In a June 21 research note, analyst Kerry Smith with Haywood Securities reported that Equinox Gold Corp.
intends to spin out its copper assets, three of which have upside potential, into a new corporation called Solaris Copper Inc. “Our valuation for Equinox included nominal value for the copper assets (CA$20 million) and we think this is a smart transaction to potentially provide additional value to shareholders for projects that have been overshadowed by gold assets,” Smith added.
He listed and described the assets that the Solaris spinco will primarily encompass primarily, which are:
1. A 100% interest in the Warintza project in southeastern Ecuador, which has a current mineral resource estimate of 1.8 billion pounds (1.8 Blb) of copper at an average grade of 0.42% and 132.3 million pounds of molybdenum at an average grade of 0.031%. Equinox has an individual who is working to garner local support for the company to resume exploration at Warintza. Once this happens, Solaris could raise funds, privately or through an initial public offering, for such a program. “It’s expected Equinox will remain a supportive shareholder, as least in the near term,” noted Smith.
2. A 60% interest in the La Verde copper-silver-gold project in Michoacan, Mexico. It contains 3.7 Blb of copper in the Measured and Indicated category at an average grade of 0.41% along with 2.7 Blb of copper in the Inferred category at an average grade of 0.37%. An update to the 2012 PEA on La Verde should be released in late June.
3. A 100% interest in the Ricardo copper property near Calama, Chile, which encompasses about 16,000 hectares on the copper-rich West Fissure Fault.
4. Earn-in agreements for two recently acquired, early-stage copper prospects in Peru.
5. About $500,000 in cash, until Solaris has agreements in place to drill at Warintza.
After a “10:1 rollback,” Equinox shareholders will hold 60% of Solaris whereas Equinox Gold will hold 40%, Smith wrote. “Solaris will operate as a reporting issuer but will not initially be listed.”
A shareholder vote on the spinout is taking place at the July 26, 2018 meeting. Two-thirds of the votes must be in favor of the spinout for it to happen. In the event that it does, closing would occur in August.
On the gold front, Equinox is focused on restarting its Aurizona open-pit project in Brazil, on which additional construction updates are anticipated throughout 2018, said Smith. Another development target is its past-producing Castle Mountain project in San Bernardino County, California, on which a prefeasibility study incorporating results of the 2014 PEA is expected in Q3/18. The company aims to pour its first gold by 2018E.
Haywood has a Buy rating and a per-share price target of CA$2.80 on Equinox.
