Transformational deal as Newcrest puts a further $40m into SolGold at significant premium

VANCOUVER (miningweekly.com) – Ecuador-focused explorer SolGold has announced the placement of $41-million worth of new shares at 41p apiece – a significant premium to the company’s Aim-listed price on Friday morning – with Australian major Newcrest Mining investing another $40-million into the junior, and a further $1.23-million of shares being placed with Ecuadorian investors.

Newcrest first invested $23-million into SolGold at 16p a share on October 17, 2016, to fund further drilling on the Brisbane, Australia-based SolGold’s flagship Cascabel project, and supporting the company’s pan-Ecuadorian copper/gold porphyry exploration strategy.

“The arrangement with Newcrest, particularly in the area of technical liaison over the past six months since their original investment into SolGold, has been pleasingly smooth and the SolGold board and management are encouraged by this further endorsement of the technical merits and management's commitment to the Cascabel project, SolGold's exploration strategy across Ecuador and SolGold's interests generally,” CEO Nick Mather said in a statement.

SolGold’s shares rallied following the announcement, gaining 12.7% after noon, London time, to change hands at £0.40 a share.

London-based boutique investment dealer SP Angel analyst John Meyer pointed out in a note to clients that the first $23-million was a “punchy sum” to accelerate and continue SolGold’s exploration, and now that they have had further time to examine the property another $40-million is a much greater endorsement of the potential future value of this project.

According to him, Newcrest spent $44-million in total on exploration in fiscal 2016, and $38-million in 2015, demonstrating that Newcrest is significantly focussed on the Cascabel project in terms of its exploration expenditure.

Newcrest’s $40-million, plus the $23-million already spent, gives Newcrest 14.54% of SolGold, leaving plenty of stock for investors to trade with Newcrest and some new shareholders footing the bill for the accelerated drill programme.

SolGold has agreed an antidilutionary clause with Newcrest to allow Newcrest to participate in any new equity raising over the next 12 months to maintain their stake at 14.54%.

“Given that Newcrest are committing so much of their exploration budget to SolGold for its Cascabel project, we are impressed that the SolGold team have managed to keep Newcrest’s stake below that of a controlling shareholder.

“Furthermore, Newcrest must continue to support certain transactions including a change of control transaction in SolGold if recommended by the SolGold board and supported by an independent valuation. For example, if BHP or Rio Tinto decided to make an offer for SolGold then Newcrest must vote alongside the rest of the SolGold board in accepting or rejecting the potential bid,” Meyer explained.

Newcrest operates Cadia Valley (Australia), Telfer (Australia), Lihir (Papua New Guinea), Bonikro (Côte d'Ivoire) and Gosowing (Indonesia). It is developing the Wafi-Golpu project in Papua New Guinea, one of the highest-grade porphyry copper systems in South East Asia, as well as Namosi another copper/gold project, in Fiji.

“We cannot overstate the significance of this deal. Newcrest knows what it is doing when it comes to the future of large-scale deep-level ‘block cave’ mining and exploration of these types of projects. This second investment by Newcrest is transformational for SolGold and implies that there is very much more to define and to find within the Cascabel licence area in Ecuador,” Meyer said.

“Rarely have we seen so many investors effectively free-carried in this way.”