The DGR business model – to create world-class resources companies – has been given a huge tick of approval by one of the world’s mining heavyweights, BHP, which has bought 6.02% of daughter company, SolGold, and then subscribed to a further 5.1% at a 35% premium.
What attracted BHP is the world-class Alpala copper-gold deposit that SolGold – which is listed on the London and Toronto Stock Exchanges – is developing in northern Ecuador.
In January this year, SolGold released its Maiden Resource Estimate (MRE) for the Alpala deposit of 2.3 million tonnes (Mt) of copper and 6 million ounces (Moz) of gold in the indicated category, and 2.9 Mt of copper and 6.3 Moz of gold in the inferred category. After further drilling, an updated MRE is projected for completion and release before the end 2018.
BHP’s interest in SolGold validates DGR’s position in the company (DGR Global owns 11.11% of SolGold), as can be seen clearly in the DGR Global share price, which almost doubled, from 8.4 cents at the end of August to 16.5 cents in mid-October, as other investors noticed BHP’s move.
BHP joins on the SolGold register fellow Australian miner Newcrest Mining, which is SolGold’s largest shareholder, with 13.43% of the company.
The recent endorsement of SolGold by mining giant BHP, further endorses DGR’s main business model.
DGR is focused on creating companies that explore for globally demanded commodities which are strategically important as the world urbanises and electrifies – namely copper, lithium and gas. Gold of course is timeless, the oldest form of money.
After conducting a top down search for the commodity, country and region, DGR provides seed capital to grow its daughters by proving the concept and taking the company through to initial public offering (IPO) on a stock market. With the capital raised, we explore further, to establish a resource base – as this is progressively defined, we mount secondary capital raisings. The final phase is developing the company through to advanced exploration with an ultimate aim of production. Frequently, these companies don’t get there, being taken over beforehand, and so enriching all shareholders.
SolGold exemplifies this process. The Company started exploring in Ecuador in 2012, when there was still a sovereign risk stigma associated with the country and it remained largely underexplored.
Back in October 2016, BHP and Newcrest competed for the right to buy strategic stakes in SolGold. Despite BHP then offering a small amount of money at a higher price, SolGold accepted Newcrest’s invest in 10% of its shares, as the terms allowed SolGold to remain fully in control of the project. Newcrest was also at the time, the number one block cave miner in the world, very relevant for when SolGold progressed to mining the Alpala orebody which is ideally positioned for an underground block cave mine.
Other mining heavyweights have also since flocked to Ecuador to explore for copper, including Chilean copper company CODELCO, Australian iron ore producer Fortescue Metals Group and Gina Rinehart’s Hancock Prospecting, which has secured ground surrounding SolGold’s Cascabel tenement on three sides.
It is likely that these players are all attracted by the suggestion that Alpala, which is on the gold-rich northern section of the prolific Andean Copper Belt, contains the same style and age of mineralisation in Ecuador as that which hosts the massive porphyry copper deposits in Chile – which supply half of the world’s copper production.
With ore grades declining in the Chilean copper regions, and costs rising, it makes sense for miners to look north along the Andean Copper Belt to a country that is underexplored, yet highly prospective. SolGold has four-year first mover advantage and is the largest concession holder in the country, with Fortescue the second largest. Ecuador has revised its mining tax laws and has created a Mining Ministry in a bid to woo mining investment. Ecuador expects producers to make at least US$8 billion ($11.3 billion) in investment in new mines by 2024.
Time will only tell whether the majors see the SolGold opportunity. In the meantime, the traditional arbitrage between DGR Global’s Australian Securities Exchange (ASX) price and the SolGold London valuation continues to provide a huge value opportunity for investors.
With a SolGold market capitalisation of about 660 million pounds at the current exchange rate, SolGold has a market cap of about $A1.19 billion, which makes DGR Global’s stake worth $A131.5 million.
That is a lot more than DGR Global’s market capitalisation of $A89 million.
Before BHP bought in to SolGold, the value gap to DGR was even wider.
Other resource companies that DGR Global has created – and listed – include:
· Aus Tin Mining (tin in Australia): ASX market capitalisation $34 million, market price of DGR’s stake $6.2 million.
· IronRidge Resources (gold in Chad and Ivory Coast, and lithium in Ghana and Ivory Coast): London Stock Exchange Alternative Investment market (AIM) market capitalisation 61.32 million pounds ($110.4 million), market price of DGR’s stake $26.8 million.
· Armour Energy (natural gas in Australia): ASX market capitalisation $42 million, market price of DGR’s stake $9.4 million.
· Dark Horse Resources (gold and lithium in Argentina): ASX market capitalisation $10 million, market price of DGR’s stake $1.7 million
All in all a total asset list totalling A$175.6 million.
As the value chasm narrows, DGR shares still offer discounted entry into SolGold, plus free entry to Aus Tin, IronRidge Resources, Armour Energy and Dark Horse Resources.