Two years after it first signalled its interest in copper and gold explorer SolGold (SOLG), commodities giant BHP Billiton (BLT) is back. This week, the Anglo-Australian group acquired a 6.1 per cent stake in the Ecuador-based company, buying out Guyana Goldfields’ interest in the company for £27.4m, or a 20 per cent premium to the London shares’ 20-day volume weighted average price.
BHP described SolGold’s Cascabel porphyry copper-gold project as “high quality” and in a “highly prospective location”. Since it tried to buy a 10 per cent stake in SolGold in 2016, BHP has itself established a base in Ecuador, and now bids against the explorer for new ground around the Cascabel asset.
Though SolGold regularly highlights a “multiplicity of targets” in its Ecuadorian exploration portfolio, a BHP spokesman emphasised the stake was focused on the Cascabel project. A request to earn up to 70 per cent in the subsidiary that holds the Cascabel licence was the reason why SolGold rejected BHP’s 2016 bid, even though it came at a premium to an offer from Australia-based Newcrest Mining.
Since then, Newcrest has continued to back SolGold’s exploration efforts, and currently owns 14.5 per cent of the shares. However, it lost part of its anti-dilution rights at the end of June, meaning SolGold is now entitled to reduce Newcrest’s stake to 10 per cent if it wanted to raise fresh equity.
Unfulfilled hopes of a takeover bid from Newcrest might explain why SolGold shares have drifted in recent months, despite further encouraging exploration results. But cash is also trickling down, from $90m mid-February to $50m last month. And, while SolGold has no production, sentiment towards both copper and gold have borne the brunt of a dollar strengthened by trade war concerns in recent months. At $2.70 per pound, copper is 18 per cent off its June high, during which time the yellow metal has shed around 8 per cent.
One person whose view on copper is decidedly more bullish is BHP chief executive Andrew Mackenzie, who used the SolGold transaction to describe the metal as “a key exploration focus…as we seek to replenish our resource base and grow this important business".
