By Melanie Burton
(Reuters) - Global miner BHP (AX:BHP) has agreed a $35.2 million (27.37 million pounds) deal for a 6.1 percent stake in SolGold PLC (L:SOLG), giving it a share in the promising Cascabel copper-gold project in Ecuador after missing out in an earlier attempt.
BHP Chief Executive Andrew Mackenzie said the investment would give the miner exposure to a high quality copper exploration project in Ecuador, a "highly prospective" location for the company.
BHP has spent the last several years paying down debt and like many other miners is on the hunt to grow its asset base by finding and developing copper projects. Copper is seen as a growth market due to its use in renewable energy, but major projects are notoriously thin on the ground.
The deal sets the stage for a potential showdown with Australian gold miner Newcrest Mining Ltd (AX:NCM), the top shareholder in SolGold, Cascabel's majority owner and operator, with a 14.54 percent stake.
"It's a pretty attractive asset. It's early stage but the geology looks prospective," said a Melbourne-based analyst for a fund manager, who declined to be named because of company policy.
"This basically means that Newcrest isn't going to have it all to themselves. I think if I was Newcrest or SolGold management, I would be a bit nervous about BHP being in there."
SolGold rejected an offer by BHP to take a 10 percent stake in the firm in October, 2016, with current Chief Executive Nick Mather terming the proposed deal by BHP at the time as "very inadequate".
SolGold may have greater synergies with Newcrest, given the major deposit is a copper gold porphyry system that could be best mined by using a block cave method, the analyst said.
Block caving is a type of underground mining that involves hollowing out an ore body and allowing it to collapse under its own weight. It has a smaller environmental footprint than open pit mining. Newcrest is one of just a handful of miners that has block cave experience, at its Cadia gold mine in Australia's state of New South Wales.
BHP will buy the stake of 103.1 million shares in SolGold from Guyana Goldfields Inc (TO:GUY) for about 27.4 million pounds.
($1 = 0.7779 pounds)