The agreement, which has yet to be approved by regulators, would see the two parties form a joint-venture company to explore ground currently held by Rio Narcea. Barrick would have a 60% interest, and Rio Narcea 40%, in the new company.
The two companies will set up the joint-venture company with US$750,000, which the new company will use to buy Rio Narcea’s interst in the properties. The effect is to transfer US$450,000 to Rio Narcea from Barrick.
The joint venture will take over exploration of most of the Narcea gold belt, where Rio Narcea has outlined several prospects, mainly in skarns. The mine property at El Valle and the Carles property, where a second open-pit operation is under development, are not part of the agreement, though the deal does provide Barrick with a right of first refusal if Rio Narcea wishes to sell or to finance expansions at the two mines.
The deal also covers Rio Narcea’s exploration properties in the Navelgas gold belt, a 360-sq.-km land package that contains the Linares gold prospect, a target with gold showings in granitic porphyry and an adjoining skarn.
Two new land packages are also included in the agreement. Rio Narcea has acquired ground in the Palencia-Leon belt, about 150 km southeast of El Valle, and in the Venteniella belt, also to the southeast. The joint venture will operate those properties as well.
Rio Narcea retains outright ownership of its properties in the Oscos and Malpica gold districts, west of the Narcea region, which are not covered by the agreement.
When the deal closes, Barrick will subscribe for 1.35 million treasury shares from Rio Narcea, at $2.25 — a cash injection of just over $3 million. Rio Narcea will then lend that sum to the new joint venture, with the loan bearing nominal interest until the joint venture’s properties have produced 3 million oz. gold.
The loan can be converted into equity in the joint-venture company, with Barrick retaining the right to add further cash to the joint venture to maintain its interest at 60%.
On the first and second anniversaries of the deal, Barrick must subscribe for more shares of Rio Narcea or lose its rights under the agreement. The shares come at a 10% premium over the market price, subject to a minimum of $3.50 per share on the first anniversary and $4 on the second. The subscription is for US$3.5 million in the first year and US$4 million in the second.
On each of the third and fourth anniversaries, Barrick can subscribe for Rio Narcea shares to a further US$5 million in value, again at a 10% premium over market, and subject to minimums of $7.50 and $10 per share. On these anniversaries, Barrick can instead opt to fund the joint-venture company directly with US$10 million.
Once Barrick has completed its subscriptions, the two companies will fund the joint venture proportionately, but Rio Narcea has the option of having Barrick fund its share and paying the loan back out of revenue from subsequent production.
A final provision in the deal gives Barrick a right-of-first-refusal on El Valle and Carles should Rio Narcea want to sell an interest in the mines. Barrick also gets the first call if Rio Narcea requires capital for the mines, though accepting an offer of financing remains Rio Narcea’s choice.
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