SolGold inks contract for Ecuador’s biggest project

SolGold (LSE, TSX: SOLG) signed a decades-long deal with the Ecuadorian government for the country’s largest-ever mining project, the US$3.2 billion Cascabel copper-gold mine. The shares gained a penny to 17¢ each in Toronto. 

The contract, first agreed in April, guarantees the government at least half of the project’s cumulative benefits and grants SolGold the rights to mine for 33 years, with provisions for investor autonomy and protection, the company said. The agreement establishes the legal and financial terms to develop the project about 200 km by road north of Quito, the capital. 

SolGold is to make a total of US$75 million royalty payments, including US$25 million when construction is to start next year. The royalty on net smelter revenues will follow a variable percentage rate from 3% to 8%, depending on the type of mineral and its price.

Once the government approves the new Investment Protection Agreement, the company expects a corporate income tax rate of 20% during the Cascabel mine’s life. 

“The government of Ecuador supports the Cascabel Project, which will bring substantial long-term benefits to our country’s economy and local communities through significant investment, job creation, and sustainable growth,” Diego Ocampo, vice-minister of mines, said in the statement.

Multi-generation asset

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 granted to SoldGold in May.

Brisbane-based SolGold began its exploration at Cascabel in 2012, which led to the significant discovery at Alpala in early 2014. It identified the Tandayama-Ameríca deposit in subsequent drilling programs.

The company released in February a new pre-feasibility study (PFS) for Cascabel that slashed upfront costs by 44%. Pre-production capital used for initial mine development, first process plant module and infrastructure is now estimated at US$1.55 billion compared with US$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 fell 37% over the past year. The miner has had to cut spending to stay afloat, prompting a strategic review of its assets.

SolGold’s shares have traded in a 52-week range of 10¢ to 32¢. Its market value is $510.2 million.