IC just tipped SOLG again-EARTHLING15 Dec 2018 23:27
Long-term investors in SolGold (SOLG) can look back on 2018 with some satisfaction. Despite initial doubts around the ‘tier one’ status of the company’s Alpala discovery in Ecuador, the mineral resource has now doubled, and the copper-gold explorer now counts BlackRock and BHP Billiton (BLT) as major shareholders. All the while, the cash pile has remained topped up as shareholders have continued to buy new equity, and mining majors’ hunt for the next copper-gold project has only grown in intensity. As such, we think there’s a reasonable chance SolGold will be snapped up in the next year.
IC View
Owing to underinvestment in new projects and booming demand from global electrification, almost all mining majors want to increase their exposure to copper. And within the scarce pipeline of potential developments, Alpala is a unique prospect. It has no permitting or geopolitical issues to speak of, isn’t owned by a rival and is of sufficient scale to make a difference to any major’s portfolio. Liberum thinks this combination warrants a take-out price of 72p, as the mid-point between the median internal rate of return, and the average resource-based multiple for transactions in the sector. Hannam & Partners goes one further, arguing that the recent resource shows “the blue-sky potential” for a forthcoming preliminary economic assessment, and warrants an 80p target price. We’re bullish too: buy.
Last IC View: Buy, 40.3p, 17 Oct 2018