SolGold launches $20m fundraising for Alpala exploration

Cascabel copper-gold project. (Image courtesy of SolGold.)

Ecuador-focused miner SolGold (LON, TSX:SOLG) is launching a fundraising to raise a minimum of £16 million (about $20m).

The company says the fundraising seeks to fully cover the costs of a preliminary feasibility study (PFS) for the Alpala copper-gold project, part of SolGold’s Cascabel asset.

The move, however, comes as top miners try to take advantage of the global economic downturn caused by the coronavirus pandemic, expanding their portfolios through mergers and acquisitions.

“This funding will also cover the costs of SolGold’s important regional exploration programmes and the ancillary costs of generating the $2.7 billion capital development funding package for the Alpala project,” chief executive Nick Mather, said in the statement.

SolGold has been in talks since March to secure the $2.85 billion it needs to develop its Alpala copper-gold project in Ecuador

SolGold placed on Thursday almost 75 million shares, at 21.5 pence apiece, until tomorrow, June 5 at 7:00 am GMT.

It follows a royalty financing agreement with streaming company Franco Nevada (TSX, NYSE: FNV), inked in May. The deal guaranteed SolGold $100 million and gives it an option to upscale to $150 million.

That is how much the miner needs for the PFS on Alpala, part of the Cascabel asset, located 180 km north of the capital Quito.

The company, a prime takeover target due to the potential of its undeveloped project in the South American country, said it expects to deliver the report in fall 2020.

SolGold also said it would use the funds to produce a definitive feasibility study on the asset, to be released in the second quarter of 2021.

The Australian miner has been in talks with multiple investors since March, hoping to secure $2.85 billion to develop Alpala. According to the latest resource update, the asset contains 2.66 billion tonnes of copper at 0.53% copper-equivalent in the measured and indicated categories, and 544 million tonnes at 0.31% copper-equivalent in the inferred category.

SolGold boosts defences against takeover with $20m fundraising
The Alpala deposit is the main target in the Cascabel concession, located on the Imbabura province, northern Ecuador. (Google Maps.)

Once developed, Alpala 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 its 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 1.4 million ounces of silver.

Despite small setbacks due to disruptions related to the coronavirus pandemic, SolGold aims to begin production in 2025.

Mather has repeatedly said his team is building a company “as important to the development of Ecuador as BHP was to Australia.”

BHP, Newcrest unhappy

SolGold’s biggest shareholders, BHP and Newcrest, have publicly urged the junior company’s directors to raise funds via equity. They argue that approach is in the best interests of existing shareholders.

BHP (ASX: BHP), the world’s No. 1 mining company, and Newcrest Mining (ASX: NCM), Australia’s largest gold producer, were not pleased with SolGold’s decision last month to agree to an eight-month loan, with interest rates of 12%.

Newcrest, the copper junior’s second biggest investor with a 15.23% interest, even considered removing its representative from SolGold’s board.

While the surprise fundraising announced today seems in line with BHP and Newcrest’s expectations, neither will participate amid concerns over SolGold’s approach to financing.

“Newcrest will not be participating in the raising. We are disappointed with the approach that Solgold management has taken in respect to financing the company,” said a Newcrest spokesman told Australia’s Financial Review.

BHP and Newcrest’ combined 30% stake in SolGold will likely shrink through dilution in the fundraising, which the Ecuador-focused miner said created an opportunity to “broaden the company’s shareholder base through the introduction of new investors.”

Copper hot spot

Over the past two years, Ecuador has attracted a flurry of interest from big miners looking to increase their exposure to copper. The highly conductive metal is in demand for use in renewable energy and electric vehicles, but big, new deposits are rare.

Copper entered a bull market on Thursday, boosted by strong demand from post-lockdown China and hedge funds closing bearish bets.

It was trading just over 20% from its March low of $4,371 a tonne on Thursday afternoon, at $5,530 a tonne. Such an increase fits the normal definition of a bull market.

BHP and Australia’s largest gold producer, Newcrest, are SolGold’s top shareholders

Diversified majors particularly favour large-scale, long-life projects, such as the one SolGold promises. BHP upped its stake in the company last year to 15.31% from 14.7%, becoming the miner’s top shareholder.

Ecuador aims to move from an explorer hotspot to a mining exporter. Its oil-led economy has been hit hard over the past few months.

The nation is currently reeling from both the spread of covid-19 and the collapse of global oil prices.

Prior to recent developments, the South American country expected to attract $3.7 billion in mining investments between 2019 and 2020, up significantly from the $270 million it received in 2018.