Solitario Exploration Moves Bongará Zinc Project to the Forefront
A few days after we first recommended Solitario Exploration & Royalty Corp. (NYSE MKT:XPL – $0.66 USD & TSX:SLR – $0.82 CAD), the Company sold its 80% interest in the Mt. Hamilton gold project in Nevada to Waterton Nevada Splitter, LLC.
On closing of the agreement, Solitario will receive US$24 million and its 20% partner in the project, Ely Gold will receive US$6 million.
The transaction is subject to customary closing conditions, including regulatory approvals and shareholder approval. Shareholder meetings for both Solitario and Ely Gold are expected to be held in Q3 2015, with the closing of the transaction soon thereafter.
Solitario and Ely Gold’s Board of Directors have each determined that the proposed transaction is in the best interest of their respective shareholders. They unanimously approved the transaction and recommend that their shareholders vote in favor of the transaction.
Bongará Zinc Project to the Forefront
With the Mt. Hamilton project out of the way and lots of money in the bank, Solitario will have the opportunity to concentrate on its exceptionally high grade Bongará zinc project in Peru, which was the reason why we recommended the Company in the first place.
Concerning this matter, we were glad to read the following comment from Chris Herald, the President and CEO of Solitario after the Mt. Hamilton deal was announced: “Upon closing the transaction, Solitario will have a very strong balance sheet to focus towards new potential opportunities. Perhaps more importantly we will now be able to highlight our fully-carried to production interest in the high-grade Bongará zinc project being advanced by Compañía Minera Milpo S.A.A. (“Milpo”), our Peruvian partner.“
Milpo, the second largest zinc producer in Peru, operating three of the largest underground zinc mines in the South American country, controls 70% of the Bongará project, and Solitario the balance.
In total, approximately US$60 million has been invested in exploration and development on the Bongará project. So far, Votorantim, the parent of Milpo, has funded 100% of the project expenditures. And Milpo has agreed to further finance Solitario’s 30% participating interest for construction.
We’re very pleased with these developments. The Mt. Hamilton project was too big for a small company such as Solitario. Although the project had successfully been progressed through feasibility and permitting, the initial capital costs of US$91 million to move Mt. Hamilton towards production, were simply too high in these tough times for resource companies.
The Bongará project on the other hand, offers an outstanding opportunity as zinc is facing a significant supply-demand deficit in the coming years. Inventories of the metal are declining quickly as mines are being shut down and demand continues to increase. With many commodity experts forecasting significantly higher zinc prices, Bongará is bound to become a very valuable asset for Solitario.
We were disappointed to see Solitario’s stock price decline after the Mt. Hamilton agreement was announced. After all, if the deal is closed, the Company will receive US$24 million, or $0.61 per share, in cash for Mt. Hamilton. With a current stock price of $0.66, that means all of the Company’s other assets are valued at practically zero. Buy recommendation.
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