SolGold (SOLG) will raise $100m (£81m) by selling a 1 per cent royalty on its Alpala copper and gold project in Ecuador. The deal with Franco-Nevada, which pushed its shares up 15 per cent to 30p, will help fund the feasibility study on the mine. SolGold has the option of raising the royalty to 1.5 per cent to bring in another $50m, and can buy back half the royalty at the same price it paid within six years.
SolGold has also borrowed $15m from the royalty company to tide it over while the closure of the deal is blocked by Covid-19 restrictions. It expects to publish a prefeasibility study for Alpala in the September quarter. Overall, the feasibility work (including the full feasibility study) will cost around $150m.
The company has returned to the takeover watchlist as the mining industry looks for new copper projects. BHP (BHP) and Newcrest Mining (Au:NCM) already own stakes in the company. The Financial Times reported last month SolGold had brought in Citi to work on its takeover defence, while managing director Nick Mather has said repeatedly he intends to bring Alpala to production.
The company slumped to 13p in the March sell-off, its lowest point in four years, increasing its appeal for potential buyers. Liberum analyst Ben Davis – whose target price for SolGold is based on what BHP would be willing to pay – said the royalty sale “removes both near-term liquidity concerns and the risk of equity dilution”.
