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What going on with the SolGold share price?

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A miner down a mine shaft
Image source: Getty Images.

The SolGold (LSE:SOLG) share price has been climbing rather impressively recently. In fact, over the past two weeks, the company has seen its stock rise by more than 16%. And over the past 12 months, it’s up around 45%. Considering that at the start of 2021, the SolGold share price nearly halved, seeing such a rapid recovery is impressive. So what’s causing this growth? Let’s take a look.

The rapidly recovering SolGold share price

I’ve previously explored this business. But as a quick reminder, SolGold is an early-stage mining group operating out of Ecuador and Australia. Despite its small size, the firm successfully managed to secure the rights to a large region of land containing what could be the world’s best-underdeveloped gold and copper mining location. At least, that’s how the management team describes it. And that may not be a exaggeration.

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This area was titled the Alpala project. It contains a multi-billion-dollar mountain of wealth responsible for sending the SolGold share price up by nearly 70% in 2020 alone. However, the recent growth appears to originate from progress made at the firm’s Cascabel project.

Located approximately 3 km north of the Alpala deposit, Cascabel is 85% owned by SolGold through a subsidiary. While it is currently unknown how much ore is present at the site, seven of the 10 drill hole assays detected consistent levels of copper and equivalents in densities similar to what was initially found at Alpala. Further assays need to be carried out. But the management team has stated it aims to release a mineral resource estimate later this year.

This is excellent news for the business and its investors. Therefore seeing the SolGold share price take off is not that surprising to me.

What’s next?

The progress made at both Alpala and Cascabel is promising. However, there remains a long road ahead where many things can go wrong. The pre-feasibility study for Alpala has been consistently delayed, with a current release date set for late 2021. And until this is completed, the deposit will remain untouched. Cascabel, on the other hand, is in a much earlier stage of development. Therefore even if it reveals itself to be a second Alpala, it could be several years before any mining actually starts.

Why does this matter? Being a mining business, SolGold has no pricing power. It is almost entirely at the mercy of fluctuating commodity prices. At the moment, due to supply restrictions caused by the pandemic and fears of inflation, the price of copper and gold have been rising rapidly. However, there is no guarantee they will stay that way. In other words, SolGold may not be able to take advantage of the currently elevated material prices. And therefore, any decline in the value of these metals will likely adversely affect the SolGold share price.

The SolGold share price has its risks

The bottom line

My opinion on SolGold remains largely unchanged. The latest results from Cascabel are exciting, but as a whole, the company is still very young with no source of revenue.

If the management team successfully executes its current strategy, then I believe the SolGold share price could see some explosive long-term growth. However, with so many unknowns at this stage, I’m still keeping this stock on my watch list for now.

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Zaven Boyrazian does not own shares in SolGold. 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.

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