SolGold scores US$150M funding deal from Franco-Nevada

Ecuador-focused SolGold (TSX: SOLG; LSE: SOLG) has secured up to US$150 million from streaming company Franco–Nevada (TSX: FNV; NYSE: FNV), which it will use to develop its Alpala copper-gold project.

The Australian exploration company said the net smelter returns (NSR) agreement is for an initial US$100 million. Franco-Nevada, which provides companies with upfront cash in exchange for future production, will receive a perpetual 1% net smelter return (NSR) royalty interest in return.

The total amount could increase by US$50 million, which would also increase the NSR for Franco Nevada to 1.5%, SolGold said.

Franco-Nevada has also provided a $15 million secured bridge loan agreement of immediately available funds.

SolGold said it would spend the coming months developing a feasibility study on Alpala, the largest deposit found at its Cascabel copper-gold asset, located 180 km north of Ecuador’s capital, Quito.

The company, which says its Ecuadorian project is one of the largest copper-gold porphyry systems ever discovered, expects to start production in 2025.

“The royalty financing of up to $150 million should be adequate to get SolGold through its feasibility study, permitting and into project construction financing,” Matthew O’Keefe, a mining analyst at Cantor Fitzgerald, said in a research note. “The bridge-loan addresses SOLG’s short-term capital needs until Franco’s due diligence is complete and the royalty deal closes (~4 months).”

“The 2019 PEA on Alpala sees a large, long-life operation producing 456 million lb. copper and 438,000 oz. gold annually with an NPV (8%) of $4.3 billion and an IRR of 25.9%,” O’Keefe added. “A PFS is expected in H2/2020 and a DFS in H1/2021. Additional development financing is expected by mid-2020. Ongoing exploration work should continue to yield new discoveries.”

In the past two years, Ecuador has attracted a flurry of interest from big miners looking to increase their exposure to copper. The highly conductive metal is in demand for use in renewable energy and electric vehicles, but big, new deposits are rare.

Diversified majors particularly favour large-scale, long-life projects, such as the one SolGold promises. BHP (NYSE: BHP; LSE: BHP), for one, upped its stake in the company last year to 15.31% from 14.7%, becoming the exploration company’s top shareholder.

Australia’s largest gold producer, Newcrest Mining (ASX: NCM), is the second-largest investor in SolGold, with a 15.23% interest.

Ecuador has been trying to move from an explorer hotspot to a mining exporter. Its oil-led economy has been hit hard over the past few months.

The nation is reeling from both the spread of COVID-19 and the collapse of global oil prices.

Prior to recent developments, the South American country expected to attract US$3.7 billion in mining investments between 2019 and 2020, up significantly from the US$270 million it received in 2018.

At press time in Toronto, SolGold’s shares were trading at 49¢ within a 52-week trading range of 19¢ and 70¢. The company has about 1.9 billion common shares outstanding for a market cap of about $942 million.

Cantor Fitzgerald’s O’Keefe has a target price of $1.00 per share.

— This article first appeared in our sister publication, MINING.com.