Whilst new discoveries will be in high demand once the deficit sets in for many base metals, it is not getting easier nor cheaper to unlock the value of discoveries: with mineralization systems more complex or further from surface requiring more intensive exploration programs. The financing strategies to make these discoveries possible are therefore important to analyse.
Kura revised private placement financings carried out by base metals companies in North America, Latin America and Australia since 2015 to today and Table 1 features those 36 companies registered that managed to raise over $35 million capital.
The list includes specialised companies, (such as Cobalt 27 in cobalt, RNC Minerals in nickel or Minsur focussed on Peru) larger producing companies (such as First Quantum, MMG or Hudbay, amongst others) and finally companies under the wing of larger groups, (like NGEx, part of Lundin). Outside of those groups it is clear the capacity for copper-focussed exploration companies that were able to raise capital to develop greenfield copper projects has reduced.
An increased financing trend has been majors investing in juniors in order to indirectly finance a specific project. The junior company develops the project in the early stages and the major has equity in the junior with the aim of having a competitive advantage at the time of consolidating the purchase of the asset(s) if the project reaches maturity in line with the major’s strategy (and at that point make an acquisition). Juniors often try to negotiate the strategic investments to not bind the major to be the definite buyer in the end. Strategic investments done well can work to create healthy market tension for M&A.
In 2017, CIBC World Markets published a report highlighting this activity in the precious metals sector, with companies such as Agnico Eagle, Goldcorp, Newmont and Kinross heavily investing in juniors as a new development strategy. In South America recently, Newcrest has been active in investing in juniors most notably in Colombia and Ecuador and BHP hasn’t been far behind. Gold Field’s recent C$8 million strategic investment into Chakana Copper via private placement is encouraging to peers in the region. The investment into Chakana to further explore its Soledad Cu-Au exploration, draws light on the openness of precious metal majors to invest in base metal projects that have a precious metals element in this current market; adding copper to the portfolio brings in a ‘green’ metal with a large market for majors to work with.
Exploration companies have faced a long dormant period, where attracting risk capital has been possible for few companies. If strategic investments will be the leading catalysts in advancing future discoveries in South America, it is wise to regard companies who have done it well. One of those, was an exception on our list, copper-foccused SolGold and its Cascabel (Alpala) project, which we analyse below.
Kura Case Study:
SolGold – Cascabel Cu-Au Project
We present a timeline of main events in the development in what has been probably one of the most relevant greenfield porphyry Cu-Au projects in South America in recent years. The Cascabel (Alpala) project has its beginnings in 2012 when SolGold took control of the prospect from Cornerstone when it was in the early-exploration stage.
SolGold signs the option agreement with Cornerstone for the Cascabel Project. Earn-in to acquire 65% for US$7.8 million exploration spend and 85% when project reaches bankable factibility or US$20 million worth of work carried out.
Solgold starts exploration work at surface.
Solgold starts first drill campaign, with four holes each under 750m.
SolGold completes first 17-hole drill campaign, totalling 23,670m with an average depth of 1,245m. Some intercepts included firstname.lastname@example.org% Cu; email@example.com% Cu; firstname.lastname@example.org% Cu; email@example.com%Cu. The second drill campaign begins with the aim of producing first resource estimate and to evaluate other targets to extend mineralization.
SolGold carries out a Private Placement with Newcrest for US$40 million.
SolGold publishes first NI-43-101 report which does not included resource estimate.
SolGold, lists on the TSX and in the same year completes Private Placement for C$75.6 M.
SolGold completes second drill campaign, totalling additional 38,855m. Third drill campaign starts.
SolGold publishes first resource estimate of 1.08 Bt @ 0.68 %CuEq (40% are indicated and 60% inferred) with a 0.3%CuEq cut-off. This estimate was based on 53,616m of drilling.
SolGold carries out Private Placement with BHP for US$59.2M and finishes the third drill campaign which totals additional 71,050 m.
SolGold publishes first project PEA, with a NPV of up to US$4.5B and IRR rate of 26.5% for a block caving plan of 2.4Bton @ 0.54%CuEq. The feasibility study is expected to be completed by the end of 2020.
Summarizing, two stages can be identified in the last 7 years for the company:
De-risking Stage: In the first four years that SolGold had Cascabel, 2012-2016, it managed to complete close to 23,000m drilling, to show the continued mineralization and lower the project risk by proving the existence of a mineralized body.
Value Creation Stage: In the following three years (2016-2019), the company not only carried out 120,000m of additional drilling, but also completed resource estimates, economic evaluations and attracted almost US$157 million of institutional capital (supposing 70% of the amount raised was for the project, its US$110 million).
By Francisco Acuña and Laura Brangwin