RE: Solgold squabbles complicate development task3 Nov 2020 11:17
Sol what
This funding discussion becomes moot if a buyer turns up. The most obvious candidate is Australian giant BHP (BHP), which both owns 13.6 per cent of SolGold and recently underlined its interest in copper. A restriction on BHP buying more shares in SolGold ended in mid-October, meaning speculation could soon hot up again. Newcrest – which also holds a 13.6 per cent stake – could also move on SolGold, despite its objection to the royalty sale.
Last year’s preliminary economic assessment put Alpala’s net present value at $3.6bn-$3.9bn (post-tax, with a 9 per cent discount). This was done with a copper price forecast of over $7,000 a tonne and a $1,300-an-ounce (oz) gold price, compared with their current prices of around $6,700 a tonne and $1,900 an oz, respectively. SolGold itself has a market capitalisation of £686m – a run at the end of September helping it rise to 40p a share – and recent mining deals have seen 20-30 per cent premiums for cash offers. Of course, any buyer would be committing itself to spending billions on building the mine, which is one of only a few major copper discoveries of recent years.
Even with the existing major miners involved, Cornerstone thinks third-parties are still paying attention. “It's possible enough that a third-party coming in with an aggressive bid could create enough tension to force people to get into a bidding war,” Mr Macdonald told us. “There are just so few deposits of this size available.”
Mr Mather’s argument against selling off Alpala is SolGold’s potential to turn into a major player itself. “The blueprint that we created at Alpala is replicable, and applicable to all 14 of our other projects throughout Ecuador,” he said. “BHP doesn't have [these exploration prospects], Newcrest doesn't have them, we have them.”
Given the apparent potential of these other wholly-owned targets, would Mr Mather rather not sell Alpala and focus on those without the Cornerstone angle? The SolGold boss said it wasn’t something he was considering. Even if SolGold pushes this project through to production successfully, it will still be partly reliant on exploration prospects for share price improvement, given the years of construction needed. In any case, it’s hard to see a constructive relationship suddenly blooming between SolGold and Cornerstone.
An ideal world for SolGold would see Cornerstone giving up and selling its Alpala stake, which SolGold has first dibs on. But Mr Macdonald and co seem just as determined as Mr Mather to get their way and find a buyer.
Given mining’s cyclical nature, the difficulty of building major new operations and SolGold’s ability to annoy its partners, that might be the best option for everyone.
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