A visitor looks at a core sample from Barrick's Fourmile Goldrush Camp at the Prospectors and Developers Association of Canada annual convention in Toronto in 2019.CHRIS HELGREN/Reuters
Teck Resources Ltd. TECK-B-T owns a royalty on Barrick Mining Corp.’s ABX-T Fourmile gold project in Nevada that could be worth billions, according to documents viewed by The Globe and Mail – a revelation that could affect the valuation of Barrick’s planned initial public offering of its North American business.
Barrick has not yet publicly disclosed the royalty on a project it has described as “one of the century’s greatest gold discoveries.”
Up to now, the only royalty disclosed on Fourmile is the 1.6-per-cent gross smelter return, which is based on revenue not profit, held by Royal Gold Inc. RGLD-Q
Documents filed with Nevada’s Eureka county in 2011 show that Barrick and Teck signed a royalty pact covering mining claims in vast tracts of land in the state. The pact covered the Goldrush mine, which went into production in 2024, and the Fourmile project, which is expected to be in production in about three or four years.
According to the documents, if Fourmile is developed into a mine, Barrick would pay Teck 10 per cent of the net profits (NPI). The royalty increases to 15 per cent once six million ounces of gold are produced.
Vancouver-based Teck confirmed this week to The Globe that it still owns a royalty on Fourmile all these years later.
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“Teck maintains a portfolio of royalties largely sourced from projects that have been divested over time,” Doug Brown, vice-president of communications and government affairs with Teck, said in an e-mail. “This includes a royalty on an area of interest related to a former Placer Dome and Cominco joint venture, which covers a portion of Fourmile.”
Barrick declined to comment for this story.
The royalty agreement was filed in Nevada about four years before Barrick made the discovery at Fourmile. In what has now become company lore, Barrick in its early drilling program at the site repeatedly came up snake eyes, before finally hitting pay dirt on its final drill hole.
Barrick last year in a preliminary economic assessment, said Fourmile could produce up to 750,000 ounces a year for at least 25 years, which would make it one of the top 10 biggest gold mines in the world. After the PEA was released, Barrick’s shares went on a tear, adding billions in market value over a few months.
According to the PEA, Barrick’s all-in sustaining costs at Fourmile are estimated at US$650 to US$750 an ounce. With bullion currently trading at around US$4,800 an ounce, Teck’s royalty could be worth around US$300-million a year in revenue, with a possible total payout that would stretch well into the billions.
Teck owning a royalty in Fourmile potentially has implications for Barrick’s planned IPO of its North American mines. That comprises its 61.5-per-cent interest stake in Nevada Gold Mines (NGM), its 60-per-cent stake in the Pueblo Viejo mine, both of which are joint ventures with Newmont Corp., as well as its wholly-owned Fourmile project.
With Teck set to earn a significant portion of the profits from Fourmile, the value to Barrick is now expected to be less than previously estimated by analysts, potentially reducing the value of the assets to be listed in the IPO.
Josh Wolfson, analyst with RBC Dominion Securities, had valued Fourmile at US$15-billion, or 15.6 per cent of the company’s entire US$96-billion net asset value. In an interview, Mr. Wolfson expressed surprise that Barrick hadn’t yet disclosed the Teck royalty on Fourmile, and he said his valuation for Fourmile likely needs to be revised downward.
“The rough math is 10 per cent NPI would be 10 per cent lower value,” he said. “If people were to factor it in, then that could change the economics.”
Mr. Wolfson said the royalty on Fourmile also has relevance for Newmont, Barrick’s joint venture partner at NGM. While Fourmile is set to be included in properties that make up Barrick’s North American IPO, it isn’t part of NGM.
However, once a feasibility study is completed, the project is set to be “vended in” to NGM. At that point, Newmont will decide whether to pay cash to Barrick to maintain its 38.5-per-cent interest in NGM, or elect to see its ownership diluted down.
“Barrick probably doesn’t want this information [on the Teck royalty on Fourmile]to be understood,” said Mr. Wolfson. “It obviously works against them to some degree. But I wonder if Newmont would like this information to be more well understood.”
The Globe asked Newmont if it was aware of the existence of the Teck royalty on Fourmile, but the company declined to comment.
Relations between Barrick and Newmont are already testy ahead of Barrick’s planned IPO of the North American business in the fourth quarter of this year.
In February, Newmont said that any transaction implicating Newmont’s joint ventures “must respect the protections that are contained in those agreements.”
Colorado-based Newmont, which is the biggest gold company in the world, said that it has been concerned about the prolonged poor performance of NGM, which is operated by Barrick. Newmont said it has been working with Barrick to try to reverse the degradation in performance to ensure the assets “generate the value they are capable of delivering.”
Teck last year agreed to be acquired by Britain’s Anglo American PLC. The transaction, which is awaiting regulatory approval in China, could close later this year. If that happens, Anglo could end up being the ultimate beneficiary of the royalty on Fourmile, unless Teck elects to sell it before that.