From TD this morningEquity Research June 10, 2022 Please see the final pages of this document for important disclosure information. Metals & Minerals Solaris Resources Inc. (SLS-T) C$11.09 Warintza IPA Continues to Demonstrate Ecuador's Support Arun Lamba, CFA Kul Gill, CFA, (Associate) Event Yesterday after market close, Solaris announced an agreement with the Government of Ecuador in relation to an Investment Protection Agreement (IPA) for its Warintza Project in southeastern Ecuador.
Impact: SLIGHTLY POSITIVE
In our view, this announcement continues to demonstrate Ecuador's commitment to developing a formal mining sector (we note that Chile and Peru have recently increased the likelihood of higher taxes/royalties being imposed).
World-class discoveries are rare and unique (only one major copper discovery since 2015 and a consensus view of a massive upcoming copper supply gap), and Solaris has, in our view, one of the best copper discovery (and the most attractive project in Ecuador with government and community support) in the past two decades.
The IPA provides a foundation of certainty with respect to the legal framework governing Warintza, including stable mining regulations, security of title and investment for the term of the agreement, as well as new tax incentives to accelerate development.
Specific tax incentives include a 5% reduction in income tax, fixing the incometax rate applicable to the company at 20%, exemption from the capital outflow tax, as well as the exemption of all import duties for the import of goods needed for new investments in Warintza.
The signing ceremony for the IPA is expected to take place with the participation of the Warints and Yawi communities (Impact and Benefits Agreement was amended recently) in the village of Warintza in July.
Ms. Lorena Konanz, Vice Minister of Export and Investment Promotion of the Government of Ecuador, stated, “from day one, our administration has been focused on encouraging sustainable and transparent economic growth in Ecuador with incentives to facilitate major investments in the country. In the mining sector, our most important goal is to ensure that development is responsible, environmentally friendly, and socially committed, as at the Warintza Project.”
Solaris last reported a cash balance of $32mm (funded for the year). Additional funds could come from warrants expiring in H2/22 (C$24mm; strikes of C$0.70- C$6.75) and H1/23 (C$30mm; majority at C$1.20). ~63% of the remaining outstanding warrants are held by management.