Analysts sometimes look at security turning points, which are milestones that support an investment thesis, usually backed by third-party data.
In mining, this could be achieved through a feasibility study; in drug development, through the completion of a clinical trial.
In an ideal scenario, this risk reduction would align with an increase in the value of a company.
Milestones: Cóndor has passed important milestones to leave India ‘ready for the shovel’
While this often happens, it is not always the case.
Let us consider this last point in the context of Gold Condorowner of the 2.3 million ounce La India project in Nicaragua.
Condor has passed important milestones to have La India “ready to go” and is now seeking a buyer to bring the mine into production within 12 to 18 months.
This means we are just a few months away from a crucial and final turning point: the crystallization of value.
Under the plan developed by Condor, the mine would begin life as an open pit operation with production of 82,000 ounces annually and increase to 150,000 ounces within three years.
The initial capital expenditure required, which was a relatively modest $106 million, with a semi-autogenous (SAG) mill already installed.
Politics: India is likely to attract buyers familiar with the country or comfortable with the politics of South and Central America.
Permits are complete and land has been acquired for the operation.
It has taken a decade and about $90 million in shareholder financing to get the project to this point.
That production figure of 82,000 ounces per year is for a single open pit. Two more are fully permitted for extraction.
A buyer is therefore expected to mine them during a construction phase and start with around 120,000 ounces of gold a year from three permitted holes from day one.
Now this is important when we look at the economics of the project.
Before doing so, it is worth noting that India is not without challenges, the main one being Nicaragua itself.
The United States has imposed sanctions on the country over concerns about human rights abuses, corruption and the erosion of democratic institutions under the government of President Daniel Ortega.
This has been a discount factor for some investors and could affect the interest of potential buyers.
That said, Condor Chairman Jim Mellon, who owns 26 percent of the company and is leading negotiations with potential buyers, reported in mid-May that talks are “advanced.”
Eight companies are subject to NDA and there have been five non-binding offers and three site visits.
While no firm offer has been received, detailed discussions are underway with a gold producer and two other parties are actively reviewing the company’s assets.
“The board is optimistic that a sale will be concluded in the near future,” Mellon told investors in a commentary alongside the recent previews.
This level of interest in an asset located in a supposedly challenging mining jurisdiction is notable.
And despite the sanctions, Nicaragua has an active natural resources industry with a well-defined legal and fiscal framework.
Operators receive exploration and exploitation concessions for 25 years, pay a 30 percent tax and pay a 3 percent net smelter royalty.
Investors retain 100 percent of their developed assets without transferring them for free to the government, which improves the investment case.
The gold sector includes three main operations: Bonanza, El Limón and La Libertad.
Local authorities are described as favorable to mining and their operations are considered no more difficult than in Mexico.
India is likely to attract buyers familiar with the country or comfortable with the politics of South and Central America.
Chinese investors, known for taking more risks, could also be interested.
The 2022 definitive feasibility study of the first phase of India’s open pit development, which represents about 40 percent of the resource, gives a ‘base case’ net present value of $87 million (after costs initials), which represents a bonus for the Condor project. current market value of 70 million dollars.
This assumes a gold price of $1,600 per ounce.
That NPV increases to $320 million at current gold prices, assuming a 5 percent discount rate and a total sustained cost of $1,039 per ounce. The recovery period would be 20 months.
Now, remember that analysts expect this project to open at 120,000 ounces annually for six years.
So by adding the two feeder wells, the asset takes on a whole new dimension.
Life-of-mine earnings (EBITDA) would be $1.36 billion (based on a total cost of $815 per ounce), according to the company’s preliminary economic assessment for 2021.
On that basis, the recovery would be just seven months, while the NPV is estimated at just over $600 million, which gives an IRR of 101 percent.
All things being equal, a sale could close in a matter of months, meaning Condor is on the verge of a major turning point.
However, the current share price, stagnant over the past 12 months, does not even reflect India’s base case valuation.
This undervaluation persists even though gold bulls predict prices above $2,700 per ounce by the end of the decade.
Investors should note that while there is the potential for substantial returns, there is also the risk that no buyer will emerge for India. This is a classic risk-reward scenario, not a risk-free investment.
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