RE: AFR12 May 2020 17:54
Takeover target SolGold has snubbed its two biggest shareholders and most likely suitors, BHP and Newcrest Mining, by signing up to a high-cost loan that has left the big miners ''concerned'' and ''disappointed'
SolGold chief executive Nick Mather signed his company up to a $US15 million ($23 million), eight-month loan with interest rates of 12 per cent on Monday, despite the fact SolGold's flagship asset is years away from first production and the company has no other source of sustainable revenue.
The unorthodox move highlights the unofficial battle for control within SolGold, which has found an encouraging copper and gold deposit in the jungles of Ecuador.
SolGold has been largely funded by share placements to BHP and Newcrest over the past four years, and that approach has resulted in both big miners owning more than 14 per cent of SolGold.
BHP and Newcrest have both signalled they are willing to continue subscribing for shares, arguing that equity is the cheapest source of finance for a junior explorer.
But Mr Mather has bypassed those offers and sought alternative sources of finance for six months now.
The tensions were on display in November, when SolGold allowed BHP to subscribe for just $US22 million worth of new shares, a sum that would have funded SolGold for barely three months based on its rate of spend in 2019.
That November decision backfired on the outbreak of the coronavirus, which has delayed and complicated Mr Mather's plan to replenish SolGold's dwindling cash reserves with a major fundraising initiative in the early months of 2020.
Newcrest chief Sandeep Biswas has two prospects in Ecuador.
Newcrest urges SolGold to avoid 'short term' funding fix
But Mr Mather's financing plans took a step forward with Monday night's $US15 million loan, which will be provided by resources industry financier Franco-Nevada.
The loan appears to be the opposite of what Newcrest chief executive Sandeep Biswas called for in February, when he urged SolGold to avoid "short-term fixes" in favour of a long-term solution that suited existing shareholders.
A Newcrest spokesman confirmed the company was unimpressed by the debt decision.
"We are disappointed they did not approach their supportive, existing shareholders for funding,'' he said.
The high-cost loan may be the start of something bigger, with SolGold saying Franco-Nevada was considering providing a further $US100 million, subject to further due diligence.
In exchange for the $US100 million, Franco-Nevada wants a 1 per cent royalty on revenue generated by SolGold from its flagship Cascabel tenement, which contains the Alpala disc
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