Shares in Australian gold and copper miner SolGold (SOLG) soared over 12% to 22p after mining giant BHP (BHP) agreed a deal to invest an extra $22m in the firm.
BHP will become the largest shareholder by a small margin after upping its stake from 11% to approximately 14.7% of SolGold's diluted share capital after agreeing to buy 77m shares at 22.15 each, a 13% premium to Friday’s closing price.
The £360m market cap miner said it views BHP’s support as an ‘endorsement for the SolGold strategy to become a copper gold producing major.’
As part of the deal, BHP will also receive 1:4 share options, meaning it can buy another 19.25m shares at a fixed price sometime in the future.
In this case, BHP can snap up the shares at 37p as long as the mining behemoth does so within five years.
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SolGold’s shares were hovering around the 37p mark for most of the first half of this year, before tailing away due to macroeconomic difficulties in Ecuador, where its main project is based, lower copper prices and the need for more money to fund exploration and feasibility studies.
In a note on SolGold published last week, Liberum analyst Ben Davis said interest in copper growth is ‘undiminishing’ from the mining giants, as they look to acquire stakes in junior mining companies with good assets and/or potential in copper.
Davis said, ‘There are very few options for the majors to invest in copper in assets that are of sufficient size, in a reasonable mining jurisdiction and in a standalone company.
‘The strange thing about this commodity cycle is that the majors continue to generate enormous cash flow from the most universally undesired commodity (iron ore), whilst simultaneously having limited growth options in their most desired commodity (copper).
‘Despite this, shares in advanced copper exploration companies such as SolGold remain under pressure.
‘BHP last invested in Solgold at 45p per share, a 229% premium to the current share price last October, and there have only been upgrades to the long term value proposition in our view.’
