Ecuador-SolGold Mining Project is A Game-Changer in the Mining Industry.
Overview
After over 10 years of exploration and 7 months of negotiations, the Ecuadorian government have concluded negotiations with SolGold to launch a nearly $5 billion mining project which is projected to be one of the top mines in the world:
In 2019, Carlos Pérez, Ecuador’s minister of energy stated that “SolGold’s Cascabel Project could become the largest underground silver mine, 3rd largest gold and 6th largest copper in the world.”
SolGold and the Cascabel Project
SolGold is an Australian-based exploration company that aims to be a world leader in copper and gold mining. They were founded in 2005 and have a market capitalisation of over £500 million. As of 2022, they have 17 exploration projects from countries Ecuador, Australia, and the Solomon Islands where they search for gold and copper – a key metal that supports the global energy transition.
However, SolGold’s flagship asset is its Cascabel Project. This will be a copper concentrate mine in the Imbabura province, Northern Ecuador which is intended to be the world’s first large-scale carbon-neutral copper mine.
Key Project Highlights:
Construction is to start in 2025 with operations starting mid-2029.
After-tax NPV of 2.9 billion USD
Payback period of 4.7 years
Mineral reserves are estimated to be at 3.3 million metric tons of copper, 9.4 million ounces of gold and 30 million ounces of silver.
China
Its location lies along the prolific Andean Copper Belt which is a 2500-kilometre arc that stretched across northwestern South America and through countries like Colombia, Chile, and Ecuador. It holds massive deposits of copper and silver which, according to an article in 2021, is speculated that miners could be extracting the metals for hundreds of years and the work would still not be finished. Therefore, this geographical area holds a very important and strategic location for mining companies to meet the increasing demand for copper to transition to a Net Zero Future.
The Cascabel Project represents 1 of 4 major mining projects that should also begin construction in Ecuador by 2025 but more importantly, it represents the 2nd biggest copper discovery over the last 10 years:
Source: S&P Global Intelligence
"The agreement with SolGold will position Ecuador as a key producer and copper exporter" - Minister Fernando Santos
Why is this Project Significant?
Despite having abundant mineral reserves, Ecuador has lagged behind their peers such as Peru and Chile who have already developed many large-scale mines. According to the United Nations in 2012, Ecuador received less foreign direct investment per person than any other country in Latin America. Furthermore, Ecuador’s largest indigenous organisation, CONAIE, have recently put up heavy opposition against the construction of 3 mining projects in the country which is said to be holding up $1 billion worth of investments.
Therefore, the conclusion of negotiation for the Cascabel Project not only represents a milestone for SolGold but also a massive development for Ecuador’s economy:
The mine is expected to generate $35 billion in exports and $8 billion in royalties and taxes during the 26-year operating life of the mine. To put in perspective, total mining exports were at $2.76 billion in 2022.
An advance royalty payment of $75 million will be paid by SolGold to the government in addition to an ongoing variable royalty rate from 3% to 8%.
60% of the revenue the government makes from this project will be allocated to productive and sustainable projects in Ecuador.
Copper Market Outlook
For the past 2 decades, a fundamental driver of copper growth has been the urbanisation, digitisation, and industrialisation of developing economies. But as the world
accelerates towards a clean energy transition, the demand for copper will rapidly increase due to the need for renewable energy generation, distribution, and storage.
However, Robin Griffen, Wood Mackenzie’s Vice President of Metals and Mining stated that “We’re already forecasting major deficits in copper to 2030”. Recently there has been political unrest in Peru, a nation that accounts for 10% of the global copper supply, which has caused companies like Glencore to suspend their copper mines in the country. Furthermore, Chile, a nation accounting for 27% of global supply has faced year-on-year production declines; Goldman Sachs predicted that the country will produce less copper from 2023 to 2025. Due to being an extremely capital-intensive industry with high barriers to entry, the supply of copper will most likely not meet demand over the coming decade.
This overall reinforces the importance of projects such as Cascabel and the value that it will be able to provide for the future.
Conclusion
With several prominent exploration projects and a promising world-class mine, SolGold is well-positioned to capitalise on the global energy transition. However, there are still many risks for SolGold and Ecuador which include political unrest or anti-mining opposition that can delay the construction of this crucial mine. Nevertheless, it is a big milestone for the country that has the potential to turn them into a major player in the copper industry.
Written by: Matt Delani, Market Analyst at Sora Capital A.C.
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