Solaris says $130M Zijin deal derailed by ‘counterproductive’ regulatory review

Solaris Resources (TSX: SLS; NYSE: SLSR) has cancelled a $130-million investment by China’s Zijin Mining Group after the financing got stuck for four months in the Canadian government’s national security review. The company said that its stock price has risen by 35% since the deal, priced at a 14% premium, was announced. As such, the deal “no longer adequately reflects market value.”

The investment, first announced in January, would have given Zijin a 15% stake in Solaris and its Warintza copper project in southeast Ecuador.

“That this transaction cannot be completed in a reasonable timeframe signals that Canada’s critical minerals policy is counterproductive in relation to foreign assets,” Solaris president and CEO Daniel Earle said in a news release.

The deal would have provided enough capital for Solaris to deliver a larger and more technically robust project, and been seen as a strong endorsement, according to BMO Capital Markets mining analyst Rene Cartier.

Foreign involvement in Canada’s natural resources sector has faced increased scrutiny, particularly after Russia’s invasion of Ukraine underscored the risks of relying on energy supplies from hostile nations. 

In November 2022, the Canadian government ordered three Chinese companies to divest their investments in Canadian lithium mining companies, citing national security concerns.

The U.S. and Canada have begun making joint investments in Canadian critical minerals companies to strengthen North American supply chains. At the same time, the U.S. has imposed new tariffs on Chinese critical minerals, citing unfair trade practices by China.

In a separate statement late Tuesday, Solaris said it had agreed to sell 7.15 million shares at $4.90 each for about $35 million, with an option to sell 1,072,500 more shares, to fund exploration and drilling at its Warintza project, with the offering expected to close on June 10, pending approvals.

Focus on catalysts

With Zijin out of the picture, Solaris is now nimbler to use its improved flexibility going forward to deliver on critical catalysts at Warintza, BMO’s Cartier said. The deal would have resulted in more equity dilution at a lower share price.

Solaris remains funded for its 2024 and 2025 baseline Warintza programs, the analyst says. The company has about $29 million in cash on its balance sheet and about $40 million available through the US$80 million in funding from Orion Mine Finance Management signed in December.

Solaris now has increased flexibility to pursue a longer-term strategy, the analyst said. “Based on our discussions, at this time we do not see Solaris pursuing an alternative, replacement form to the Zijin transaction in the near term,” Cartier said.

Key upcoming milestones for Solaris include an updated resource estimate, expected in early July. The 2024 program includes 30,000 metres of resource growth and infill drilling.

Warintza’s central deposit has 579 million indicated tonnes grading 0.47% copper, 0.03% molybdenum and 0.05 gram gold per tonne (0.59% copper equivalent), according to an April 2022 resource update. It has 887 million inferred tonnes grading 0.39% copper, 0.01% molybdenum and 0.04 gram gold (0.47% copper equivalent).

An Ecuadorian consultant will direct an environmental impact assessment, which is scheduled for delivery by the second half of this year. A prefeasibility study is expected by the second half of 2025.

Additionally, Solaris has started fieldwork on about 4,000 sq. km next to Warintza, which it has been given the option to buy from the Ecuadorian state-owned mining company.

Solaris shares fell 2.6% Tuesday to $5.29, which gives it a market capitalization of $800.9 million.