SolGold: a major copper play?

The market began to take notice of SolGold's potential when a mini-bidding war errupted between BHP and NewCrest Mining in 2016. Further endorsement has been provided by major miners’ collective push into neighbouring concessions, which has helped SolGold issue shares to raise £104m in the last year and a half – most of which came from NewCrest – to fund further exploration. Improving long-term sentiment toward copper and gold has also helped.

Yet the prevailing atmosphere is one of doubt. In the eight months since SolGold’s highest-priced fundraising – a £32.3m subscription at 41p a share by Newcrest – the share price has lost 44 per cent of its value. One investor worry is about dilution through multiple equity fund raisings. So long as exploration remains a chief focus, investors must make peace with a cash-guzzling business model.

Another concern is that SolGold's promise may prove too good to be true. Following the publication of a maiden resource estimate for Alpala, the project’s first target, respected geologist Richard Schodde disputed claims that Cascabel will be a "tier-one" mining asset. But it’s important not to lose sight of the bigger picture. Not only is the resource estimate based on a relatively small number of drill holes, and likely to expand ahead of economic feasibility studies later this year, but just under half of its 7.4m tonnes of copper equivalent are indicated rather than merely inferred. For a company this early in its drilling campaign, that’s an awesome start. And just this week, the company said it expects assay results from recent drilling to “add significantly” to the existing estimate.

The company is keen to point out its ‘multiplicity’ of exploration targets (77 Ecuador-based projects in all), to which it can direct its A$138m (£78m) of cash. But where does this leave shareholders like chief executive Nicholas Mather, whose direct and indirect holdings amount to more than 6 per cent?

We think it leaves them in a strong position, and their company firmly in the sights of potential bidders. Newcrest, which clearly likes the SolGold story, has anti-dilutionary rights which expire this year, and which could prompt a bid at a discount to its June investment. Failing that, Fortescue, BHP, and Hancock Prospecting – all of which are active in Ecuador – are on the record in stating their desire for big copper projects. Many predict supply shortfalls of the red metal, despite robust demand.