Teck’s undisclosed royalty worth billions on Barrick’s Fourmile could stymie IPO

Teck Resources (TSX: TECK.A/TECK.B; NYSE: TECK) holds a royalty on Barrick Mining’s (TSX: ABX; NYSE: B) Fourmile gold project in Nevada that could generate billions of dollars and impact the valuation of Barrick’s planned North American mine spinoff, reports say.

Vancouver-based Teck owns a 10% net legacy profits interest over an area that covers 260 sq. km and includes a “meaningful” overlap with the Fourmile discovery, Scotia Capital mining analyst Orest Wowkodaw wrote Thursday in a note, citing information provided by Teck and Barrick. The royalty climbs to 15% after 6 million oz. of gold are delivered, Wowkodaw said.

The Globe and Mail first reported the story on Wednesday. Barrick and Teck didn’t immediately respond Thursday to e-mails from The Northern Miner seeking comment on the royalty.

“Overall, we view this development as positive for Teck and negative for Barrick,” Wowkodaw said. He values Fourmile at about $15 billion, or 19% of Barrick’s net asset value – assuming that the mine can start operating in 2030 and reach full production in 2034.

Significant discovery

Barrick sees Fourmile as one of the most significant discoveries of the past 25 years, highlighting its potential to produce as much as 750,000 oz. of gold annually. Fourmile combines exceptionally high grades with long mine life and access to existing infrastructure through the Nevada Gold Mines joint venture with Newmont (TSX: NGT; NYSE: NEM), Barrick said in September.

Shares of both miners dropped Thursday amid a stock market selloff. Teck fell 4.5% to C$64.45 in Toronto for a market capitalization of about C$31 billion ($22.6 billion) while Barrick declined 6.8% to C$51.79 for a market value of about C$87 billion.

On a “very preliminary basis”, the royalty could generate $100 million to $200 million annually for Teck at production rates of about 750,000 oz. a year if gold averages $3,400 per oz., Wowkodaw said in his note.

The calculation assumes 100% area of interest overlap, though the exact overlap will become clearer once Barrick releases a technical study, Wowkodaw said.

Key asset

Fourmile is one of the key North American gold assets to be included in a new publicly listed company that Barrick plans to spin off by the end of the year.

Carving out the North American assets – which also include stakes in the Nevada Gold Mines joint venture and the Pueblo Viejo property– in an initial public offering is the best way to maximize shareholder value, Barrick said last month. Barrick plans to keep a “significant” majority stake in the properties, which account for more than half of the company’s gold production.

Fourmile holds 4.6 million indicated tonnes grading 17.59 grams gold per tonne for 2.6 million oz. of contained metal, Barrick said last year as it doubled the deposit’s estimated resource for a second straight year. It also contains 25 million inferred tonnes grading 16.9 grams gold for contained metal of 13 million ounces.

Growth potential

Ongoing prefeasibility studies at Fourmile point to the potential for significant additional resource growth, Barrick said last month.

Fourmile could have a mine life of more than 25 years, Barrick said in September, citing the conclusions of a preliminary economic assessment.

Project capital is estimated at $1.5 billion to $1.7 billion, while the overall capital expenditure budget is pegged at $3.2 billion. Key milestones include decline construction start in late 2026, the completion of a prefeasibility study in late 2028 and an independent feasibility study in 2029.

Newmont spat

The existence of a royalty also has implications for Denver-based Newmont, which is at loggerheads with its partner in Nevada Gold Mines. Barrick owns 61.5% of the venture, while Newmont holds 38.5%. 

Newmont last month issued a notice of default, saying that Barrick diverted resources from Nevada Gold Mines to advance Fourmile. Newmont holds a contractual right of first refusal over moves affecting the venture and argues that the alleged actions breach the companies’ 2019 JV agreement.