SolGold to benefit from new Ecuador mining bill

A new mining bill in Ecuador "smooths exploration and mine development processes" in the country, according to SolGold (SOLG).

The government of Ecuador has presented a new mining bill to the Ecuadorean Congress. The bill is expected to be passed quickly due to strong support from President Rafael Correa's ruling Alianza Pais Party.

The bill contains a number of concessions which SolGold believes will encourage mineral exploration and mine development in Ecuador. "Importantly the Bill contains ceilings on mining royalties and promotes for capital payback prior to the application of windfall taxes," Solgold pointed out.

SolGold is a copper and gold specialist, whose projects include Cascabel and La Encrucijada in joint venture with Cornerstone Capital Resources in Ecuador; Guadalcanal and Fauro in the Solomon Islands; and Rannes and Mt Perry in Queensland, Australia.

The company will expedite drilling and appraisal of its Cascabel and La Encrucijada projects, commencing with its 2,500-metre programme at the high grade Alpala Project at Cascabel. The drill programme is awaiting final drill permits, a process which is well advanced.

Analyst view

"We believe the new mining bill should unlock financing and allow further exploration and potential development of these projects," commented analysts at broker S. P. Angel.

Analysts at First Columbus echoed this view: "SolGold's flagship Cascabel (copper-gold) project should benefit. As we have said before, we have high hopes for Cascabel."

Interactive Investor view

Although shares in the company have more than doubled over the past week, they are still trading about 40% lower than the 6.25p level they hit in September 2012.

Operationally, Cascabel appears to be in a sweet spot geographically. At Junin, which is only 70 kilometres to the south, there is nearly a billion tonnes of 0.9% copper that is being developed by Codelco and the Ecuadorean government. So the company is in a rich part of the Andean copper belt.

The project's location is also very efficient in term of logistics - it is close to a deepwater Pacific port, the capital Quito and a highway. It also has good water supplies and is close to a hydro-electric power source.

And demand for copper is still expected to be strong – Even if Chinese growth dips below 8%, an economy of two billion people growing at mid-single digit growth implies that there is a lot of demand of copper yet to be had.

On the strategic front, SolGold has announced progress on three key milestones – The appointment of a new chief executive, Alan Martin, was announced on 10 May, a new mining law unveiled on Monday and the company is now at an advanced stage for the approval of the drilling permits.