Low valuation of ASX-listed Ecuador explorer ‘won't last’

Special Report: The weather may be about to cool in Ecuador, but investor speculation surrounding the country’s rapidly growing resources industry is hotting up fast.

Much of the talk centres on whether BHP will pounce on SolGold, the Brisbane-based and London-listed company which owns 85 per cent of the huge Cascabel copper-gold project in the country.

BHP already owns 13.6 per cent of SolGold, as does Newcrest Mining, and the standstill agreement which bars BHP from bidding for the company expires on October 19.

While investors figure out which way to play this, speculation is mounting over a more leveraged opportunity emerging elsewhere in Ecuador.

Highly regarded resources commentator Barry FitzGerald highlighted the upside on offer at ASX-listed Sunstone Metals (ASX: STM) in his latest column, noting that the company had resumed drilling at its Bramaderos project in southern Ecuador.

“Sunstone has been left to drift to all of 1.6c for a market cap of $38 million, remembering that $22m can be knocked off that for Sunstone’s 25% stake in the Stockholm-listed Copperstone Resources, which it is now free to trade out if it so desires,” FitzGerald wrote.

“The stripped back $16m valuation on its interests in Ecuador – a hot exploration spot where mining majors have been writing eye-watering joint venture deals to gain access – won’t last.”

FitzGerald cites Sunstone’s Espirit, which is one of the epithermal gold-silver targets within the broader Bramaderos project area, as being a potential “change agent”.

Two holes have been drilled at Espirit, with at least another six holes to come, to test what is below the high-grade results returned from surface sampling and rockchips at the prospect.

“Early results have been encouraging (a 4m high-grade zone within a 20m lower grade halo),” he wrote. “New results in late October, early November are expected.”

Fitzgerald says “the big-time porphyry potential” of Bramaderos remains, with the interpretation of the likely geometry of the porphyry targets having evolved from a large disseminated model to one that comprises smaller but higher-grade pipe-like intrusives.

“Sunstone’s reinterpretation is pretty robust one, built as it is on three data sets,” he says. “It will be tested with the drill bit and would have probably come ahead of Espiritu had it not be for COVID making the latter easier to move on.”

This article was developed in collaboration with Sunstone Metals, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.