Today's IC23 Jul 2018 13:30
Is it possible for resource companies to communicate too much? Instinctively, many investors would disagree, welcoming all a junior miner or oil explorer might have to say. Resource projects are often remote, their assets only knowable with an industrial drill, a team of geologists and a small army of suppliers. When information is that asymmetric, any detail feels like greater transparency.
But at some point, transparency can also feel like over-sharing – or perhaps hype in the name of transparency. In the case of SolGold (SOLG), which made the Cascabel copper-gold discovery in Ecuador, the hype may well be warranted. But the prospective miner is also guilty of a stream-of-consciousness-like approach to market announcements. The company has put out an exploration update at the rate of once a fortnight over the past year.
Recruiting the government to this colossal industrial project is now arguably the biggest obstacle on Sirius’s horizon
To be fair, SolGold is in the thick of exploration work, of which Cascabel is just one part. The miner’s 84 geologists are trying to make sense of 10 major targets over an area of around 3,200 square kilometres. Dozens more exploration targets are the focus of four subsidiary companies.
And so long as drilling and resource expansion remains the core focus, SolGold’s newsflow will be more erratic than the normal run of production and trading updates. This is the bind of resource stocks. Usually, producers’ shares are driven by commodity prices, with long-term sustainability and exploration a secondary consideration. Explorers, aware of the patience of markets, are wont to fill the production gap with evidence of any capital growth.
For SolGold, this is both necessary and defensive. Questions have been raised over claims the project is ‘tier one’ (ie, world-class), and whether the grades and quality of Cascabel’s mineralisation are enough for SolGold (or a potential acquirer) to finance the incredibly complicated task of building an underground block-cave mine beneath the Ecuadorian jungle.
But the messaging can also feel a little chaotic. Since January’s maiden resource estimate for the Alpala deposit – which revealed 7.4m tonnes of copper on an inferred and indicated basis – a further 73.4km of drilling has been completed. Beyond suggestions that the resource estimate “could double”, it is tricky to know what shareholders are being asked to value. Until a resource update arrives, and with the $70m (£53m) earmarked for drilling slowly eroding, the shares may well remain subdued at 23p. That is, unless shareholder Newcrest Mining (ASX:NCM) decides it has stared long and hard enough at the shop window to table a bid.
On the latter point, shareholders should remain circumspect. In a recent overview of his company’s growth options and investments, Newcrest chief executive Sandeep Biswas suggested securing a fifth tier one asset – to which Cascabel is a contender – will be “challenging, but i
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