All of a sudden, big number deals in the junior mining sector are beginning to pop up. It’s been a long hiatus. With one or two exceptions in the gold sector, there’s been no corporate activity of any real significance at the junior level for nearly seven years.
Now, Solgold (LON:SOLG) is on the block, as major miners and investment specialists have bid up value of its Cascabel copper property in Ecuador to beyond £200 mln.
And Eurasia Mining (LON:EUA) has just signed a US$176 mln turnkey development contract for Monchetundra, an asset that for regulatory reasons its unable to say much about at all.
The two are markedly different. The first is a pure-play exploration project found and worked up by experienced geologists with a track record of finding big copper projects worldwide. It’s now attracted the attention of major players who clearly want to build it and mine it for themselves.
In the case of the second, Sinosteel wants to finance and build it, but then hand it over, either to Eurasia, or to a buyer or joint venture partner that may subsequently come in. Eurasia has all sorts of non-disclosure and confidentiality agreements outstanding, so it can’t say much.
But one thing chief executive Christian Schaffalitzky will say is that a JORC resource for Monchetundra is at least now in the pipeline, built at least in part around drilling work undertaken by Eurasia’s former partner Anglo Platinum.
What that JORC resource will show is open to question. The project is clearly of some scale though, given Sinosteel’s budget and its confidence that it will be able to source the funding.
Although it hasn’t been explicitly spelled out, the thinking is that Sinosteel will source its money from the Chinese government at the stated LIBOR plus 3.5%, take its own margin on the build, and then hand both the project and the debt over to Eurasia or whichever is the appropriate entity by then.
It’s an innovative way of doing finance, although its opacity go some way towards explaining why Solgold’s market capitalisation is shooting up to over £200 mln, while Eurasia’s, even after doubling, remains modest at £15 mln.
Still, investors early on in this current cycle will have done well on both companies. Solgold shares were trading at around just 1.3p this time last year.
They touched 20p yesterday. The rise in Eurasia’s shares hasn’t been quite as dramatic, but even so, they touched 1.09p in late trade on Monday, well up on the 0.475p December lows of last year, and strongly up on the 0.5p at which canny junior investment company Metal Tiger (LON:MTR) bought in at the end of 2014.
So does this mean dealflow in the junior mining sector is now back? On the strength of these two deals it’s hard to say. Worth noting first of all, that neither has yet completed, and that neither amount to M&A in the strictest sense of the word, at least not yet.
A full on asset sale is likely in both cases, but nothing has been agreed yet. The case of Cascabel is exceptional, because in spite of junior company hyperbole, intercepts of the order of 1,312 metres at 1.23% copper-equivalent truly are world class.
For now, the quality of the Eurasia asset remains an unknown, but the element of Chinese government support also makes this an unusual deal.
So a specific read-across may not be possible in these particular instances. But the more general conclusion is clear: the mining sector is alive and open for business.