Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

Condor Gold tipped to soar once funding hurdle is cleared

The past month has seen a 33% rise in the value of Condor Gold, but at just over 85p a share there is an argument that the current price barely recognises the potential of the business and its flagship asset, La India, in Nicaragua.
Condor Gold tipped to soar once funding hurdle is cleared

The past month has seen a 33% rise in the value of Condor Gold (LON:CNR), but at just over 85p a share there is an argument that the current price barely recognises the potential of the business and its flagship asset, La India, in Nicaragua.

A recent research note by the highly rated mining team at Numis Securities reckons the stock is worth a “base case” 110p, while the “take-out” valuation is 139p.

The target rises to 161p at a gold price of US$1,400 an ounce and 231p at US$1,600, according to the broker’s sensitivity analysis.

Numis also used a 12% discount rate in their model compared to 5% used in many studies. Using an 8% discount rate boosts it by 30%.

There is a school of thought that the 110p and 139p targets are a little conservative even at today’s gold price given the potential size of La India, where the current resource base has been eked from just 10% of Condor’s land position.

As the recent trench work on five new targets close to the planned La India open pit reveal, the asset is the gift that keeps on giving.

So, there are opportunities to layer on significant additional value.

But rather than getting busy with the drill rig, Condor appears to be taking heed of the new realities of a mining sector strapped for cash.

It is in the process of putting together a pre-feasibility study (PFS) that will assess the costs and economics of fast-tracking La India into production with a starter open-pit base only 35% of its 2.33mln oz gold resource.

According to Numis the costs of constructing such a facility that might process a base 75-80,000 ounces (oz) of gold a year, based on 840,000 oz gold in the Indicated category, could be around the US$120mln mark.

The ore for the open pit is high-grade (3.1 grams per tonne), the cash costs are put at US$640 an ounce, meaning the all-in sustaining figure would be a lower quartile US$850 an ounce.

There is the opportunity to add a further 300,000 ounces by converting Inferred to Indicated open pit resources via the drill bit, upgrading around 80,000 ounces from the main pit while tapping the potential of two satellite pits.

This, then, might have the potential to bring output to 100,000 ounces, or perhaps 110,000 if, as expected, Condor can persuade the local artisanal miners to tip up what they’ve been excavating.

So even literally scraping the surface of this opportunity, you have potential to create a mine that would move the dial by adding 20% production for an established mid-tier gold miner producing 500,000 ounces a year.

The PFS, which is due to be published in September, will ostensibly assess the economics of base case production of 75-80,000 ounces.

Although the report is also likely to look at the impact of adding additional above surface resources and how the group might make the most of the 1.2mln ounces that would require underground mining.

Numis reckons the move to underground mining could add a further 41p a share to the price target.

Meanwhile, the results of the recent 3,500 metres of trench work, expected in the next month or so, will give some indication of the La India’s blue sky potential and ought to vindicate the geophysical work undertaken last year.

The company is funded to completion of the PFS, which it is hoped will be followed by a bankable study.

The current anomalously low share price, which values the group at $23 an ounce, not only reflects the poor regard in which gold miners are held, it probably also factors in a potential fund-raise.

The reality is the group will probably have to tap the market for an injection of cash – it is the bane of the small-cap miner.

The alternative, of course, would be to bring in a partner with deeper pockets and perhaps the technical wherewithal and personnel to actually build the mine.

Furthermore, Condor could minimise equity dilution by securing funding via a gold royalty, gold streaming or pre-development capital from a bank.

However, once the funding issue is cleared up, you’d expect the market to unwind the discount rating the shares have endured.

In fact, Numis reckons if the market doesn’t recognise Condor’s potential, a cash-rich predator might.

“Given La India’s advanced stage, high grade and proximity to infrastructure in a pro-mining country, we believe Condor could be a takeover target for a larger player,” it told investors.

View full CNR profile View Profile

Condor Gold PLC Timeline

Related Articles

May 22 2018
The combination of strong management and stable assets makes the precious metals company one to watch as it continues to extend its reach
Gold bullion
March 11 2018
An expanded prefeasibility study has confirmed the potential to generate annual production of 200,000 ounces at Matilda-Wiluna.
June 07 2018
"We acknowledge the continuing disconnect between our share price and the value of our assets when assessed in terms of the in-situ value of our resource and reserve ounces."

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use