The pre-Christmas AGM of Australian miner SolGold [LON:SOLG] could end up a tense affair at the end of a tense year, and not only because of COVID.
The London-listed copper and gold miner that focuses on projects in Ecuador’s copper belt has been at loggerheads with its business partners and major shareholders over the Alpala project, its biggest and most prominent one, after it agreed a financing deal earlier this year that could end up affecting future shareholder profits.
At the AGM Thursday the company’s chief executive Nicholas Mather and several other directors are up for re-election but according to Bloomberg the vote may run into resistance from several large shareholders including Australia’s BHP and Newcrest Mining. SolGold has been largely funded by issuing shares to BHP and Newcrest over the last few years and both of the mining majors have expressed interest in continuing with this practice. However, in May SolGold snubbed the two and instead secured financing for the Alpala project from Franco Nevada, granting Franco Nevada a perpetual 1% royalty interest of net smelter returns.
Solgold is also at odds with Cornerstone Capital Resources, which owns 15% of the Alpala deposit and 8% of SolGold itself, over how the Alpala project should be developed. SolGold’s hostile takeover bid for Cornerstone Capital Resources failed in October, its third attempt in almost as many years.
SolGold AGM is crucial
That’s why one of the key votes on Thursday will be the Disapplication of Pre-Emption Rights of Existing Shareholders. This mouthful of a resolution basically asks the shareholders to give directors the right to allow the issue of new shares but without having to offer them first to existing shareholders. Unlike regular resolutions, this one requires a supportive vote from 75% of the shareholders and if passed could allow SolGold more scope for keeping its largest shareholders at bay.
For the moment the Alpala project is still in the early stages of development. A pre-feasibility study was due to be completed earlier in the current quarter but now looks more likely to happen in early 2021. The company argued this was caused by Covid-induced delays on the ground.
But to put it in perspective, because of its rich deposits, once Alpala is fully developed and operational it could be worth close to $4.5bn compared with SolGold’s market value of £750m. Mining at the site is not due to start before 2025 and between now and then the company will still need a large amount of financing.
SolGold has had a good year
Apart from the internal frictions the company has actually had a fairly good year. Its share price has risen 80% though the price lurched from one news announcement to the next, be it financing options or shareholder disapproval. At the same time the miner has completed an ambitious programme of test drilling in a number of its other projects, most of which showed fairly promising results.
While other commodities stagnated, copper prices steadily increased throughout this year as China managed to get its industrial production back on line from May onwards. The country consumes roughly a half of the global copper output and managed to increase its industrial production by 7% in November.
There is likely to be more short-term volatility in store for the Solgold share price, but in the long term the drill results so far indicated that SolGold could be a solid stock to hold for a much longer term.