SolGold secures $750m gold stream funding for Ecuador project

SolGold (LON, TSE: SOLG) secured on Monday a $750 million investment from Canada’s Franco-Nevada (TSX, NYSE: FNV) and Osisko Gold Royalties (TSX, NYSE: OR), which have committed to provide funding for the company’s 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 $100 million will help SolGold conduct feasibility studies and secure the necessary permits to make a final investment decision on the project.

The remaining $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 entitled them to a total of 20% of the extracted gold until SolGold’s production hits 750,000 ounces of the precious metal. 

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

Osisko president and CEO, Jason Attew, said in a separate statement that the new stream investment complemented the company’s existing royalty on Cascabel. He noted the deal further enhanced Osisko’s growth profile at an attractive rate of return. 

The news follows the Australian company’s commitment to invest $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 $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 pre-feasibility study (PFS) for Cascabel in which it managed to slash upfront costs. Pre-production capital used for initial mine development, first process plant module and infrastructure is now estimated at $1.55 billion, compared to $2.75 billion from the PFS issued in April 2022.

According to SolGold, the size of the entire resource indicates the mine’s potential to be a multi-generational asset, potentially 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 C$0.19 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 $407m).

Big miners have invested in SolGold, including BHP (ASX: BHP), Newmont (NYSE: NEM) through the acquisition of Newcrest and China's Jiangxi Copper.