SolGold – First-mover advantage in Ecuador creates ‘World-Class’ Copper/Gold potential, BHP very interested

Admittedly it has larger situations on hand currently, so the matter of whether the Australian-based mining group BHP will take up its option to buy another 19.25m shares in SolGold (LON/TSX:SOLG) is almost certainly on the back-burner.

We already know that it has until 5pm on Wednesday of this week whether to make its third offer for its FTSE-100 rival Anglo American, and as for its interest in SOLG it does have until Monday 15th November to decide about exercising its option.

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BHP wants control

What we do know is that BHP has had it eyes on taking significant or total control of the Brisbane-based mineral exploration and development company for some time.

Way back in September 2018 the major miner acquired 103.1m shares from Guyana Goldfields, representing 6.0% of SolGold’s equity, paying 26.6p per share at a total cost of £27.42m.

A month later it paid out another £43.0m at 45p per share.to take its stake up to 11.2%.

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At that time, it is said that SolGold rejected an offer from BHP for a big stake in the Brisbane company’s interest in its Cascabel Project.

Not chilies nor cannon muzzles

This Project is not concerned with cultivating the Cascabel Chilli, nor is it anything to do with the cascabel projection behind the breech of a muzzle-loading cannon.

Instead SolGold’s Cascabel Project is all about developing a ‘world-class’ copper mine in northern Ecuador, around three hours’ drive from the capital of Quito.

It is sited within the Cordillera Occidental part (or Western Cordillera) of the Ecuadorian Andes.

The property is situated at the margins of a large regional batholith and in the middle of the confluence of a major northeast trending fault zone.

Global interest in Cascabel

SolGold aims to develop Cascabel as one of the lowest carbon intensive copper mines in the world, which is why, no doubt, BHP wants/needs to get control of such a potentially massive asset, especially as copper prices have reached record highs in London and New York amidst a trading frenzy driven by looming supply shortages. 

And that is also why investors across the globe are taking a much closer interest in just what this £288m capitalised group is doing.

Pre-Feasibility Study

In mid-February this year the group announced that it had successfully completed its Pre-Feasibility Study of the Cascabel Project, which highlighted an excellent economic viability for the company’s Phased Approach Block Cave Mine.

The current mine plan reflects the profitable exploitation of only 18% of the Alpala measured and indicated mineral resource through a 28-year mine life – the size of the entire resource indicates the mine’s potential to be a multi-generational mining asset.

At that time CEO Scott Caldwell declared that:

“Cascabel is not just a mining project; it’s a promise of responsible mining, lasting value for all stakeholders and a sustainable legacy for the planet.

With reduced capital needs and lower risk compared to previous approaches, together with our ongoing commitment to sustainability and responsible mining, Cascabel is more than copper and gold; it’s a story of innovation, collaboration and a vision for a greener and more prosperous tomorrow for the people of Ecuador.

This Study was conducted with the best outcomes for all our stakeholders in mind.” 

The new pre-feasibility study managed to slash upfront costs.

Pre-production capital used for initial mine development, first process plant module and infrastructure is now estimated at $1.55bn, compared to $2.75bn from the PFS issued in April 2022.

The Alpala Deposit

The main target in the Cascabel concession is the Alpala deposit.

The deposit’s equigranular to sub-porphyritic, hornblende-bearing intrusions are defined as narrow, and they become thinner upwards, and are geometrically similar to grade models of Cu, Au and Ag mineralisation.

The mineralisation has been identified as a prolate body approximately 2,400m northwest by 1,200m northeast and 2,800m in vertical extent.

Alpala, the largest deposit found at the Cascabel concession so far, has measured and indicated resources of 2.7bn tonnes grading 0.53% copper-equivalent (0.37% copper, 0.25 grams gold per tonne, and 1.08 parts per million silver) for 9.9m tonnes of contained copper, 21.7m oz. gold and 92.2m oz. of silver. 

Once fully developed, Cascabel is expected to produce an average of 150,000 tonnes of copper, 245,000 ounces of gold and 913,000 ounces of silver in concentrate per year during an estimated 55-year life-of-mine. 

Over the first 25 years of mining, the average annual production is expected to be 207,000 tonnes of copper, 438,000 ounces of gold and 1.4m ounces of silver. 

Management capability

In the last year there have been strong doubts about whether the SolGold management team had the ability to progress further such a major undertaking.

There was even a market whisper that the group had considered selling off its Cascabel Project.

However, the junior mining group, which is one of the largest exploration property owners in Ecuador, reached an agreement in April with the Ecuadorian government covering certain financial terms and conditions, along with a 33-year renewable permit to develop a copper, gold and silver mine at its Cascabel concession.

New loan facility

Last Tuesday the company announced that it had secured a $10m loan facility for its flagship Cascabel copper-gold project, while also adding that it was in talks with several capital providers that have shown strong interest.

The loan provides an immediate cash infusion to support ongoing operations and gives the company flexibility to finalise the more comprehensive financing arrangement that is required.

My View

The size of the entire resource indicates that the mine’s potential to be a multi-generational asset, with mine construction set to start next year, it could potentially be one of the 20 largest copper-gold mines in South America.

Yesterday some 13m shares were traded in SolGold, at around the current 9.61p price.

Unless there is a string of very positive pieces of corporate news emanating from the company, I cannot imagine that BHP, which now holds 10.36% of the equity, will take up its option.

However, it could well make an outright bid for the company.

That would certainly gain the attention of the group’s second biggest shareholder, Newcrest Mining with a 10.31% stake and the Jiangxi Copper Company with 6.02%.

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