BHP Billiton plc (LON:BLT) said on Wednesday it has agreed a US$35.2mln deal that will give it exposure to a “high quality” copper exploration project in a “highly prospective” location for the company.
The mining giant will buy a 6.1% stake in SolGold plc (LON:SOLG) from Guyana Goldfields Inc (GUY.TO), giving it a share in the Cascabel copper-gold project in Ecuador.
BHP will pay 26.592p per SolGold share, a 20% premium to the 20-day volume-weighted average price on Thursday.
"Consistent with our positive long-term outlook, copper is a key exploration focus for BHP as we seek to replenish our resource base and grow this important business,” said chief executive Andrew MacKenzie.
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SolGold, Cascabel’s majority owner and operator with a 14.54% stake, had in October 2016 rejected an offer from BHP to take a 10% interest in the firm, saying the proposed deal was “very inadequate”.
Sol Gold expects to report resource growth at Cascabel in the next updated estimate. It has said the core of the Alpala deposit at Cascabel has uninterrupted true dimensions of up to 750m vertically, 700m length-wise and 700m width-wise at a cut-off grade of 1.5% copper equivalent with additional high-grade tonnage being defined along the western lobe.
Analysts at Shore Capital said the project requires significant funding and expects capital expenditure to be in "high hundreds of millions at the very least".
“For the likes of BHP, just as important (if not more so) will be that Sol Gold also possesses a number of other highly prospective tenement packages. As well funded as SolGold is for a junior company, significant funds will be required to properly explore all that ground, so backing from the likes of BHP is important.”
Shares in BHP fell 1.3% to 1,613p in morning trading.