SolGold reaches deal with Ecuador on Cascabel development, financing

SolGold (LSE: SOLG; TSX: SOLG) said on Friday it had reached an agreement with the Ecuadorian government covering “certain financial terms and conditions”, along with a 33-year renewable permit to develop a copper, gold and silver mine at its Cascabel concession.

While the announcement clears up doubts about the project’s future, which SolGold last year considered selling, it did not include any specifics related to the terms and conditions of the deal.

The news of the deal comes almost one month after SolGold pledged to invest US$3.2 billion in Cascabel and related activities in the coming years. It marked the largest mining investment in Ecuador’s history, according to SolGold, and it is separate from an already committed US$311 million for the project, included in the current investment protection agreement (IPA) for Cascabel.

A recently updated feasibility study (PFS) for Cascabel showed the project could be developed for almost US$1 billion less than originally planned. 

Pre-production capital used for initial mine development, first process plant module and infrastructure is now estimated at US$1.5 billion, compared to US$2.7 billion from the PFS issued in April 2022.

The 2024 study incorporated a phased development strategy, which SolGold says can substantially reduce the initial capital expenditure and optimize project development by gradually scaling up operations. Post-production costs, however, will be higher at US$2.6 billion.

Cascabel will begin with a ramp-up period of about two years, following which the initial block cave will achieve a production rate of 12 million tonnes per year, extracting high-grade ore averaging around 1.45% copper-equivalent for the first 10 years of production.

Mining operations will then double to a production rate of 24 million tonnes per year in the sixth year. The Phase 2 mill expansion is expected to be entirely funded from project cash flow, SolGold has said.

The company believes that Cascabel has the potential to become one of the 20 largest copper-gold mines in South America. Mine construction is set to start in 2025.

It’s estimated that the global copper industry needs to spend more than $100 billion to build mines able to close what could be an annual supply deficit of 4.7 million tonnes by 2030.

Shares in SolGold rose 2.9% on Friday to 18¢ apiece, valuing the company at $525.1 million. Its shares traded in a 52-week range of 10¢ and 38¢.