Cop­per ex­plorer SolGold con­fi­dent of ‘world class’ pro­ject sta­tus

Yet com­pany misses an op­por­tu­nity with its shift to Lon­don’s Main Market

Shares - - CONTENTS -

The boss of cop­per miner SolGold (SOLG) has a mes­sage to ev­ery­one who has doubted the qual­ity of its as­sets and man­age­ment ca­pa­bil­i­ties: ‘Ig­nore us at your peril as we are com­ing.’

Chief ex­ec­u­tive Nick Mather says SolGold is build­ing an in­te­grated ex­plo­ration and devel­op­ment busi­ness ‘that will ri­val the world’s big­gest cop­per companies’.

That’s quite a claim from an ex­plo­ration busi­ness which doesn’t even have a re­source state­ment on its pro­ject. SolGold is cur­rently val­ued at £561m and is many years away from gen­er­at­ing rev­enue.

Over-con­fi­dence by a CEO is gen­er­ally a neg­a­tive sign in the world of in­vest­ing. How­ever, this boss in­sists he has ev­ery rea­son to be­lieve his com­pany is far su­pe­rior to most other min­ing ex­plo­ration firms on the stock market.

WHY IS THE CEO SO BULLISH? SolGold owns 85% of the Cas­ca­bel cop­per/gold por­phry pro­ject in Ecuador. Drill re­sults from the pro­ject have been phe­nom­e­nal in terms of qual­ity. Mather claims 10 of the 39 holes so far drilled con­tain ‘world class’ in­ter­sec­tions of con­tin­u­ous cop­per and gold min­er­al­i­sa­tion.

If you’re not fa­mil­iar with min­ing, a pro­ject with con­tin­u­ous min­er­al­i­sa­tion over 100 me­tres and 1% cop­per equiv­a­lent (cop­per plus gold val­ued added to­gether) or bet­ter is gen­er­ally con­sid­ered to be high qual­ity.

Six of SolGold’s drill holes found more than 1,000 me­tres of con­tin­u­ous cop­per min­er­al­i­sa­tion and its best cop­per equiv­a­lent grades are gen­er­ally be­tween 0.9% and 1.1%. You can now see why Cas­ca­bel is a very ex­cit­ing pro­ject. Mather is hope­ful the cur­rent area be­ing worked (called Al­pala) will be one of sev­eral high-qual­ity prospects across SolGold’s li­cence area.

More drilling is re­quired on Al­pala to check the dis­tri­bu­tion of the min­er­al­i­sa­tion in or­der to cre­ate a mine plan. One an­a­lyst sug­gested the full drill pro­gramme will take up to five years to com­plete. Mather says that is non­sense. ‘We un­der­stand Al­pala now. We will drill for an­other two years to ex­pand it.’

The CEO also re­jects sug­ges­tions that SolGold won’t be in pro­duc­tion for an­other 10 years. ‘That is a rate at which a pedes­trian ma­jor min­ing house de­liv­ers a pro­ject. We will be more ag­gres­sive due to the high grade core. The ear­li­est we could be in pro­duc­tion is four to five years’ time,’ re­veals Mather.

MISSED OP­POR­TU­NITY WITH LIST­ING CHANGE

SolGold last week (6 Oct) moved from AIM to Lon­don’s Main Market. Such a move is typ­i­cally made when a com­pany has reached a cer­tain stage of ma­tu­rity and wants to be seen as a more cred­i­ble busi­ness.

Companies also tend to grad­u­ate to the Main Market when they’ve reached the ap­pro­pri­ate market val­u­a­tion to qual­ify for in­clu­sion in one of the two main FTSE indices, be­ing the FTSE 250 or FTSE 100.

SolGold is al­most big enough for the FTSE 250 – ex­cept it won’t be en­ter­ing the in­dex any time soon. That’s some­thing which many in­vestors have failed to grasp, judg­ing by com­ments on in­ter­net bul­letin boards.

Tracker funds buy stocks which en­ter (or are about to en­ter) the FTSE 250 in or­der to have an ac­cu­rate rep­re­sen­ta­tion of the in­dex’s per­for­mance. The in­creased de­mand for the stock tends to push up the share price.

For ex­am­ple, Sir­ius Min­er­als

(SXX) saw its share price jump by 32% over six weeks after mov­ing from AIM to the Main Market ear­lier this year.

SolGold is dif­fer­ent. It doesn’t have the right type of list­ing to qual­ify for the FTSE 250 so tracker funds won’t au­to­mat­i­cally buy its stock and drive up the price. The miner ac­tu­ally saw its share price fall by 6% on its first day on the Main Market.

In or­der to qual­ify, SolGold will need to up­grade from a stan­dard to pre­mium list­ing. Matthey says it is some­thing that will be con­sid­ered in the fu­ture.

WHY SOME LARGE IN­VESTORS AREN’T IN­TER­ESTED…YET

The lack of a re­source state­ment and any form of fea­si­bil­ity study will act as a de­ter­rent for many in­sti­tu­tional in­vestors to be in­ter­ested in the stock, de­spite its large market val­u­a­tion.

At the mo­ment its big­gest share­hold­ers in­clude an in­vest­ment firm as­so­ci­ated with Mather, a min­ing in­vest­ment house which owns part of Cas­ca­bel and an Asian trad­ing firm. Two other large share­hold­ers are min­ers Newcrest and Guyana Gold­fields. Im­por­tantly, stresses Mather, nei­ther miner has a stake at the as­set level.

Com­ment­ing on Newcrest’s in­volve­ment, Mather says: ‘They pro­vide great tech­ni­cal sup­port and ad­vice on an in­for­mal ba­sis. But they don’t have any rights apart from the ones that come as a share­holder. They also can­not use their 14.5% stake in SolGold to block any takeover at­tempts.’

He claims SolGold is ‘get­ting a lot of in­ter­est from other ma­jors’ and from funds and banks. ‘Our strat­egy is to stay well cashed up.’ SolGold had A$89.3m (£49.9m) cash as of 30 June 2017.

FIGHT­ING OFF IN­TER­EST FROM MA­JORS

A year ago BHP Bil­li­ton (BLT) tried to de­rail Newcrest’s plans to in­vest in SolGold when it made a pro­posal to earn-in up to 70% of Cas­ca­bel.

‘BHP’s pro­posal was poorly struc­tured,’ claims Mather. ‘The prospec­tive size of the pro­ject, plus up­side that could be de­liv­ered, made it a no brainer to do the work our­selves and re­ject BHP.’

Sovereign risk is some­thing to watch when con­sid­er­ing an in­vest­ment in SolGold. Ecuador’s gov­ern­ment is still de­vel­op­ing new min­ing poli­cies. Ten years ago the county im­posed a mora­to­rium on min­ing and im­ple­mented a wind­fall tax, killing the in­dus­try.

Ecuador min­ing is now slowly com­ing back. ‘It’s going to be the new por­phyry cop­per prov­ince and SolGold will have the best of it,’ says Mather, mod­estly.

He hopes the much-awaited re­source state­ment due later this year on Cas­ca­bel will fi­nally give peo­ple some­thing to get their teeth into; and start look­ing at SolGold more se­ri­ously. (DC)

SOLGOLD IS ‘GET­TING A LOT OF IN­TER­EST FROM OTHER MA­JORS’

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.