Ecuador-focused miner SolGold (LON, TSX:SOLG) is bolstering up its defences against a takeover by launching a fundraising to raise a minimum of £16 million (about $20m) as top miners try to take advantage of the global economic downturn caused by the coronavirus pandemic.
The company has placed almost 75 million shares, at 21.5 pence apiece, until tomorrow, June 5 at 7:00 am GMT.
The move follows a royalty financing agreement with streaming company Franco Nevada (TSX, NYSE: FNV), inked in May. The deal guaranteed SolGold $100 million and gives it an option to upscale to $150 million. That’s how much the miner needs for a preliminary feasibility study for its Alpala copper-gold project, part of the miner’s Cascabel asset, located 180 km north of the capital Quito.
The company, a prime takeover target due to the potential of its undeveloped project in the South American country, said it expects to deliver the report in the fall this year.
SolGold will also use the funds to produce a definitive feasibility study on the asset to be realesed in the second quarter of 2021.
The Australian miner has been in talks with multiple investors since March, hoping to secure $2.85 billion to develop Alpala. According to the latest resource update, the asset contains 2.66 billion tonnes of copper at 0.53% copper-equivalent in the measured and indicated categories, and 544 million tonnes at 0.31% copper-equivalent in the inferred category.
Despite small setbacks du to disruptions related to the coronavirus pandemic, SolGold aims to star production in 2025.
Chief executive Nick Mather has repeatedly said his team is building a company “as important to the development of Ecuador as BHP was to Australia.”
“The proposed $20 million capital raising will see, with completion of the FNV royalty, SolGold fully funded through its PFS and to the delivery of a definitive feasibility study and all related permits, Mather said.
“This funding will also cover the costs of SolGold’s important regional exploration programmes and the ancillary costs of generating the $2.7 billion capital development funding package for the Alpala Project,” he added.
Attracting top miners
Over 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.
Copper entered a bull market on Thursday, boosted by strong demand from post-lockdown China and hedge funds closing bearish bets.
It was trading just over 20% from its March low of $4,371 a tonne on Thursday afternoon, at $5,530 a tonne. Such an increase meets the normal definition of a bull market.
BHP and Australia’s largest gold producer, Newcrest, are SolGold’s top shareholders
Diversified majors particularly favour large-scale, long-life projects, such as the one SolGold promises. BHP upped its stake in the company last year to 15.31% from 14.7%, becoming the miner’s top shareholder.
Australia’s largest gold producer, Newcrest Mining (ASX: NCM), is the second biggest investor in SolGold, with a 15.23% interest.
Ecuador aims 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 currently 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 $3.7 billion in mining investments between 2019 and 2020, up significantly from the $270 million it received in 2018.