John’s Mining Journal: Solgold and Hummingbird

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

Solgold (LON:SOLG)

Now that Solgold’s AGM has confirmed that – as suspected – major shareholder BHP has joined with Newcrest and long-standing critic Cornerstone Resources to vote their combined 36.2% against the re-election to the Board of  CEO Nick Mather, the question is why?

Mather, of course, even if ousted as a director could have stayed on as CEO, where his talents as a discoverer could remain at Solgold’s disposal. No doubt his critics would want to retain that expertise although, given that he founded Solgold, it would be no surprise if in such an event Mather left in a huff and hawked his own key shareholding around those who are bound to scramble to get it.

Newcrest’s displeasure can be traced to Mather having turned to Franco Nevada for its $100-150m streaming deal to finalise Alpala’s feasibility studies before it can be financed, instead of to its own streaming expertise. And everyone knows that Cornerstone is over a barrel with a commitment that it can’t afford, to pay its share of Alpala’s development once the next feasibility study is complete.

But no-one knows yet why BHP has apparently changed its previous supporting stance. The only reason I can come up with is that big strategic one – how is Solgold going to maintain its ever expanding and more expensive exploration programme, while waiting a long time for its discoveries to start producing cash? Alpala is already 3-4 years into its own discovery process, yet it will be a minimum 6-7 years yet before it delivers its first copper-gold concentrate to customers.

Mather obviously has his own talents. But no-one necessarily has every talent needed to get a mineral discovery into production, and Mather has not impressed some observers with his failed attempts to get Solgold’s share price up (he says to ward off any bid but which, in any case, I don’t think is likely at this stage).

But it is mainly Mather’s stated (and stubborn) aim to take Alpala into production alone – and the approved AGM resolution to sharply increase his freedom to dilute shareholders by raising the funds to do it too soon – that I think has prompted BHP to join the growing ranks of those who don’t want him to follow that route. Until there is some resolution to that, I can’t see the shares breaking out from their doldrums

Hummingbird (AIM:HUM) 

I’ve been following West African gold producer Hummingbird since 2015 with a series of buy and sell recommendations and last May, with the shares at 27p, changed my previous Sell stance (September 2019) to a Buy on the then sharp increase in the gold price. 

Subsequently, in June, it added to its attractions with the mooted cheap-looking acquisition of the 1Moz Kouroussa Gold project in Guinea, while ridding itself of part of the less profitable Dugbe project.

But having touched 40p in October, the shares have sunk back to the levels where I had again recommended them in May. That is because, as has become a bit of a habit with Hummingbird, it has encountered yet more operational problems at its originally very profitable Yanfolila mine, stemming, again as usual, from excessive rainfall, adding to Covid-19 problems and to those from a military coup in neighbouring Mali.

As a result, even though it has now turned drier, the company is warning that gold production this year will fall well below the 110,000 ounces originally expected. On the other hand it has been successful in its drilling programme to increase the gold resources at Yanfolila, and expects its permit to begin work at Kouroussa will come through soon.

So it’s not easy to predict where the current share downtrend will stop. But with the promise that Kouroussa will double HUM’s gold output at a relatively small development cost (only about one-and-a-half times the current annual cash inflow from Yanfolila) and a rapidly improving balance sheet, the share’s value will become increasingly more evident. A chartist might think the shares are approaching a support level now, but I would wait until well into the New Year.