Barrick Mining Corp. (ABX:TSX; B:NYSE) had another spanner thrown into its IPO plans when it was revealed that Tech Resources owns a valuable Net Profits Royalty over much of its new Fourmile project (see Bulletin #980).
The royalty starts at 10% but increases to 15% after 6 million ounces have been produced.
This is clearly a meaningful royalty that affects the economics of the project for the mine owner.
The revelation of its existence came after a Canadian reporter reviewed country records. Barrick, however, which originally refused to comment and has still not put out an official release, seemed to dismiss its significance, stating simply that the royalty had been accounted for in its PEA study. But the fact that the market was unaware of this, that Barrick had not mentioned it in its various presentations–in September, at a very small group lunch, I sat through a 90-minute presentation from former CEO Mark Bristow, and nary a word about a royalty was spoken–is very disconcerting, at minimum. One highly respected gold analyst wrote that the company "probably doesn't want (the Teck royalty) to be understood."
Analysts Reduce Estimates of the Project's Value to Barrick
Following the revelation, analysts rushed to reduce their estimates of Fourmile's value (currently calculated at around 16% of Barrick's NAV). Teck said simply that their royalty, which covers 26 acres in northern Eureka County, includes "a meaningful portion" of Fourmile, but "meaningful" could be quite a range.
Barrick now needs clearly to discuss the portion of the ground covered, the proportion of the resource covered, and where it falls in the mining plans. In its study, Barrick called for AISC of between $650 and $750 per ounce, but was using a gold price assumption of $2,585.
Clearly, profits would be higher at a higher gold price, and so too would a royalty on profits, suggesting meaningfully higher costs.
Non-Disclosure Is a Significant Problem
The article in Toronto's Globe and Mail suggested that the royalty could wreck Barrick's IPO plans. That may be a step too far. Fourmile is a fabulous discovery and will be very profitable, even with this royalty. Rather than economics, the larger issue is one of disclosure. The fact that the market was unaware of the royalty is troublesome. One wonders if Newmont Corp. (NEM:NYSE; NGT:TSX; NEM:ASX) was aware. It also refused to comment.
While the royalty does not disrupt any IPO plans, it suggests the IPO might be less valuable in the market. And there are other concerns that we have discussed, including Newmont's allegations of mismanagement of the joint-venture Nevada mines and diversion of jv assets to Barrick's sold-owned Fourmile (see Bulletins #999 and #997). Barrick, which has dropped 30% since its January peak, is a hold.
We are not buyers again until there is greater clarity on the company's IPO and other corporate plans, and issues with jv-partner Newmont have been resolved (or the stock gets stupidly cheap).
Orogen Cancels Equity Raise, Doesn't Need the Money
Orogen Royalties Inc. (OGN:TSXV; OGNNF:OTC) cancelled its proposed private placement (see Bulletin #1001) after the stock fell following the announcement. CEO Paddy Nicol, noting that the company was well funded to pursue its objective, stated that the cancellation "does not alter the company's exploration and investment strategy."
He also noted that the company was pursuing "several acquisition opportunities". Orogen is a strong buy at this level.
Top Buys this week, in addition to the above, include Ares Capital Corp. (ARCC:NASDAQ), Lara Exploration Ltd. (LRA:TSX.V), and Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American).
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