Condor Gold (LSE:CNR) - Undervalued Gold Asset in Nicaragua Primed for Acquisition in Rising Market

Sep 18, 2024

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Interview with Mark Child, CEO of Condor Gold PLC

Our previous interview: https://www.cruxinvestor.com/posts/condor-gold-cnr-primed-for-a-take-over-2557

Recording date: 16th September 2024

Condor Gold PLC, a London and Toronto-listed mining company, presents an intriguing investment opportunity in the gold sector with its La India project in Nicaragua. The company has positioned itself as a potential acquisition target, offering investors exposure to a high-grade, fully-permitted gold asset in a rising precious metals market.

The La India project boasts a substantial 2.4 million ounce gold resource, with an impressive grade of 4 grams per tonne. Half of this resource is open pit, while the other half is underground. Condor Gold has completed a bankable feasibility study on the main pit, which represents about 40% of the total ounces.

CEO Mark Child outlines three production scenarios:
Reserve Case: 82,000 ounces of gold per annum
Open Pit Scenario: 120,000 ounces per annum (including feeder pits)
Combined Open Pit and Underground: 150,000 ounces per annum

A key strength of the project is its "shovel ready" status. Condor Gold has secured all necessary permits for construction and operation, as well as acquired all required surface rights, investing $45 million in land acquisition across 55 plots. This comprehensive approach significantly de-risks the project for potential buyers.

The economic potential of La India is substantial, particularly in the current gold price environment. At $1,600/oz gold, the project demonstrates robust economics with a 23% IRR for the reserve pit. At $2,000/oz gold, EBITDA more than doubles to approximately $750 million for the reserve pit alone. The high-grade nature of the deposit provides significant leverage to gold prices, with minimal change in operating costs as prices rise.

One of the most attractive aspects of the La India project is its relatively modest capital expenditure requirement of $105 million. This low initial capital outlay broadens the pool of potential acquirers, as it's within reach for mid-tier producers and even some junior miners.

However, investors should be aware of the jurisdictional risks associated with Nicaragua. While the government is supportive of mining and there are other operating mines in the country, Nicaragua faces international scrutiny due to concerns about its democratic processes, resulting in U.S. sanctions on certain individuals and entities. These sanctions, while a consideration, do not directly impact mining operations.

Condor Gold has engaged Hannam & Partners to run a formal sale process, with at least eight companies under confidentiality agreements and more expressing interest. The company's largest shareholder and chairman, Jim Mellon, who owns 26% of the company, is leading the sale negotiations, seeking a valuation that reflects the project's true worth. For investors, the significant disconnect between the company's market valuation (approximately $60 million) and the project's net present value (ranging from $350 million to $900 million) presents a potential opportunity. Any announcement of a transaction could result in a substantial re-rating of the stock.

In conclusion, Condor Gold offers a high-risk, high-reward proposition for investors bullish on gold and willing to navigate the complexities of frontier market mining. The company's advanced-stage, high-grade asset, coupled with the ongoing sale process, provides a unique opportunity for potential value realization in the near term. However, investors should carefully consider the jurisdictional risks and uncertainties surrounding the sale process when evaluating this investment opportunity.

View Condor Gold's company profile: https://www.cruxinvestor.com/companies/condor-gold