So what is going on with Solgold?

Yesterday Newcrest announced that they were increasing their stake in Solgold (owner of Cascabel property in Ecuador (85%)). This will take Newcrest’s ownership of Solgold to 15.33%. Newcrest had previously purchaed shares of Solgold in 2016 and 2017. What makes this interesting is that BHP has also shown interest in the property, purchased 100,000 shares in October. Newcrest will not be the larget shareholder in the company, followed by DGR global (11.24%) and BHP (11.18%). 

So what is going on here? Well SolGold has an enterprise value of US$810M so this company is not cheap. Cascabel must be one hot ticket. Yup sure is...

Resource update in November showed 10,900,000 tonnes of copper and 23.2M oz of gold. Wow. Amazing. The resource contains 2.95B tonnes at 0.52% Cu.  Perhaps even more interesting, there’s a high-grade core of 420M tonnes at 1.47%Cu; almsot $100/tonne rock at $3/lb Cu. 

The November 2018 investor presentation highlights the fact that modern exploration activities have allowed the for the discovery of the property. Drill results contain some of the best porphyry copper gold intervals ever recorded. For example. Hole 12, 1560m at .59% Cu and 0.54 g/t. 

The image above (from November 2018 investor presentation) shows the gargantuan extent of the deposit. Based on the geochem data it looks like there are a bunch more targets as well. 

Given Newcrest’s experience with block caving, it’s not surprising how interested they are with the property. Look at the benchmarking!

Solgold also owns multiple subsidiaries with a 3,200 km2 land package.

Well. Solgold is pretty amazing. That’s what’s going on with Solgold.

Mining In Armenia

What is the state of mining in Armenia? How should foreign investors view this country? I’ll spend some time reviewing some recent developments in the country and formulate a view.

Politics:

  • Gained independence in 1991
  • Had been governed by Serzh Sargsyan since 2007 as part of the right-wing republican party
  • Serzh Sargsyan was reelected for a fourth term in April 2018, peaceful protests started which were concerned about what was starting to look like an indefinite rule
  • Serzh steps down and the leader of the Civil Contract Party is elected (Nikol Pashinyan)

It would be impossible to look at Armenia without investigating the state of affairs with Lydian. Lydian received approval to build the project (Amulsar) in 2014 but construction has been impacted by local protests. 

In August, Armenia’s inspectorate for Natural Protecion and Mineral Resources suggested that the environmental assessment be re-evaluated. 

The inspectorate stated that new ecological factors should be considered for the property. Specifically, there are new sightings of red plants and animal species. 

But get this, so the head (Artur Grigoryan) of the Environmental and Mining Inspection agency directs Lydian to refrain from any mining activities until the ministry can conclude if these new “red plants” are actually at the site. So Grigoryan sends in his team. The team concludes that these new organisms cannot live at this site and are not there. Lydian appeals the original directive, but the appeal is heard by Grigoryan. Obviously, he rejects the appeal which is predicated on information from his own ministry. So now Lydian has challenged Grigoryan’s position through an administrative court. The court has accepted the appeal which suspends Grigoryan’s edict. Great! It doesn’t matter though because the place is still blockaded.  

It’s pretty amazing that a country with 16.8% unemployment is challenging industry and preventing the creation of hundreds of jobs. 

Seems to me that Armenia is not a jurisdiction you want to be developing a project in. 

The McNulty Curve

In general, mining companies have a poor track record of delivering projects on time or on budget. Today, for the first time, I heard about the McNulty Curve; a graph which predicts the level of pain that companies will endure when ramping up a project.

Some previous studies on project cost overruns highlighted a few key reasons for process plant failure (defined as major cost over-run or inability to achieve design capacity):

  1. insufficient effort was devoted to understanding process chemistry
  2. insufficient continuous pilot-scale testing was conducted
  3. the plant lacked parallel process streams and/or in-line spare equipment units
  4. the design incorporated sequential unit operations that either were first-of-a-kind or the largest ever built or both

Terry McNulty advanced this concept and derived ramp up curves for various types of processes. He defined the types as follows:

  1. Series 1
    1. The owners relied on mature technology.
    2. Standard types of equipment were selected.
    3. Thorough pilot-scale testing was done on potentially risky unit operations.
  2. Series 2 
    1. If the technology was licensed, the project was one of the first licensees.
    2. Some equipment was a prototype in size or application.
    3. Pilot-scale testing was incomplete or was conducted on non-representative samples.
    4. Process conditions were unusually severe or corrosive.
    5. Non-innovative parts of the flowsheet received inadequate attention
  3. Series 3
    1. There was very limited pilot-scale testing and important steps were ignored.
    2. Feed characteristics such as mineralogy were poorly understood.
    3. During process development, product quality received little attention.
    4. There were serious design flaws.
    5. Engineering, design, and construction were on a “fast track” with inadequate planning to offset added risk.
  4. Series 4
    1. If continuous tests were run, they were only to make the product.
    2. Equipment was downsized or design criteria were compromised to reduce cost overruns.
    3. The flowsheet was unusually complex with prototype equipment in two or more unit operations.
    4. Process chemistry was poorly understood. 

McNulty highlights a few other factors that were correlated with project over runs, some of which are particularly relevant for the mining industry.

  1. Corporate management had a promotional or overly aggressive attitude.
  2. The owners had very little day-to-day engineering input.
  3. Driving forces underlying the project were ill-conceived.
  4. The ore receiving and preparation areas received little attention.
  5. Translation of the testwork to design criteria was flawed.

Sources: Most of this information was from a paper called Minimization of Delays in Plant Startups. It can be found here: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.126.1359&rep=rep1&type=pdf#page=119