Is a Major Shift Brewing in This Gold Co.'s Future?
Contributed Opinion

The management of a certain gold company I know is normally very communicative, especially with me. Lots of texts, emails, and all the rest of it. They are mining promoters, after all, and every promoter is looking to publicize their story. Bloggers and journos like me get the story out.

But when I messaged them this week, I was flat-batted away with a rather terse, "I can't comment."

That made me think something was up.

The company's main property — in the Americas — is solid. It's not the greatest property the world has ever seen, but there are over two million ounces of gold, decent grade, fairly straightforward to mine.

But management is not mine builders. They have de-risked the project and shown how a mine can be built, and at what price. It is "construction ready." But they don't want to build a mine themselves. They have made this abundantly clear in their literature and social media: the property is for sale.

The thing is, it's been for sale for two years. I'm not saying anything new. What has changed is this sudden, "I can't comment."

I also note that the most likely buyer of this company, a billion-dollar, multi-national operation that is aggressively expanding, experienced in the country, with concessions, a mine, and, most significantly, a mill — which needs ore — almost next door, completed on a major acquisition just last week. Its hands are now untied. It can move freely.

Is this "certain gold company" about to be taken out?

If so, at what price?

Something is afoot, in my view.

I know it's another junior mining company, and they have been beyond the pale awful, but hear me out. . . 

Condor Gold

Listed on both AIM in the UK and the TSX in Canada, Condor Gold Plc. (CNR:LSE;COG:TSX) — market cap around £40 million (US$50m) — has identified 2.4 million ounces of gold from some 80,000 metres of drilling at various properties in and around its La India project in Nicaragua.

La India is the company's main asset — on which it sinks or swims — so this is a fairly straightforward situation to analyze.

Divide those 2.4 million ounces divided by the company's market cap, and you have an approximate valuation of US$21/oz: on the cheap side, even by the standards of today's crappy mining markets, but there are cheaper situations (Moneta, anyone?).

Part of the cause of that low valuation will be AIM. It's a bad exchange. Part of that will be Nicaragua. Though the country may be attractive geologically — there is lots of gold, and the country has a good history of mining, with gold being its biggest export — geopolitically, it is pretty much a dictatorship. Ergo, avoid (for all sorts of reasons).

But the biggest cause of the low valuation is this crap market for juniors, generally.

Here is a fine example of the wealth destruction that is mining today. Condor has spent over US$90 million over the last 12 years or so, most of which went into developing La India, though plenty will also have gone on G&A, PR, legal, and all the rest of it. For the US$90 million it has spent, it has become a struggling, undervalued, US$50 million market cap, development play. Condor's is not unique in this regard. It is common across the board in this depressed sector.

The average grade at La India, like the property itself, is decent — 2.5 to 3 g/t. The gold is mineable, as the historic mining on the property demonstrates. These would be fairly straightforward open-pit mines. But, while everything is solid, none of this is stand-out, amazing, irresistibly good. There are a number of similarly sized and undervalued development plays out there, not least Moneta Gold (ME:TO), with whom long-time readers will be familiar/frustrated/fuming.

The reason I am covering Condor today is that I've got a feeling its time may have come.

Why now?

Let's start with management.

I know both the CEO, Mark Childs, and the Chairman, Jim Mellon, personally. Mark Childs is a good man: ex-army, affable, diplomatic, competent, reliable, word-is-my-bond type. I first met him a couple or three years ago by chance in, of all places, Sark in the Channel Islands, where he had just moved. He lives in a converted lighthouse on the cliffs where my kids and I were walking, and he happily gave us a tour.

There is no Income or Capital Gains Tax in Sark, and one presumes that, among the reasons he had moved there, some were related to tax planning. Was he anticipating some kind of taxable event?

Mark owns about 2.5% of the company, with the largest shareholder being Chairman Jim Mellon, who owns 25%. Jim has been Chairman of the company for a little over a year and a director for eight years. He is an extremely successful and capable businessman, a billionaire, and more, who has made much of his fortune in junior resource stocks. He needs no introduction from me.

Also on the board are veterans Ian Stalker and Andrew Cheatle, who have between them probably 75 or 80 years of experience in the mining game.

Also of note among Condor Gold's long-standing shareholders is U.S. investor James Randall Martin, who owns just shy of 4% of the company and has a track record of investing in and successfully selling on gold mining projects in Nicaragua. I gather he has made some $100 million or thereabouts this way. 

Management has made it abundantly clear that they are not mine builders, that they do not have the experience or the inclination to build a mine at La India, and that the project is for sale. This is explicit in the company's literature, its social media, and its presentations and has been for several years. In November 2022, for example, Condor announced that it had appointed investment bank Hannam and Partners to help find a buyer for the project.

We know then that the company is for sale and has been for some time.

The strategy has been to get La India as de-risked and attractive as possible. This it has done. In the company's own words: "We have a gold mine that is fully owned/permitted, construction-ready, in a major gold district, with a new SAG mill, and the potential to produce 150,000 oz of gold per year." 

Breaking that down a bit: Condor conducted a preliminary economic assessment (PEA) in 2021, followed by a bankable feasibility study (BFS) in 2022. Build time for the mine would be 18 months at a cost of US$106 million. The BFS shows a 100,000 oz production target for the first three years, rising to 150,000 after that for another ten years. Production costs would be in the region of US$1,000/oz all-in. It has acquired a US$7M, 2,650tpd SAG mill, which is now sitting in storage. The Pan American Highway is 15km away. Grid powerlines run through the property. It would be a relatively straightforward open-pit operation before heading underground. With some exploration, it can increase the resource from 2.4 million to a significant 5-million-ounce gold district.

Mining companies never seem to attain the NPVs outlined in preliminary economic assessments unless we are in a bull market, which we are not. But at 150,000 oz per annum production, the NPVs outlined in the 2021 PEA are:

• US$418M NPV and IRR 54% at US$1,700 oz gold. 

• US$628M NPV and IRR 74% at US$2,000 oz gold. 

• US$769M NPV and IRR 87% at US$2,200 oz gold. 

A lot higher than where we are now. 

On the company's Twitter/X feed, it says they have had substantial interest from two gold producers with whom they are in advanced discussions. "To date, there are eight companies under NDAs, five non-binding offers received, and three site visits completed. Companies under NDAs have access to all drill data, technical studies to the Feasibility Study level, details of permits to construct/operate, and financial models."

From my conversations with Mark over a year ago, I remember him saying Chinese buyers had shown an interest. But for me, the most obvious buyer would be Calibre Mining Corp. (CXB:TSX;CXBMF:OTCQX), which runs two of the largest mines in Nicaragua: the Libertad and El Limon mines, acquired in 2019 from B2 Gold, the latter part of a 20,000-hectare concession very close by.

Production from La India could easily feed the Limon processing plant. Just as Condor has stated all over their literature, it is for sale; Calibre has stated that it is expanding. The last few years have more than demonstrated that. As well as those B2 assets in Nicaragua in 2019, Calibre acquired Nevada producer Fiore Gold in 2022 and just last week completed its acquisition of Marathon Gold, a gold development play in Newfoundland. Calibre now has a market cap close to CA$1 billion and plenty of paper to play with. With the Marathon merger now complete, it is free to move forward.

Chairman Mellon made a £1 million increase to his investment in Condor last month. Without his protection, it's easy to think that Condor would have already been sold, and for less than it's worth, but Mellon has not become the success he has by selling things too cheaply. He should get them a fairer price. Billionaires are usually good at that.

The acquisition of Condor has been on the cards for a long time, but, as I say, Mark is always quick to respond to texts, as all good promoters should be if he senses potential coverage. He has been nudging me to write about Condor ever since we first met. But I messaged him a couple of days ago to see how things were progressing and, instead of the usual response, got a very curt, "I can't comment on anything at the moment." I emailed Jim asking if he had ten minutes to chat about Condor and got a similar two-word reply, "Can't Dominic."

That is what makes me think a deal is close.

I might be putting two and two together to make five. I don't know. It could easily be that no deal happens, and Condor remains stuck for sale.

I guess if some kind of deal does happen, it would be somewhere in the 30-40p range (53-70c). My bet would be 35p or thereabouts. If the buyers are Chinese, it is likely to be a cash deal. If it's Calibre or some other mid-tier, an all-share deal is more probable.

A word of warning: this stock is highly illiquid. It is currently sitting at 20p or 35c, but it barely trades. If you do decide you want to take a position, don't chase it up and overpay. At the end of the day, it is a penny stock — so manage your risk.

You can find more articles like this at The Flying Frisby.

Important Disclosures:

1. Dominic Frisby: I, or members of my immediate household or family, own securities of: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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Dominic Frisby Disclosures: This letter is not regulated by the FCA or any other body as a financial advisor, so anything you read above does not constitute regulated financial advice. It is an expression of opinion only. Please do your own due diligence and if in any doubt consult with a financial advisor. Markets go down as well as up, especially junior resource stocks. We do not know your personal financial circumstances, only you do. Never speculate with money you can’t afford to lose.