Ecuador’s election on April 11th ushered in a new era for the mining industry. The country’s new president Guillermo Lasso won the runoff with 52.5% of the vote, and opposition leader Andrew Arauz conceded defeat. Both candidates were mining-friendly options for the nation that holds some of the richest copper and gold deposits in the world.
The country has been a supporter and profitable ground for mining companies to operate in, giving mining companies wide latitude for their operations while ensuring that consultation and standards are upheld at every stage. Going forward, the mining industry will need to keep those environmental principles at the forefront of their operations, as countries like Ecuador and their new president Lasso are promoting open policies for boosting investment in the private sector while balancing environmental responsibility.
The government at both the federal and local levels is consulted regularly for mining projects because of the consultation needed for projects operating with the approval of local communities. The need to protect the land they work in and ensure the safety of the local communities is paramount to a long-term partnership in the modern mining environment. Ecuador has been a solid and reliable partner in this sense, providing mediation between opposition groups and the companies that bring jobs and economic growth to the region.
Proposals relating to mining within Lasso’s government plan framework include:
As the pandemic slowed the country’s economic growth, Lasso will look to the mining industry to support the recovery over the coming years. 46% of Ecuador’s Foreign Direct Investment from 2017 to 2020 was generated from the mining industry. A significant portion of GDP comes from the sector, giving Lasso a clear direction for where to focus efforts.
Mining in Ecuador accounts for a large portion of the direct and indirect jobs in the country and is one of the most critical sectors for the country. It was one of the few that grew in 2020, as the pandemic shut down most economic activity. Simultaneously, the president has pledged that the sector must grow responsibly, as he considers illegal mining to be the greatest threat to economic development and environmental protection. Despite the pandemic and rising death toll, mining companies continue to operate unhindered by restrictions as the industry pushes forward on exploration, discovery, and production.
To accomplish his economic goals while preserving environmental integrity for the miners in the region, Lasso has tried to establish an open dialogue with environmental groups and indigenous Ecuadorans. The goal is for the government and miners to work in tandem with those groups to ensure respect for their culture and their customs.
The industry has little to worry about in the way of obstruction or barriers, as the president has also said he would like to appoint a Minister of Environment and Water who is open to and will support the use of non-renewable natural resources. The mission to protect Ecuador’s natural beauty and the local communities will be balanced with the mission to maintain and grow a flourishing mining industry.
It seems the new president even has a favourite partner for the sector, touting the Warintza Project in an interview on national television in early April before the election. A visit to the project should be coming imminently, as the potential of the project to be a key production source is massive.
The company taking the charge for the project is Solaris Resources, a Canadian copper mining company. Solaris has begun exploration at the site and plans to start drilling at Warintza East and South this quarter. The company has follow-up discovery drilling planned at the Warintza West site as well, with maiden drilling at Yawi and the Caya gold anomaly in the second half of the year.
Three additional holes at Warintza Central are bearing out high-mineralization results, with the highest grades starting at the surface. Solaris’ recent press release highlighted some of the progress made on the project:
Having a new president in office and a willingness to push forward at full speed for the mining industry, Ecuador is sure to be a reliable and robust partner for miners like Solaris over the coming years.
With the lifting of restrictions on drilling and more discoveries at Warintza, a global economy heating up after the freeze of COVID-19, and a deposit-rich region, the future is looking very bright for miners in Ecuador.
It sure looks good when public companies have a lot of volume from individual investors, institutions, and large funds on the open market. It proves that the company has something of interest to many groups and that they see their investment as a source of profit or return in the future. Confidence is key here, and that’s a good thing.
What happens if an insider at the company is a significant buyer and insiders control a majority of the shares? Any news of insiders buying up more shares of the company they manage or own is a signal that not only are current operations delivering good value, but that future plans will equate to more.
The recent news that Equinox Gold, the company from which Solaris Resources was born, sold Solaris shares and Warrants to Augusta Investments and another strategic shareholder for up to C$132.5 million was one of those signals. Corporate and insider ownership now accounts for almost 70% of its share structure, giving shareholders and future investors confidence that the people running the show have solid plans for the present and future of the company. Of particular note is the potential for significant porphyry discoveries at the Warintza Project in the coming year and years ahead.
TD Securities sent out a research note about the buying noting that Augusta founder and chairman Richard Warke purchased 7 million units of Solaris from Equinox at C$8.25, a stake totalling C$57.5 million. According to Bloomberg, this makes Solaris the leader by amount when it comes to insider buying in the materials sector (past 12 months). On top of that, Mr. Warke has purchased approximately C$57 million in open market transactions. Looking at the chart since the company went public 8 months ago will give you a clear picture of why.
Since becoming a public company, it has only risen every month, and it seems poised to keep going. TD’s 12-month target price is C$13, but based on the trend since becoming a public company, this seems conservative. Mr. Warke’s buying spree comes on the heels of a 1000% return since the IPO last year, and it’s no wonder management and other insiders love owning the stock. Clearly, they see that the future has the potential to build on the success of the past.
Mining companies often have their hands full with multiple projects spanning locations in different regions, countries, and sometimes continents. This can create complications for operations, but if the company has the right management and operational experience, having a variety of projects on the go at the same time can be a serious benefit.
Typically driven by low commodity prices, large mining companies are beginning to shift away from project diversification to focus on their best projects to increase competitiveness. By doing this, many companies believe that it will allow them to compete more effectively in specific sectors and make the most of what they have. While this can be effective for some, having a range of projects complementing each other, while maintaining focus on one or two flagship projects has proven to be a successful format for others.
Having a portfolio of projects is also necessary so that holdings are sufficiently diversified and exploration does not have to stop when one project is not moving forward. While it is good to have many projects, focus is also necessary for the proper and effective execution of any mining strategy. For a company like Solaris Resources operating in the Americas, a diversification strategy has been beneficial for their exploration and production efforts, but they have been able to balance this with a particular focus on one mine.
The Warintza Mine in Ecuador discovered by David Lowell has been the flagship project for Solaris since its inception, and exploration and development has been focused on there for some time now. With the news of the added drill holes and capacity coming, the company is preparing to double down on that success while bringing out the best in the work being done there with ESG principles and particular zero-carbon project planning.
The emphasis on consultation, local employment, educational practices, and ESG principles has made Warintza not just the flagship of the Solaris portfolio, but an example in the industry of how things can be done the right way while ensuring stakeholder success at every level. Prior to beginning work on the site, thorough consultation was done with the Shuar Nations of Warints and Yawi, to establish trust and transparency from the outset. In any long-term effort, starting off on the right foot is essential. This consultation process ensured that the project would get off to a good start while maintaining open communication with the local community. Transparency was also ensured by acquiring full permitting, and no Administrative Silence was allowed.
Considering the diversity and robust mining infrastructure, Ecuador is perfectly placed to complement the company’s work and extensive employment opportunities have been extended in the local and surrounding communities. The project is bringing jobs to the area while making everyone feel good about the work they are doing. The result is a community that understands the impacts and benefits of the project, was involved with the planning, and is able to directly benefit from its success. This win-win approach is not just good messaging, but part of the operational ethos of the company for the project, and has helped the company deliver transparency, education, and inclusion from the start.
The mine itself was discovered by David Lowell in 2000 but was largely dormant since 2001. At the time, Ecuador was a frontier jurisdiction with no commercial mining industry. Things began to change in 2014 when the government shifted its policy in the wake of the collapse of the oil sector to encourage mineral development. The change was fuelled by Lundin Gold acquiring the Fruta del Norte project, 45 km south of Warintza, and developing it in a socially and environmentally responsible manner. This improved sentiment toward mining development and created conditions for Solaris to successfully restart a dialogue with the communities surrounding its Warintza Project in 2018. After extensive dialogue with local and surrounding communities, the root causes of conflict were resolved, and by mid-2019, an innovative CSR program was instituted. By the time 2020 rolled around, the company had signed an Impact and Benefits Agreement with community stakeholders after a government-sponsored prior consultation process, and Solaris Resources was able to restart exploration on the project in earnest.
When tracking the company’s progress, it might be helpful to do so by following the trajectory of the stock over the past 8 months. After listing as a spin-out of Equinox Gold, Solaris’ mission began to explore and develop the Warintza Project in Ecuador. Once results started to come in, a pattern began to emerge:
Contrary to the common narrative of many miners that list and consistently lose value as their discovery efforts return less than expected or nothing, the company’s story appears to be the exact opposite based on the eight-month period they have been a public company.
The project has turned out exceptionally well for the company, and last month Solaris made it clear that it wants to expand on the success it has had so far by doubling the rig count and beginning to drill new holes, all while maintaining that commitment to the community and the ESG principles the project was planned with. The company’s press release highlighted some of the recent impressive results from the 20,200 metres that have been drilled so far at the mine:
Each project has built on the success of the last, and as they expand, each step continues to pour more fuel into a tank driving the company from one milestone to the next. Not only do they stand to benefit from the expansion of the project, but from all of the future compounded gains from the Warintza mine. Drilling thus far has generated significant value for the company and stakeholders involved at every level, and with more drilling to come, one has to assume that the compounded results of that work will reflect positively on the company and stock for the foreseeable future and beyond. Lately, the stock has been balancing between $8 and $10, but with this range being tested frequently with changes of 10% or more in a single daily session, it seems investors are ready for a price above $20 or $30 now.
With the recent insider-buying activity from Solaris Chairman Richard Warke and a management team that has invested over $100M in less than a year in both private placements and on the open market, the Solaris story is proving to be a powerful one. The company has seen its share price reflect its significant progress in a very short amount of time, and it seems that the potential for moving forward is also driving much of the vigour from investors.
The company’s current market cap sits at just below $1 billion, and any breakthrough could mark a psychological shift in how the company is perceived as a result of the value generated by the Warintza project in particular. Solaris has ongoing discovery drilling that is aimed at discovery potential in 2021, meaning big news for the company may lie ahead with any discoveries this year. The Warintza Project has proved that the company’s efforts are being well-spent in the past year and that work has taken the company further than ever before.
Although progress has been made, with the expansion of the project and the focus on expanding at the same time, the company may be looking at future valuations several times greater than current levels only taking into account current rates of return. If the new drill holes and discovery plans continue at this pace or better yet accelerate, the future of the project and the company will be very bright indeed.
Solaris Resources had a big day yesterday (March 17th), as the share price shot up in the final hours of trading. As volume rapidly increased, anyone holding the stock saw their position become over 9% more valuable almost instantly. With volume being far outside the average range, we are beginning to see the Solaris team’s efforts bear fruit as investors expand their appetite for the stock.
Jacqueline Wagenaar, Vice President of Investor Relations for the company, commented, “We believe the increase in share price performance is the market reflecting a lack of sellers and ongoing buying demand from recognition of the outstanding drill results from the Warintza copper project in south-eastern Ecuador, in a structural bull market for copper where new projects are scarce.”
The signal this sends to anyone watching the stock is that investors have more confidence than ever in their new projects like the Warintza mine in Ecuador, and prospects in the immediate and distant future will continue to propel earnings far above their current positions. While the stock is pricier than it was a day ago, if the confidence implicit in yesterday’s buying remains steady, the stock will remain a great buy no matter what the price is.
Any pullback will be seen as a buying opportunity from now on, and with the added attention, Solaris will have no trouble convincing the street that portfolios will be well served with some SLS in it.
2020 saw some of the most complicated operating conditions for the mining industry ever, but the subsequent economic recovery brought important and profitable changes for one particular new listing on the Toronto Stock Exchange. While Solaris is not new to the industry, the listing on the TSX is, and they couldn’t have timed it better. With copper prices rising, the decarbonization and electrification movements gathering speed, and a flood of new money in the markets, Solaris couldn’t have picked a better time to become a public company.
Copper mining has been fraught with worry over an impending shortage, which Solaris has hedged against with a portfolio of exploration properties picked by the late David Lowell. The former Solaris consultant and strategic partner was known as the greatest copper explorer in the past century. Lowell helped develop the porphyry copper deposit model alongside John Guilbert in the early 1960s. This model is still dominant today and is implemented for something like 60% of the world’s copper supply. The company started with the best and is in just the right position to make their projects shine with a red tinge.
Solaris’s portfolio includes projects in Ecuador, Peru, Chile, and Mexico. As projects get off the ground and start to expand, the market has noticed the ambition of the company and management to scale up quickly. The potential scale of the projects is hard to find these days, as most of the newer generations of projects are a fraction of the size of the projects in the existing supply base.
The company has shown not only promise, but proven success and a stable track record to make it a good investment. The share price has grown significantly since its market debut in mid-2020 but remains a value buy because of the massive potential of its projects. Solaris currently remains focused on its flagship project, the Warintza Mine in Ecuador. This rich mine is a high-grade open-pit resource with a 5km by 5km cluster of outcropping copper porphyries. Of course, this copper project will remain the focus but there is also untested gold potential waiting in the wings.
Solaris is managed by Augusta Group, an incredible value-creating company that boasts annual returns of up to 308% (from the Solaris IPO and subsequent gains in the stock price) in 2020 on current projects, and returns of up to 12,960% on past sold projects. Having such a reliable and profitable partner gives Solaris the advantage they need to pull ahead in the sector. Their strong strategies and valuable projects paired with the formidable management both internally and from Augusta Group gives them the instant advantage over competitors even though they have only been a public company for less than a year.
The company is worth keeping on a watchlist for the growth and discovery potential, and investors have already begun paying attention to this aspect of the business. Investor appetite has not waned since the 2020 IPO, and as activity continues to pick up and production scales up, the stock will continue to be a good buy even as the price doubles or triples. The value of a sub-$10 stock with the potential for scale on so many exclusive and lucrative projects should not be overlooked, and so far investors have been rewarded by their eagerness to own a piece of this company. Trading around $7 at the time of writing, it is within an affordable range for investors across the spectrum from retail to institutional, and is likely only the beginning of a steady climb upward.
Solaris’s willingness and large-scale commitment to responsible and sustainable mining, while serving the communities it operates in, the health and safety of its people and the environment means that it will also benefit from investors’ increased appetite for clean energy, and the decarbonization trend sweeping the industry. With the recent announcement out of Ottawa that Canada is aiming to achieve net zero emissions by 2050, industries are ramping up their efforts to achieve those goals both at home and abroad. The appeal of a company taking care of their people, the environment, and their bottom line all at the same time is now a necessary selling point for any mining company today and in the future. Solaris is already ahead of the curve and is being rewarded for those commitments.
As more news and reporting are sure to come down the pipeline, we will make sure you can stay updated about all of it right here on MiningFeeds.
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