structured investment vehicle that international lenders and financiers actively seek, provided certain investment safeguards and contractual protections are satisfied.

2. Assessing the Legal Basis for Stream Financing in Nigeria

Section 147(2) of the Nigeria Minerals and Mining Act provides the legal basis for stream financing in Nigeria. The section states that the rights arising from a mineral title or permit can be wholly and partially assigned, sub‑leased, pledged, mortgaged, charged, hypothecated or subject to any security interest. Effectively, title holders are expressly permitted to:

1. Securitize mining assets and rights, including licences, leases, and future mineral production;
2. Grant security interests over mining leases, plant, equipment, and revenue streams; and
3. Enter into agreements that monetize future production to access immediate liquidity.

3. The Mechanics of Stream Financing

A stream financing transaction is often structured around the following transaction considerations:

1. Upfront Capital Injection: The streamer provides cash upfront to the title holder to fund mine development, expansion, or operational activities.
2. Future Production Commitment: The title holder commits to deliver a fixed percentage of the mine's production, usually high-value assets like gold, silver, cobalt, or lithium, over a defined period, typically the life of the mine or until a specific volume is delivered.
3. Discounted Purchase Price: The relevant mineral is sold to the streamer at a pre-agreed discounted price, lower than current or projected market value.
4. Contractual Security and Protections: Although the arrangement is not technically a loan, streamers generally require a robust legal and security package to protect their investment, including charges over assets and revenue streams, step-in rights, and audit provisions.

4. Benefits to Mineral Title Holders

Stream financing provides mineral title holders with immediate access to liquidity, allowing them to fund mine development, acquire equipment, or cover operational expenses without taking on traditional interest-bearing debt. Unlike equity financing, stream financing is non-dilutive, with the effect that promoters can retain full control of their companies and avoid giving up ownership stakes.

In addition, stream financing helps mitigate price risk. By agreeing to sell a portion of future production at a predetermined, discounted price, title holders can secure funding even when commodity markets are volatile. The structure also offers flexibility in how the upfront capital is deployed, giving promoters the ability to strategically allocate resources to areas of greatest operational or developmental need.

5. Positioning for an International Stream Financing Opportunity

In addition to conducting a due diligence on the promoters, the mineral title and corporate ownership, international streamers approaching Nigerian title holders will typically carefully evaluate several factors before entering into a streaming agreement. Such evaluation would typically include:

1. Legal and Regulatory Compliance:  Providers of stream financing will assess the validity and enforceability of mining licenses and leases, compliance with the Nigerian Minerals and Mining Act and adherence to environmental, social, and community obligations.
2. Ownership and Control of Assets: Clear title to the mining lease and associated infrastructure is essential. Providers of stream financing will be keen to ensure that there are no conflicting encumbrances or third-party claims.
3. Project Viability and Production Certainty: Independent technical reports (e.g., JORC or NI 43-101) are typically required to confirm proven and probable reserves. Mine plan feasibility, projected cash flows, and historical production data (if available) are also reviewed to ensure predictable output.
4. Security Package: Providers of stream financing would usually require charges or pledges over mining licenses, equipment, and revenue streams. Assignment of offtake agreements and bank accounts, step-in rights, audit and inspection rights and completion guarantees may also be requested to protect their investment.
5. Corporate and Sponsor Support: A strong governance structure and competent management team are critical. Where the title holder is a smaller entity, parent company guarantees or sponsor backing may be required.
6. Contractual Protections: Providers of stream financing will include delivery priority clauses, reporting and audit rights, force majeure and default provisions to ensure they receive the agreed share of production and can protect their investment in adverse situations.

Conclusion

Stream financing is an emerging and increasingly relevant financing mechanism in Nigeria, particularly because stream financiers tend to possess deep expertise across the mining value chain. For Nigerian miners, especially those in the early stages of project development, it helps to think more broadly about alternative financing options and how creative financing strategies like stream financing can unlock value beyond traditional debt or equity structures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.