New Coverage by Scotia $14.00 TargetSolaris Resources Inc. Advancing a World-Class Copper Asset in Ecuador
INVESTMENT HIGHLIGHTS We have initiated coverage on the shares of Solaris Resources with a Sector Outperform rating and C$14.00 target.
The company’s flagship project is Warintza, a wholly owned, large-scale, advanced exploration copper project in Ecuador. In our view, the project is unique because of its relatively high-grade nature, continuous tenor of mineralization, good access to infrastructure, and its backing by a well-known management team at Augusta Group with a proven track record and deep access to capital. The company is currently drilling 60,000 m at Warintza and surrounding targets with a goal of completing an updated Warintza resource estimate later this year.
A prior resource outlined inferred resources of 124 Mt grading 0.56% copper containing 1.5 billion lb of copper, along with molybdenum and gold by-products (a copper-equivalent grade of ~0.70%). However, we believe this understates the resource potential at the deposit, as the resource was based on only ~6,500 m of historical drilling to a depth of only ~200 m. Based on drilling and geophysical results to date, Solaris has outlined a target area at Warintza Central starting at surface with a strike length of over 1.1 km that remains open and extends to a depth up to 1,200 m.
Well-funded through initial project advancement. Solaris currently has ~$70 million of cash on hand, which, in our view, is more than sufficient to fund the ~$30 million work program for this year, including the forthcoming resource update and continued advancement toward an economic study. In addition, the company has over C$80 million of in-the-money (ITM) warrants that could be used for project advancement and exploration as these are exercised.
Valuation and next steps. The majority of our valuation is attributed to Warintza using a discounted cash flow (DCF10%) approach based on our assumed resource target at the deposit. In addition, we ascribe a minor component of valuation to the company's other pre-development and exploration properties. SLS shares are currently trading at 0.85x P/NAV. We ascribe a 1.0x multiple to NAV for our price target as we believe that Solaris shares can re-rate higher as the company continues to expand and upgrade the resource at the flagship Wartinza project. With ~14,000 m of drilling completed to date of a total 60,000 m planned, we expect an active year of news flow as drilling results are released, leading to an updated resource in 2H/21.