High-flying Condor still has plenty of room to soar

In the past year shares in gold miner Condor Resources (LON:CNR) have more than doubled in value.

However the past six weeks have seen the profit-takers move in and the stock has come right back from its December 31 high of 10.75 pence share to trade at 5.88 pence.

The chatter in the market and on the bulletin boards suggests there is some disappointment surrounding the company’s resource update from La India, the low sulphur, epithermal gold project in western Nicaragua.

It revealed Condor had converted just 900,000 Russian ounces of gold out of a possible 2.4 million to a more acceptable JORC-compliant figure. 

However there are a number of points to note about this. First, not all the data has been processed. We’ll get a far better picture once all the figures have been crunched.

Also, the resource base should expand to well over 1 million ounces following the completion of 5,000 metres of drilling, which began in January.

Meanwhile, there is major potential upside if the company can acquire a tenement within La India, which is currently owned by local businessmen.

Ambrian analyst Duncan Hughes believes the market is overlooking the potential of La India, and reckons the current share price seriously undervalues the resource-base and factors in none of the potential upside.  

“The huge volume of data supplied from historical drilling, trenching and mine infrastructure will now be fully processed by March 2011 and Condor will then be in a position to present a more complete resource picture,” Hughes says of the task facing Condor as it attempts to convert the Russian resource to JORC.

In a note to clients he adds: “The company also expects a portion of the resource to be upgraded to the ‘indicated’ category, through surveying historical drill holes, trenches, existing mine infrastructure and mine geology.

“Running in tandem to the ‘conversion process’, we also expect to see La India‘s resource grow over 1Moz as a result of the current 5,000m diamond drilling programme started in January, the results of which are expected to be released during the summer.

“Additional upside also exists within a currently excised tenement at La India. The tenement is believed to host several hundred thousand ounces and is surrounded by the Condor gold resource. 

“The tenement is owned by a local businessman and we would not be surprised if Condor looked to acquire these assets at some point in the future.”

Hughes rates Condor’s shares a speculative buy and sets a price target of 7.5 pence a share. This is based on taking the average per-ounce valuation of Latin American explorers. He has compared Condor with 13 other companies in the region.  All are at the pre-bankable feasibility stage of development.

“We are comfortable that applying an average enterprise value per resource ounce valuation from the sector is fair and reasonable when taking into account the high-grade gold, proximity to infrastructure, inferred nature of the resource and exploration upside at La India,” Hughes says.

In El Salvador, meanwhile, Condor owns two projects - La Calera and El Pescadito – which combined have a gold resource or a gold equivalent resource of around 1 million ounces.

However there is a moratorium on mining in the country. The Tau Group of Spain is carrying out a government backed environmental study into the mining industry, which is expected to make its recommendations by the end of the year.

The addition of these resource ounces would lift the Condor valuation to 16 pence a share, according to the Ambrian analyst.

However he adds: “Given the uncertainty over mining in El Salvador we have applied no value to the La Calera and Pescadito resources at this time, and believe this should be viewed as a free option with upside.”

Condor chairman Mark Child will be one of our speakers at Proactive Investors One2One Forum tomorrow at the Chesterfield Hotel. The event begins at 6pm.