John’s Mining Journal: featuring Greatland Gold, SolGold and Ncondezi Energy

Veteran mining analyst John Cornford reviews some of the more interesting plays in the junior mining sector…

Two weeks ago I suggested that Greatland Gold (LON:GGP) was very expensive in comparison with, for example, Solgold (LON:SOLG), since when an extension to its farm-in agreements with Newcrest has propelled the shares 30% higher. One broker in fact has increased its estimate of the content of the soon-to-be announced maiden resource, and is ‘reviewing’ its original target price which, four months ago was about half what the share price is now. Speculation is that Newcrest has increased its commitment because it has spotted the potential revealed by recent drilling to substantially expand the size of Greatland’s Havieron copper/gold deposit and that its gold content is much higher than originally thought. I’m no expert on Geatland so readers should take no notice of my opinion of its value. All I can say is that its shares are on the sort of ‘roll’ which attracts more and more investors (private and otherwise) whose end no-one can predict. 

That contrasts with the doldrums in which Solgold is mired. In October, I theorised that BHP, freed from the agreement preventing it acquiring a further stake, might unblock the logjam in the shares. That has proved as wrong as my Greatland Gold judgement, with the shares unable, apparently, to punch through the lower 40s first established nearly four years ago.

Another catalyst for Solgold however might, just might, be the AGM on December 17th, for which (unusually for a largish company) Solgold has been canvassing even small shareholders like me for their vote in support of all the board’s resolutions. 

These, as well as to re-elect the board which Solgold has been reconstituting and expanding so as, it says, to improve accountability, include authority for a very large increase in authorised share capital.

That, to me, is a red flag. I believe the reason the shares can make no progress is fears about the spending required to drill and prove up the 13 prospects that Solgold has in Ecuador. Even the enthusiasm for the first of these beyond Alpala, Porvenir, whose initial drill results promise to see it even bigger than Apala, has almost fizzled out. It has only been in the run-up to the AGM that the shares have resumed a hesitant attempt to again reach that 40p ceiling.

I suggested some time ago that Solgold had a looming strategic problem in that, to prove and develop its series of prospects, it would have to sell off some of its earlier ones (eg Alpala) once they had acquired some sort of value, in order to finance further exploration without diluting too much the value per share it is building up.

But Solgold’s CEO Nick Mather (who key shareholder Cornerstone Capital wants to remove) has set his face against selling anything. He insists that he wants Solgold to develop Alpala, in order to ‘capture its full value’ for shareholders. The trouble (that he doesn’t mention) is that, according to the 2019 PEA, Alpala won’t start to generate any cash for Solgold before at least some eight years from now, even if it can be fully funded and construction started within two years’ time. 

So it is obvious that he is planning to meet the cost of exploring his follow-on prospects by issuing new shares, and (no doubt) hoping that he can do so at an ever-rising share price.

That is a juggling act which it is very difficult for any expanding company to achieve. I would guess that most shareholders (apart from any major miner contemplating a bid) would want to see some reward for their shareholding well before eight years from now. Regardless what ‘value’ Mather might think he is generating by discovering potential new mines in the interval, it will count for nothing if the value the market sees in them is outweighed by the increase in the number of issued shares.

Mather has already sharply increased his budget for drilling Porvenir, so that Solgold is likely to run out of its existing strong-looking cash position by about the middle of 2021. And so it is that the forthcoming AGM might see some sparks. Mather and the Board, along with shareholders who might be supportive of the AGM resolutions, do not have a very solid majority, which is why even tiny shareholders are being canvassed for their support.  

At the last publicly available count, possible opponents of Mather’s strategy include Cornerstone Resources and Newcrest with about 20% of the votes, against Mather’s definite supporters who also have around 20%. No one knows what other significant holders like BHP, with around 13%, and some fund managers think. Will they deny Solgold the authority to so substantially increase the authorised share capital? I stress that my thoughts on the matter are my own, and so far I have seen few others worrying about it.

Meanwhile…

Over the years I have been recommending it, coal-to-power group Ncondezi Energy (LON:NCCL), has also been bogged down by various perceived snags – ranging from the danger of the top, project sponsoring company, ie NCCL itself, running out of cash; political instability in Mozambique; and, more recently, its key partner General Electric’s withdrawal from the coal power station business.

But those dangers have receded, while finalisation of NCCL’s Tete power project is approaching, with key milestones due in the coming year. These, for the first time, will include financial details which should enable investors to place at least an approximate value on the shares.

Despite estimates showing this should be a number of times higher than the present 4-5p level, interest remains very subdued, and was only briefly sparked up when a new private investor, Scott Fletcher, who had built up a 17.6% stake, was invited onto the Board “in order to represent shareholders”.  Scott is an entrepreneur who has built up companies in the IT sector, and appears to be very enthusiastic about what he sees as extremely good value. However, it is not clear whether he has the expertise to know how to value companies in a very different sector than IT, not to mention the pitfalls involved – so it remains to be seen whether he will persuade NCCL’s CEO to, not before time, arrange for some reputable research to be published.