SolGold signs US$750M gold stream deal for Ecuador project

Franco-Nevada (TSX: FNV NYSE: FNV) and Osisko Gold Royalties (TSX: OR, NYSE: OR) have agreed to provide US$750 million in funding to SolGold (TSX: SOLG; LSE: SOLG) for its Cascabel copper-gold project in Ecuador in exchange for a portion of the gold produced there.

The two Canadian firms will provide the cash in two phases. The first US$100 million will help SolGold conduct feasibility studies and secure the necessary permits to make a final investment decision on the project.

The remaining US$650 million will be allocated for the construction of the mine in the northern Ecuadorean province of Imbabura, SolGold said. 

Franco-Nevada and Osisko will contribute 70% and 30% of the overall investment, respectively. This will entitle them to a total of 20% of the extracted gold until SolGold’s production hits 750,000 oz. of the precious metal. 

After reaching this target, the percentage will decrease to 12% for the duration of the mine’s operation.

“We are pleased to once again partner with SolGold with this gold stream, which complements our existing 1% royalty acquired in 2020,” said Paul Brink, Franco-Nevada president and CEO. “Cascabel ranks amongst the best copper-gold development projects in the world and has the potential to add significant GEOs (gold equivalent ounces) to our growth pipeline.”

Osisko president and CEO, Jason Attew, said in a separate release that the deal will enhance Osisko’s growth profile at an attractive rate of return. It has an existing 0.6% net smelter return royalty on Cascabel, signed in 2022.

The news follows the SolGold’s commitment to invest US$3.2 billion in the project, which would be the largest mining investment in Ecuador’s history, and a loan of $10 million it obtained in May.

The Ecuadorian government inked a contract with SolGold in June for the development of Cascabel, which is expected to generate an investment of over US$4.2 billion during its 28 years of operation, according to figures from the country’s energy ministry.

Multi-generation asset

SolGold began its exploration at Cascabel in 2012, which led to the significant discovery at Alpala in early 2014, followed by the identification of the Tandayama-Ameríca deposit in subsequent drilling programs.

The company released in February a new prefeasibility study for Cascabel in which it managed to slash upfront costs. Preproduction capital used for initial mine development, first process plant module and infrastructure is now estimated at US$1.6 billion, compared to US$2.8 billion from the prefeasibility issued in April 2022.

According to SolGold, the size of the entire resource indicates the mine’s potential to be a multi-generational asset, with potential to become one of the 20 largest copper-gold mines in South America.

Investors have been skeptical of SolGold management’s ability to deliver the project to its potential. The company’s share price has halved over the past year, while the miner has had to cut spending to stay afloat, prompting a strategic review of its assets.

SolGold’s shares were up more than 23% in Toronto early morning, exchanging hands at 19¢ each. In London, the stock was up 19.4% by mid afternoon local time, trading at 10.51 pence each. This leaves the Ecuador-focused company with a market capitalization of £313.3 million (about US$407 million).

Big miners have invested in SolGold, including BHP (NYSE: BHP; LSE: BHP; ASX: BHP), Newmont (NYSE: NEM; TSX: NGT) through the acquisition of Newcrest Mining, and China’s Jiangxi Copper.