Dual-listed SolGold has secured a royalty financing package for its flagship Alpala project with Toronto-headquartered royalty and streamlining company Franco Nevada, paving the way for the “rapid advancement” of the copper/gold project, in Ecuador.
The package consists of a $100-million net smelter returns (NSR) financing agreement, with an option to upsize the financing to $150-million at SolGold’s election.
Concurrently with the NSR financing agreement, SolGold and Franco-Nevada have entered into a $15-million secured bridge loan agreement, which is immediately available.
"SolGold 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.
“In SolGold's opinion, a 1% to 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,” said SolGold executive general manager of corporate finance, Ingo Hofmaier.
Franco-Nevada joins other majors with exposure to the Alpala project, including BHP and Newcrest, which Hofmaier said underscored the confidence that large organisations have in the quality of the project and Ecuador as a sovereign mining destination.
SolGold is the first financing of Franco-Nevada – the world’s largest royalty and streamlining company by market capitalisaiton – in Ecuador.
"Alpala is an exceptional orebody and one of the most attractive block cave development projects globally. We would welcome the opportunity to provide a gold stream financing as part of the construction financing of the project,” said Franco-Nevada CEO Paul Brink.
SolGold would use the proceeds of the NSR financing to fund the costs to complete the feasibility study and any surplus would be used for its share of the development of Alpala pursuant to agreements with the minority shareholder of ENSA, TSX-V-listed Cornerstone Capital Resources.
Cornerstone's share to completion of the feasibility study of Alpala is debt funded by SolGold and post-feasibility study, Cornerstone must contribute to all expenses and capital costs.
If Cornerstone's equity stake in ENSA is diluted below 10%, its equity stake will be converted to a 0.5% NSR, which SolGold can then acquire for $3.5-million at any time. Currently, Cornerstone's indebtedness to SolGold is $30.5-million. The latest budget indicates that this liability is expected to reach $52-million in the period to completion of the feasibility study.
"SolGold is immensely excited to further progress Alpala in the run-up to final feasibility and a development decision, and for Franco-Nevada's endorsement of the Alpala project. The $100-million of funding generated, plus the option to upscale the royalty by $50-million for an additional 0.5% NSR at SolGold's option, will see the rapid advancement of the Alpala project," said CEO Nicholas Mather.
Meanwhile, Franco-Nevada has agreed to contribute $150 000 for three years towards environmental and social initiatives in Ecuador in the direct zone of influence of the Alpala project via joint projects.
SolGold's field operations are currently on care and maintenance owing to Covid-19 physical distance rules and respect for communities in the area in an effort to reduce the potential transmission of the virus.
The Ecuadorian mining authorities have requested the company's plans for re-activation of operations, pending the full agreement from local county authorities.
Franco-Nevada and SolGold have each received all required corporate approvals for entering into the transactions.