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BHP to Bump Up Stake in SolGold to 14.7% for $22 Million

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BHP Group (BHP - Free Report) has agreed to subscribe for 77 million shares in Ecuador-focused mining company, SolGold Plc for GBP 17.06 million ($22 million). This investment will increase BHP Group’s stake in SolGold from the current 11.1% to 14.7%.

Following this deal, BHP Group will hold approximately 282.7 million of SolGold’s shares. Newcrest Mining currently holds approximately 14.8% of SolGold.

Subject to permitted exclusions, BHP has agreed not to acquire further shares or make an offer for SolGold for a period of two years up to Oct 15, 2020.  The permitted exclusions to this provision include a right for BHP to buy up to 246,634,271 shares in SolGold. It also comprises a right to make an offer to acquire SolGold provided such an offer has been approved and recommended to shareholders by the SolGold’s board

BHP also agreed for a period of two years (up to 15 Oct, 2020) to provide SolGold with a right of first offer in the event that BHP wishes to dispose of its acquired shares in SolGold to certain parties.
 
SolGold is primarily focused on finding copper and gold deposits and is the largest and most active concession holder in Ecuador. Notably, the country is considered a highly prospective yet under-explored section of the Andean Copper Belt, which is home to multiple Tier 1 copper and gold projects. It is considered to be the base for nearly half of the world’s copper production.

Its flagship project, Alpala, is located on the northern section of the extremely rich Andean Copper Belt.  SolGold holds 85% of the Alpala project, which is among the world’s best undeveloped deposits and has a potential 55-year life, per the company estimates. The company is also perusing 13 other priority targets in the nation.
 

BHP’s shares have fallen 2.0% over the past year compared with the industry’s decline of 6.4%

Trade volatility and slowdown in global growth have made investors jittery and affected commodity markets. However, even though metal prices remain subdued in the near term, the long term prospects remain solid.

Growth in world steel production spurred by urbanization will fuel demand for iron ore and sustain prices. The long-term outlook for copper is positive as copper demand is anticipated to improve, driven by electric vehicles and renewable energy and infrastructure investments, However, grade decline, rising input costs, water constraints and scarcity of high-quality future development opportunities continue to limit the industry’s supply. This demand supply imbalance will push copper prices north. BHP and other miners are thus focusing on increasing their copper exposure to cash in on its prospects.
 
Demand for nickel in electric vehicle batteries will continue to grow. Potash prices will also gain as demand exceeds supply. As of fiscal 2019 end, BHP Group had six major projects under development in petroleum, copper, iron ore and potash. All of them are on schedule and budget. BHP Group is making operations more efficient on the back of smarter technology adoption across the entire value chain.

Zacks Rank & Key Picks

BHP currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the basic materials space include Agnico Eagle Mines Limited (AEM - Free Report) , Franco-Nevada Corporation (FNV - Free Report) and Kirkland Lake Gold Ltd. (KL - Free Report) . While Agnico Eagle Mines and Franco-Nevada Corporation sport a Zacks Rank #1 (Strong Buy), Kirkland Lake Gold carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Agnico Eagle has a projected earnings growth rate of 168.6% for the current year. The company’s shares have rallied roughly 41% in the past year.

Franco-Nevada has estimated earnings growth rate of 46.2% for the current year. Over the past year, the company’s shares have surged roughly 32%.

Kirkland Lake Gold has projected earnings growth rate of 96.3% for the current year. The company’s shares have surged around 19% in the past year.

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