The SolGold (LSE:SOLG) share price has had a rough start to 2021. Despite making good progress, the early-stage mining company saw its share price nearly halve by early February. But recently, it’s been back on the rise. And over the last 12 months, it’s up by nearly 40%. So what’s causing this volatility? And should I consider adding this business to my portfolio?
A hidden mountain of wealth
As previously stated, SolGold is a young mining business that’s still firmly within its exploratory phase. It operates primarily within Ecuador at the Andean copper belt. But it also has operations in Australia and the Solomon Islands.
What makes the company quite unique is its Alpala project. Despite its youth, it’s secured the rights to a site that sits directly on top of a vast copper, silver and gold deposit. The management team has already proclaimed it to be among the world’s best-underdeveloped locations, with an estimated mining lifetime of 55 years. And based on the preliminary results, I’d certainly agree.
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The multi-billion-dollar project is estimated to contain up to 9.9 Mt of copper, 21.7 Moz of gold and 92.2 Moz of silver. Needless to say, that’s a mountain of wealth to be extracted. So, given the enormous opportunity this project presents, why is the SOLG share price behaving like it’s on a rollercoaster?
SolGold’s volatile share price
It seems there remains quite a bit of uncertainty surrounding the Alpala project. There have been consistent delays in the completion and publication of the company’s pre-feasibility study. Consequently, it’s unlikely SolGold will be able to take advantage of current high commodity prices.
However, the business of metals exploration is fraught with risk. And while delays are frustrating, the additional due diligence of the management team does seem a prudent decision, in my opinion.
But delays raise costs. So far, the Alpala project’s expenses are estimated to be between $2.4bn and $2.8bn. This is particularly troublesome as SolGold currently has no revenue stream. That means the company is entirely dependent on external funding, which created some problems for Cornerstone Capital Resources.
The Canadian firm owns a 15% stake in the Alpala project as well as an 8% interest in SolGold itself. And unfortunately, the two firms have a conflict of interest. The first wants to sell the project, while the second intends to develop it. The situation only got worse after a failed hostile takeover, adding even more uncertainty to the SOLG share price.
The bottom line
There’s no denying the Alpala project is an enormous opportunity for this business. And if executed correctly, I believe the SOLG share price could explode in the next few years. However, early-stage mining companies are already exceptionally risky. And seeing stakeholders in the project have significantly different strategies on how to proceed raises some alarm bells.
As big as this opportunity may be, the level of uncertainty and discord gives me pause. Therefore, I’ll be keeping SolGold on my watch list for now. At least until more information becomes available.
