SolGold’s Nick Mather faces shareholder anger at AGM

Nicholas Mather, CEO of SolGold, accepts The Northern Miner's "Mining Person of the Year" award for 2018 on May 21, 2019, at The Northern Miner's Canadian Mining Symposium held at Canada House in London, United Kingdom. Photo Credit: Martina Lang.

Two years ago The Northern Miner named Nick Mather, president and CEO of Australian junior SolGold (TSX: SOLG; LSE: SOLG), as its Mining Man of the Year for his role as the driving force behind the world-class Alpala gold-copper deposit at its Cascabel project in Imbabura province in northern Ecuador. The company has attracted major companies as shareholders, including BHP (NYSE: BHP; LSE: BHP) with a 13.57% stake and Newcrest Mining (TSX: NCM; AS: NCM) with 13.49%.

But delays at the project this year and Mather’s decision in May to raise money through a US$150 million royalty and streaming agreement with Franco-Nevada (TSX: FNV; NYSE: FNV) elicited criticism from some of the company’s shareholders.

That displeasure was voiced at SolGold’s annual general meeting on Dec. 17, when 44.75% of the company’s shareholders voted against Mather’s reappointment to the board of directors.

Mather, who according to the company’s most recent corporate presentation owns about 4.37% of SolGold, could not be reached for comment.

Alpala, part of the Cascabel copper-gold project, 180 km north of Ecuador’s capital, Quito. Credit: SolGold

In mid-July, Cornerstone Capital Resources (TSXV: CGP), said it wanted to replace SolGold’s entire board of directors. Cornerstone owns 7.54% of SolGold and has a 15% interest in ENSA, the Ecuadorian company that holds 100% of the Cascabel concession. SolGold owns the remaining 85%.

“As one of the largest shareholders of SolGold, it is obvious to Cornerstone that the current SolGold board is incapable of managing the affairs of SolGold for the benefit of all shareholders in a prudent and transparent manner,” Cornerstone’s chairman, Greg Chamandy, outlined in a press release. “Additionally, it is our view that the proposed Franco-Nevada royalty financing will significantly destroy shareholder value for all SolGold shareholders.”

Calls for the board’s replacement came shortly after Cornerstone rejected SolGold’s second hostile takeover bid. (SolGold launched its first disclosed all-share bid for Cornerstone in March 2019 and a second on June 30 2020. The second bid valued Cornerstone at about $140 million (US$102 million).)

Under SolGold’s financing package with Franco-Nevada revealed on May 11, the first US$100 million in funding gives Franco-Nevada a perpetual 1% net smelter return royalty (NSR). The agreement can be upsized by US$50 million to a 1.5% NSR within eight months of the agreement. In addition, SolGold and Franco-Nevada signed a US$15 million secured bridge loan at a 12% interest rate for a four-month period with an option to extend the maturity for another four months.

Ingo Hofmaier, SolGold’s executive general manager of corporate finance, noted in a press release announcing the royalty deal that the company had “received and considered a broad range of funding options and the decision to proceed with Franco-Nevada is based on various factors, including the size of investment, the permanent nature of this financing, Franco-Nevada’s experience and understanding of Latin America and the competitive cost of capital.”

Hofmaier also noted that in SolGold’s opinion, a 1-1.5% NSR “will not constrain the debt capacity of the project; on the contrary, we believe this financing increases the confidence in SolGold’s ability to fund the development, further affirming the overall quality of the Alpala deposit.”

SolGold said the funds would be used to complete a feasibility study and any surplus would be used for SolGold’s share of the development of Alpala, pursuant to agreements with Cornerstone Capital.

“The big companies don’t like royalties because they take value away at a project level,” said one mining analyst who covers the company who requested anonymity. “But SolGold’s argument is they’re trying to maximize SolGold’s shareholder value and it’s very dilutive to give equity. The royalty deal preserves the equity component for equity holders and they haven’t realized the full value yet for the project … and Franco-Nevada are going to be partners and that’s not necessarily a bad outcome.”

“I’m never a huge fan of royalties but sometimes you don’t have a choice,” he continued. “Cascabel is a huge project and if their equity price had been higher or someone would offer them a higher price they would have taken it.”

What’s more, SolGold has made big strides on the exploration front in Ecuador in the last twelve months, the analyst said. In addition to the Alpala deposit at the Cascabel project, SolGold is exploring and assessing 75 regional concessions across 14 provinces in the South American country. Recently the company has released solid assays for its Cacharposa copper-gold porphyry discovery at its Porvenir project in southern Ecuador and at the Tandayaa-America porphyry copper-gold target on the Cascabel concessions.

“They’re doing great, they’re finding new porphyries and that’s part of Nick’s vision and the team he’s assembled and that value hasn’t been realized yet and you can see where he’s going with it and that’s not part of any royalty agreement. An equity raise would have diluted that stuff as well.”

For its part, Franco-Nevada said it was delighted to participate in the Cascabel project, and president and CEO Paul Brink described Alpala as “an exceptional orebody and one of the most attractive block cave development projects globally.”

SolGold updated the resource estimate for Alpala in April, outlining measured and indicated resources of 2.66 billion tonnes at a copper-equivalent grade of 0.53% and another 544 million inferred tonnes grading 0.31% copper-equivalent. The deposit remains open at depth to the north and northwest.

It certainly hasn’t been clear sailing, however. On Dec. 1, SolGold announced it would not be able to complete a prefeasibility study as planned in 2020. Apart from delays caused by the global pandemic, the company explained that new geotechnical information has necessitated a redesign of certain underground infrastructure to a location outside of the cave footprint and also said it was introducing changes to the mine design and development and mining production schedules.

Employees at work at the Alpala project in Ecuador. Credit: Solgold.

As part of its optimization work, the team is also investigating improvements to metallurgy; seismicity studies to refine design of the tailings dam and processing plant sites; and sustainability improvements, including the option for hydroelectric power supply.

The deposit, 180 km north of Ecuador’s capital of Quito, lies in the northern section of the Andean copper belt, known for producing nearly half of the world’s copper.

According to the company, Alpala has produced some of the greatest drill hole intercepts in porphyry copper-gold exploration history, such as hole 12, which returned 1,560 metres grading 0.59% copper and 0.54 gram gold per tonne, including 1,044 metres grading 0.74% copper and 0.54 gram gold per tonne.

Once developed, Alpala will produce an average of 150,000 tonnes of copper, 245,000 oz. gold and 913,000 oz. silver in concentrate per year over 55 years. During the first 25 years of mining, average annual production is forecast to be 207,000 tonnes of copper, 438,000 ounces of gold and 1.4 million oz. of silver.

As for the AGM, “it was really just Nick the vote was against,” the analyst said, “and there weren’t enough votes to get him out. Nick’s a successful and self-assured guy and has some great successes and some people don’t like him for that.”

Over the last year in Toronto, SolGold’s shares have traded in a range of 19¢ and 72¢ per share and at presstime in Toronto were changing hands for 66¢.

The junior has about 2.1 billion common shares outstanding for a market cap of about $1.4 billion.


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