China to double down on Ecuador copper

Solaris is not officially in play, although it is looking at securing some US$80 million in finance to complete a feasibility study and advance Warintza through permitting. Warintza Central hosts an indicated resource of 579Mt grading 0.59% copper equivalent and inferred resources of 887Mt grading 0.47% CuEq."A couple of Chinese companies have visited the project, and one has made one or more low-ball offers," a source with knowledge of the situation told Mining Journal.While it is common practice for project developers to host site visits from interested parties, making offers is not; however, this does not necessarily imply that the target company is negotiating with a potential suitor.The source said the offer was well below the company's expectations, given the valuations in recent copper development assets transactions. "The Chinese offered 0.2x NAV, so they are not even close," the source said.The median for recent transactions is 0.8x net asset valuation (NAV), including Glencore's consolidation of the MARA project in Argentina, the Agnico Eagle Mines, and Teck Resources' San Nicolas joint venture in Mexico. SolGold's acquisition of Cornerstone Capital Partners earlier this year to unify ownership of the Cascabel copper-gold project in northern Ecuador implied a 0.6x NAV.ChinaLatin America is a primary source of copper for China, primarily concentrates from Chile and Peru, which account for about 55% of its imports. In addition to buying Latin America's copper output, Chinese companies have directly invested in mines.Chinese firm MMG bought the Las Bambas copper mine in Peru in 2014, and China Minmetals had a right to take a 25% stake in Codelco's Gaby mine in Chile, which in 2008 it decided not to exercise. More recently, Ecuacorriente built the Mirador copper mine and began production in 2019 with an initial output of 11Mtpa of copper concentrates for export to China containing 137Mlb of copper, 34,000oz of gold and 394,000oz of silver for 30 years.Ecuador's president Guillermo Lasso, has been working to develop closer relations with China for some time. He hosted a Chinese delegation in December 2022 to stimulate more investment by the Asian nation. Ecuador is China's fourth free trade partner in Latin America after Chile, Peru, and Costa Rica. China is Ecuador's second-largest trading partner and largest non-oil products trading partner. In 2022, the bilateral trade volume between the nations reached US$11.9 billion and is set to grow more as in May 2023, the countries signed a free trade agreement.In July 2023, the Ecuadorian government and China's Ecuacorriente reached a preliminary agreement to expand the Mirador copper mine in Zamora Chinchipe from a throughput of 60,000tpd to 120,000tpd or more through an estimated investment of US$650 million.China isn't the only nation interested in Ecuador's copper, however. Australia's BHP has a toe-hold stake in SolGold, which is undertaking a strategic review process that includes the possibility of a sale or forming a partnership with a copper producer. Swiss-based Glencore has been expanding its copper footprint, and US company Freeport McMoran has also been looking at the northern Andean region.The latest entrant into Ecuador, however, is Barrick Gold, which signed an agreement with state mineral company Enami last week to undertake exploration on 40,000ha in southern Ecuador, with a minimum investment of US$27.5 million. Southern Ecuador hosts multiple gold and copper deposits, including Mirador, Warintza, Condor and the Fruta del Norte gold mine.Solaris financingWith the equity markets currently being challenging for junior developers, the expectation that Solaris needs to raise finance at some point in the near future, is suppressing its share price. Solaris is trading at C$5.24, giving it a market capitalisation of C$776 million."The financing overhang is probably clipping C$1-1.50 of Solaris' share price, and it will probably continue to until they pull the trigger and give the market clarity about what they are going to do," the source said.In June, Solaris chief executive Daniel Earle told Mining Journal that it was potentially looking at a strategic investment or an offtake to raise more funds. "Equity is not attractive where we are trading, so maybe a strategic investment at a significant premium or a range of non-equity options to transact away from public market valuations. We calculate the offtake value for the project as in excess of US$60 million for a quarter of the offtake," Earle said at the time.An offtake seems to have made its way to the top of Solaris' list of options, according to the source, with a similar structure to that announced this week by K92 Mining with Trafigura to expand its Kainantu mine in Papua New Guinea. This was for 100% of the copper offtake at an interest rate believed to be the secured overnight financing rate (SOFR) plus 3.4%."Solaris is looking at a 20% offtake for $60 million, with a commitment from the offtaker to invest $20 million in equity later on," the source said.

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