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Can the SolGold (SOLG) share price continue climbing?

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A miner down a mine shaft
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The SolGold (LSE:SOLG) share price leapt last week following more encouraging progress from its Cascabel project. The gold and copper mining stock has been on a bit of a rollercoaster ride this past year, reaching as high as 43.9p and as low as 19.82p. That’s certainly not uncommon for a young exploration business. But can the momentum from last week continue? And should I be considering it for my portfolio? Let’s take a look.

The rising SolGold (SOLG) share price

The primary catalyst behind last week’s surge in the SOLG share price appears to be a new set of drilling results. Specifically, those of its Tandayama-Ameríca deposit located approximately 3km north of its flagship Alpala site. The company has confirmed the presence of medium-grade copper & equivalents across the first 13 test drill holes. Assay results from holes 14 to 23 are still being analysed. And drilling for 24 to 27 is now under way.

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This discovery is undoubtedly good news. But what seems to have investors excited is a preliminary detection of visible chalcopyrite veining with a 2% concentration at drill hole 24. That’s a fancy way of saying it found high-grade copper. For reference, anything above 1.5% is typically considered excellent. The news is even more promising given that trace amounts of gold were also found.

Beyond confirming the presence of minerals, the purpose of drilling assays is to isolate the best location to establish a fully developed mining site. By the sounds of it, SolGold may have just found what it was looking for. And with an 85% equity stake in the Cascabel project, the SOLG share price could have the potential to explode over the long term.

The SolGold share price has its risks

Taking a step back

As exciting as these results may be, there remains a lot of work to be done.  A mineral resource estimate for Cascabel is expected to be released later this year. But even after this is published, developing a fully functional mining site is a long and expensive process. In other words, it could be several years before any form of ore extraction takes place.

Another important factor to consider is the fact that SolGold is still a pre-revenue business. With no active sites in its portfolio, the company is dependent on external financing to keep the lights on. As it stands, SolGold has around £105m of debt on its balance sheet. The loans have granted it a big chunk of capital to work with. But it may not be sufficient over the long term. So, I wouldn’t be surprised if its equity stake in Cascabel gets smaller or if SolGold decides to issue additional shares. Either way, these actions would likely hurt the SOLG share price.

Can the momentum continue?

Suppose the next set of drilling results also come back positive? In that case, I think it’s likely that the SOLG share price will continue its current upward trajectory. However, as it stands, the stock’s market capitalisation is being driven by future expectations of performance rather than underlying fundamentals. That’s not the sort of investment I’m personally interested in making. Therefore, I’m keeping SolGold on my watchlist for now.

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Zaven Boyrazian 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.

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