Monsters of Rock: The royalty dispute pitting some of the mining industry’s biggest players against one another

A tiff with its origins in a deal over 25 years ago has broken out between IGO (ASX:IGO) and South32 (ASX:S32) over royalty payments at the Tropicana gold mine, ensnaring the current owner of IGO’s old 30% stake in what is one of Australia’s biggest gold operations.

The $112,100,825 claim from South32, is yet another headache for new IGO boss Ivan Vella, whose first months in the job have been engulfed in a firestorm of falling nickel and lithium prices, operational struggles and a review to find the cause of a disastrous decision to pay $1.3 billion on the assets of Western Areas in 2022 – a deal now almost entirely written off.

According to a market release from IGO, South32 – a spin-off from BHP during the mid-2010s mining downturn – says it should have received royalties (plus interest and costs) for a period from December 2014 to September 30 last year.

It’ll impact Regis Resources (ASX:RRL), which paid $903m for the minority stake in the AngloGold Ashanti operated mine. It entered a trading halt earlier today, with IGO now saying Regis would be on the hook for $35-40m of the claimed award.

South32 reckons those royalties should be based on gross revenues.

What’s the origin of the dispute, though?

According to IGO, South32 claims when its predecessor sold the tenements on August 1, it granted the buyer access to soil samples as long as they made an obligation to pay a royalty if those samples led to a discovery.

Those licences were granted to IGO around its listing in August 2002, with South32 now claiming a 1.5% sample royalty on production going back to December 2014 and a declaration that it should be receiving a cut of ongoing revenue from the Tropicana mine, one of Australia’s five largest having produced around 440,000oz of gold in 2023.

“IGO denies that it has any liability to South 32,” IGO said in a statement.

“IGO has thoroughly reviewed its obligations under the relevant agreements and maintains that the pre-conditions to the entitlement to be paid the Sample Royalty have not been satisfied. IGO has instructed lawyers to act on its behalf, and intends to fully and vigorously defend the claim.”

The lawsuit dropped yesterday, after an awful week for IGO, which revealed the JV of the Greenbushes lithium mine would cut production and had decided not to pay IGO a dividend for its 24.99% ownership stake.

It also announced it would place the $825 million Cosmos nickel development on care and maintenance from May 31 in response to low nickel prices, having roughly doubled the cost of bringing the Odysseus mine it picked up in the ill-fated Western Areas deal into production.

The mine delivered no commercial production for IGO.

Regis said it was not a party to the royalty agreement or Supreme Court proceedings, but would take “appropriate action to protect its position.”

We went to South32 for comment on the matter. It’s not giving much away.

“South32 can confirm that it has commenced proceedings in the Supreme Court of Western Australia seeking a declaration that a royalty is payable by IGO Limited to South32 Royalty Investments Pty Ltd in relation to the Tropicana Gold Mine, in Western Australia, and payment of the outstanding royalty which has accrued to date,” a spokesperson for the mining giant said.

“As the case is now listed before the court it is not appropriate for us to comment further at this stage.”

Grab your popcorn.

Regis and IGO shares fall as materials stocks eat loss

Mining shares in general had a bad day, with the materials sector down 0.81% in the wake of an indifferent rate update from the US Fed and weak Chinese economic data.

IGO and Regis’ falls were far worse, down 4.23% and 5.5% respectively. South32 was down 1.79%, though the news broke of its legal claim broke late in the day.