The SolGold share price is falling today. Here’s what I’d do right now

The SolGold share price is falling, but this investor thinks it could be a good time to make a small speculative investment in this business.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The SolGold (LSE: SOLG) share price fell in early deals this morning as the market reacted to the company’s latest update on its Alpala project.

The project, which is on the Cascabel concession in northern Ecuador, is the firm’s flagship asset. It’s ranked as the ninth-largest undeveloped gold deposit in the world. I think this shows the company’s potential. But it also highlights the risks. Developing large mining prospects can be hugely expensive and time-consuming. The projects can become money pits and bankrupt their backers. 

Why is the SolGold share price falling? 

The challenges of bringing a large mining prospect to the market are displayed in SolGold’s latest trading update. The company’s pre-feasibility study for the Alpala project will now not be complete until “late 2021.

Management said the company needs the extra time to address “a number of mine development and metallurgical alternatives and potential upsides, including the resource potential on other targets within the Cascabel concession.

The press release went on to add the firm’s project committee has “noted that it would be advisable to consider adjusting the current draft mine development plan and the draft mine production plan to de-risk the project.

It seems to me that the SolGold share price has fallen on this news because it’s now going to take longer for the company to develop its Alpala project and take advantage of high gold prices. I think this is both a benefit and a drawback. Delays to mining projects are never good.

However, jumping into a project without first understanding the capital requirements and potential rewards would be even worse. Therefore, while the delay is disappointing, in my opinion, management has made the right decision.

Trying to reduce initial capital requirements and optimising output in the early stages could significantly increase initial profitability, although it’s not guaranteed. 

Buy, sell or hold

Even though the company owns one of the world’s largest undeveloped gold mines, I believe the SolGold share price is a risky proposition. Developing large mines is very challenging, and there’s no guarantee the project will live up to initial expectations. Investors will only really find out if the mine is as good as promised when shovels are in the ground. Up until that point, there’s no guarantee the corporation will ever find anything.

Still, pre-feasibility studies will de-risk projects if they’re executed correctly. So, it seems to me as if management is doing everything possible to reduce the challenges facing the business. 

As such, I’d consider using today’s decline to acquire a small position in the group for my portfolio. It’s clear to me the SolGold share price is a speculative investment. But it also has terrific potential.

I’m comfortable with that level of risk with a small position in my diversified portfolio. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »