SolGold (LSE: SOLG) (TSX: SOLG) and it subsidiary Exploraciones Novomining S.A. in Ecuador secured the right to develop the Cascabel Project for 33 years, with the possibility of renewal.
The company announced on Friday it completed negotiations and reached an agreement on a term sheet for its exploitation agreement at its Cascabel copper-gold project in Ecuador.
The exploitation agreement establishes the legal and financial terms and conditions required for the project’s development and the term sheet has received approval from the Ecuadorian Government.
In connection with this, it had agreed to make an advance royalty payment of $75 million to the Government of Ecuador. The payment will be split into $25 million upon the start of concentrator construction, followed by two payments of $25 million each on the first and second anniversaries from the date of the first payment. This advance royalty can be offset against the government royalty.
The advance royalty payment will be subtracted from the smaller of two amounts with either 50 per cent of the regular royalties owed or 10 per cent of the total advance royalty payment made. This deduction will be calculated every six months, starting from the time when the regular government royalty becomes payable, until the entire advance royalty is fully settled.
The company is anticipating a reduced corporate income tax rate of 20 per cent (previously 25 per cent) throughout duration of the project, subject to approval by the Government of Ecuador amending the Investment Protection Agreement.
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Solgold started exploring Cascabel in 2011
Based on this lower tax rate, SolGold, the state and the mining concessionaire have agreed to a variable net smelter revenues royalty in addition to the advance royalty, following Ecuadorian Mining Law. The royalty rate will range from 3 per cent to 8 per cent, depending on the criteria stated in the Mining Law.
This royalty will apply to the net returns from the sales of copper, gold, silver, or other marketable mineral products from the project.
SolGold started its exploration work with Cascabel in July 2011, which led to discovery of the Tandayama America and Alpala deposits on the Cascabel Concession. Discussions between the company and the Ecuadorian government have been ongoing since January 2023 to negotiate the terms and conditions of the agreement.
“The completion of the negotiations and execution of the Term Sheet of the Exploitation Agreement for the Cascabel Project stands as a significant milestone, reflecting our shared commitment to all stakeholders,” said Scott Caldwell, CEO and president of SolGold Ecuador.
“SolGold extends our sincere gratitude to the Government of Ecuador, regional administrations and local communities for their invaluable collaboration and support, each of whom has been instrumental in this momentous achievement.”
According to Ecuador’s Mining Law, 60 per cent of the money collected by the government as royalties will be used for productive and sustainable projects. These projects will be implemented through the municipal governments and parish councils in the communities affected by the Cascabel Project. The company believes that these funds will play a crucial role in supporting local development and benefiting the communities in the area.
In the coming months, the company needs to submit an application to the authorities to transition the project between exploration to exploitation phases. After approval, Solgold has six months to finalize and sign the Exploitation Agreement with the Government of Ecuador. After that, it must be officially registered with the Mines Registry.
Solgold shares remained flat at $0.28 on Friday on the Toronto Stock Exchange.
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Ecuador has taken steps to improve the country’s investment climate
Ecuador is rich in natural resources, particularly in the mining sector, with significant reserves of copper, gold, silver and other valuable minerals. This abundance of resources attracts mining companies looking to tap into Ecuador’s untapped potential and benefit from rising global demand for these commodities.
The Government of Ecuador has also taken steps to improve its investment climate and promote foreign investment. The government has introduced reforms to ease bureaucracy, streamline regulations and enhance legal protection for investors, signaling a commitment to create a more business-friendly environment.
Other companies operating in Ecuador include BHP Group Limited (ASX: BHP), Lundin Gold Inc. (TSX: LUG) (Nasdaq Stockholm: LUG) (OTCQX: LUGDF) and Adventus Mining (CSE: ADZN).
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