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SolGold goes after rival Cornerstone Capital Resources

Alpala, part of the Cascabel copper-gold project, 180 km north of Ecuador’s capital Quito. (Image courtesy of SolGold.)

SolGold (LON, TSX:SOLG) is trying to buy Canada’s Cornerstone Capital Resources (TSX-V: CGP), which owns a minority stake in the Alpala copper-gold project, part of the Ecuador-focused miner’s Cascabel asset.

The C$140 million ($102m) all-stock offer, SolGold’s second attempt to take over the Ontario-based junior, would see the bidder pay C$3.90 for each Cornerstone share. That is a 22% premium to its closing price of C$3.19 on Monday.

Chief executive Nick Mather said the deal would boost the junior’s footprint in copper-rich, but underdeveloped Ecuador, while simplifying the structure of the $2.85 billion project. He highlighted that the business combination would reduce the risk of dilution and future development costs for Cornerstone shareholders.

The Alpala copper-gold project, part of SolGold’s Cascabel asset, is owned by Ensa, an Ecuadorean company in which SolGold and Cornerstone have an 85% and 15% stake respectively

“We invite Cornerstone investors to be a part of SolGold’s ultimate vision to become a major copper-gold mining company in Ecuador where SolGold’s award-winning exploration teams have identified a number of priority copper gold targets with similar or better prospects than even Alpala,” Mather said in the statement.

This is not the first time SolGold has made an effort to take over Cornerstone. It previously tried in both 2017 and 2018, following up last year with the first disclosed attempt. The Canadian miner also rejected the offer, representing a premium of around 20%, saying it undervalued it.

At a market capitalisation of C$103.1 million ($75.35 million), Cornerstone has an 8% share in SolGold, making it its fourth biggest shareholder, and 15% owner in SolGold’s Cascabel project.

It also has other gold, silver and copper projects in Ecuador and Chile.

SolGold scored in May up to $150 million in funding from streaming company Franco-Nevada (TSX, NYSE: FNV) to develop its Alpala project, located 180 km north of the capital Quito.

Earlier this month, the Australian miner also launched fundraising to raise a minimum of £16 million (about $20m) to fully cover the costs of a preliminary feasibility study (PFS) for the copper-gold project.

Bigger than expected

A recent report showed Alpala is even bigger than expected, with 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.

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 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.”

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.

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 $270 million in 2018.

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.)