Shares of ATAC Resources (TSXV: ATC) plunged 25% on news that Barrick Gold (TSX: ABX; NYSE: ABX) is terminating its earn-in joint venture on the junior’s Orion project, part of its 100%-owned Rackla gold property in the Yukon.
Barrick declined a request for comment on the decision, but in an investor day presentation last month the company’s head of project evaluation, Rod Quick, stated that management’s strategic filters for investment for Tier 1 projects is a reserve potential greater than 5 million ounces of gold and at least a 15% internal rate of return at the long term gold price and for Tier 2 assets, a reserve potential of greater than 3 million ounces of gold and at least a 20% IRR at a long-term gold price.
“Though early results from the Orion project may not meet the corporate thresholds at Barrick, the project remains a highly prospective mineral asset in a top-tier jurisdiction,” ATAC president and CEO Graham Downs states in a news release.
Downs also notes that with over $10 million in working capital, “ATAC remains well positioned to continue exploration in 2019 across the Rackla property, including the Orion project.”
Analysts at Macquarie Research sliced their 12-month target price on ATAC in half, from $1.00 per share to 50¢, and admitted they were surprised by the decision, “considering that it had met the minimum $10 million spend in stage 1 of the earn-in one year ahead of schedule.”
“However, we appreciate that the drill results did not meet expectations for Barrick and the overall target ranking declined for the senior (especially given the need to spend an additional $25 million to earn-in and that Orion/Yukon was likely competing for exploration dollars versus Nevada projects),” they comment. “Can ATAC regain the Carlin-type district validation (again) by securing another joint-venture partner?”
In addition to the news of Barrick’s departure, ATAC released results from its 2018 exploration drilling within the Anubis Fault corridor at Orion. Highlights included 7.61 metres of 10.5 grams gold per tonne from 361 metres downhole and 380 metres down dip of the Anubis discovery outcrop; and 10.73 metres of 7.20 grams gold from 166 metres downhole and 285 metres to the east of the Anubis discovery.
Gold mineralization associated with the Anubis Fault now has been intersected in diamond drilling over a 2.5 km strike length and to a depth of 540 metres, the company says.
The Macquarie analysts acknowledged the high grades but questioned whether it is the right geological setting.
“These results would be very encouraging if they were hosted in chemically receptive silty limestone ‘sponge-like’ trap rocks,” they state. “However, they appear to be related to shales in a fault structure and in our view higher risk for developing thick zones with continuity.”
At press time ATAC was trading at 26¢ per share within a 52-week trading range of 21¢ and 65¢.
The junior exploration company has about 148 million common shares outstanding for a market cap of around $38 million.
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