The Cascabel mining project in Ecuador has been in the news of late with major commodities players expressing interest in the project, which could host the world’s largest undeveloped copper mine, as well as significant gold resources. Cascabel has a Canadian connection, as it is partially owned by Newfoundland’s Cornerstone Capital. Former president and CEO Glen McKay expanded Cornerstone’s interests beyond Newfoundland, acquiring Santa Barbara Copper and Gold, the former owner of Cascabel, in 2011.
Cornerstone currently has a 23% aggregate interest in Cascabel, consisting of a 15% direct interest in the project (which is being financed by joint venture partner SolGold PLC until a feasibility study has been completed), as well as approximately 10% of the shares of SolGold. Exploraciones Novomining S.A. (ENSA), an Ecuadorian company owned by SolGold and Cornerstone, holds 100% of the Cascabel concession. SolGold, which is funding the exploration at Cascabel and is the operator of the project, owns 85% of ENSA.
In September of this year, BHP Billiton acquired Guyana Goldfields’ 6.1% interest in SolGold’s shares for about US$35 million. The buyout doesn’t give BHP Billiton control over Cascabel (Australia’s Newcrest Mining owns 14.5% of SolGold) but some analysts believe this is only the company’s first move. “It looks like BHP and Newcrest will battle it out for control of SolGold (and perhaps Cornerstone), with Cascabel being the real prize,” Glen McKay said in a recent blog. “I don’t know who’s going to win, and other parties hopefully may join the fight, but I do know this will be good for Cornerstone shareholders.”
Glen McKay is a well-known Newfoundland entrepreneur and the founder of Newfoundland Hard-Rok, an explosives manufacturer providing drilling and blasting services to the mining industry. McKay is the chair of Newfoundland Hard-Rok’s board of directors and on a day-to-day basis, manages the firm’s finances. Although he no longer works at Cornerstone, McKay is still a major shareholder.
“As a Cornerstone Capital shareholder, I’m hoping that company executives are thinking about ways to build and extract value,” McKay said in an interview. “If that means selling the Cascabel discovery to a larger player in the mining industry, then I would support that decision. The mining industry is expensive and requires large amounts of cash to bring any mine to the production phase.”
While BHP Billiton and Newcrest Mining fight for control over Cascabel, analysts are wondering if either company will increase their stake in the mine’s owners (SolGold and Cornerstone) or if another player will step in. Weak copper and gold prices could scare off potential new suitors, Glen McKay believes. “Gold prices have been range-bound for the past couple of years and it may require a sharp uptick to build a fire under the gold mining industry,” McKay says. “When prices drop for an extended period, exploration and development decreases and this eventually results in lower production. When the markets pick up, then demand exceeds supply and prices rise.”
No matter the outcome, Cornerstone shareholders will likely end up happy. The stock price nearly doubled following the BHP Billiton deal. That trend is set to continue as Cascabel’s ownership gets sorted out and the cyclical prices of gold and copper rebound.
Published by knorr kendra