Transcript: Condor Gold (CNR, COG) - Mill Arrival Focuses Investors on Production
Condor Gold Plc is a UK based exploration company focused on developing and further proving a large commercial reserve on its 100% owned La India Project in Nicaragua which is a 2.3million oz resource. In August 2018 Condor Gold received an Environmental Permit for the development, construction and operation of a processing plant with a capacity of up to 2,800 tonnes per day and associated mine site infrastructure at La India. From day one of production, Condor Gold aims to be a 100,000oz gold producer per annum, ramping up to 150,000oz per annum.
Condor Gold has 4 drill rigs currently in operation at the site and has recently put out some good drill results. The company is executing feasibility study work on hydrological pump tests, metallurgy, geo-technical drilling, site preparation and clearance. The company is ⅔ through the FS studies and it is on track to be delivered in Q1, 2022.
Condor Gold has put out a PEA which shows 150,000oz per annum over 9 years. The mill has a current capacity of 2,300t/day which can easily increase to 2,800t/day with a bigger motor. FS work shows that this capacity can be doubled in the future.
Stage 1 development at La India is an open pitable strategy with high grade material coming from an open pit, comfortably producing 100,000oz per annum. The operating cash flow from the open pit will finance the underground ‘Stage 2’ development to give extra tonnage. The company will also expand the mill to increase capacity to 4,000t/day in Stage 2.
The La India project is heading towards production and Condor Gold is building the team to take the project to the next level. The management team have extensive experience in mineral exploration, project development and project financing, ensuring that the Company has the best possible opportunity to achieve exploration success and take La India Project through to a bankable feasibility study and onto production.
0:00 – Company Overview
00:22 – Steps Backwards, New Mills & Project Stages
06:32 – Cash Position, Raising Money & PFS
15:53 – Debt Equity, Back Up & Socialism
23:11 – Outro
Mark Child: Hello I'm Mark Child, Chairman and CEO of Condor Gold, we have a 2.3Moz resource in Nicaragua, it's fully permitted, we're going to, we've bought a mill, we're clearing a site, from day one we should be 100,000 oz picking up to 150,000oz/annum.
Matthew Gordon: Hello Mark, now we were going to see each other over at the 2 conferences in United States but I couldn’t actually make it, I wasn't prepared to do the quarantine component but you did and the other thing I wanted to speak to you about was the fact that you'd actually managed to get into Nicaragua. Why did you go there?
Mark Child: Because the asset's there firstly and we, on the way to the conferences you have to spend 14 days somewhere so rather than be on a beach in Mexico visiting the operations made a lot more sense Matt. But it was great to be there, we've got the mill now which we purchased and spoke about last time, is 80% in the country and I went to the warehouse and saw it there. I also had a meeting, a one-on-one meeting with the Minister of Energy and Mines and he kept me waiting 10 minutes so I linked my laptop up to a TV monitor in the Minister's boardroom and showed him a 15 page presentation on photos of the mill coming into the country. I followed it by a 3D video of the processing plant design around the mill we purchased, which is fully engineered now to an FS level, plus or minus 50% engineering. And you could see him sort of sitting there going, "Oh it's really happening, it's in the country and you've designed it," and so I had a 3 hour meeting so that was wonderful, to get that one-on-one with the main Minister. Then I went to site, we've got 4 drill rigs were running at the time on drilling Mestiza, which we put some drill results out on and we're doing FS studies on hydrological pump tests and we're doing some geotechnical drilling and we're clearing the site, doing the site preparation and clearance so yeah a great 2 weeks in Nicaragua.
Matthew Gordon: Yeah I mean I liked this story last time we spoke actually because I think this story's been, you're kind of getting to the final yards as it were because you've been telling the same story for a few years to kind of get people to pay attention and now to get the mill. Especially starting to come into country, it becomes real in a way and that's what kind of intrigued me. You also kept the message quite simple last time round but, here's the but, you talk a language of Feasibility Studies and you've just put out a PEA. Is that a step backwards?
Mark Child: Now that's a good question. We have put out a Pre-Feasibility Study, the one before a bankable Feasibility Study if you like. Feasibility Studies can only indicate or measure or indicate in ounces which are the higher ounces and you can only put reserves in there and we're proceeding with a Feasibility Study on the mainline geo-pit. We will put out a PEA and some people call that a Scoping Study to show what could this be like, where do we want to be and that came out with 150,000oz of gold per annum for 9 years which is a nice number to hang out there. That's on our mineral inventory at the moment, with open-pits and underground. If we use $1,700/oz gold that comes up with a net net present value of $418M, I say net net because a lot of the Canadians put out pre-tax NPVs which as an investment banker you'll, your toes will curl over but it's net of royalties, net of Corporation Tax, net of the upfront CapEx number I've mentioned. So that's still a pretty good number to have, $418M if we did that bigger scenario. As I say we… and it has a 12 month payback which is good. We also showed a second scenario where if it was open-pit only we'd have about a $300M, just over NPV. We'd have a slightly higher IRR of 56%, still the same 12 month payback period so extremely attractive economics from the material that we've currently got and that's why we wanted to show that. I can talk a little bit more if you'd like on the figures that we've actually put out.
Matthew Gordon: Well I wouldn't mind actually. I wouldn’t mind actually because you know, PEAs as you say is what it could be right? Not what it should be so the PFS, you're moving it up those, that study curve is really, really important but I just notice we talked last time, the mill was 2,300t/day. That's not going to deliver you 150,000oz a year is it?
Mark Child: That's correct, so the mill that we've purchased is a big SAG mill, it's brand new with 18 month warranty, its 2,300t/day. With a slightly bigger motor it can be 20% bigger at 2,800t/day so the FS level designs we've done are laid out to double that capacity. Both the mill area and all the tanks and leach tanks and we're clearing out site preparation at the moment, so we're trying to do a minimum CapEx, maximum cash flow to high-grade this and so on the mill we've purchased it'll do 2300t/day our base case will be 100,000oz gold/annum and then we add a ball mill and that takes us 50% to 150,000oz. If we get lucky with our drilling and discovery we double that capacity, it could be a 200,000oz production but we've laid all that out within the studies.
Matthew Gordon: Okay, look I don't mind, 100,000oz fine, you know most companies producing 100,000oz are in or around the $500,000, $1M mark in terms of market cap so if you get there that's good news. You talked to us last time about a stage 1 approach and a stage 2 approach so again, just remind the audience what, stage 1 is obviously most of what we've been talking about here. Is there anything else that we've not touched upon?
Mark Child: Yeah, no stage 1 is open-pittable, stage 2 basically adds the underground in as well. So we have a high-grade scenario where we have 4g material coming through the open-pits, we can comfortably do 100,000oz/annum through that and then we, out of cash flow, without going back to the markets, we can, because it's high-grade and throws up a huge amount of cash at 800 all in sustaining cash costs we can finance the underground development out of the operating cash flow. And then also expand the mill by adding a ball mill on to increase that capacity from 2,300t to say 4,000t/day in the stage 2. So we think that's internally fundable.
Matthew Gordon: Right, okay, so okay, so that explains that, so with regards to, right share price has come off. I think most charts look quite similar to your at the moment with regards to precious metal so how's money? Are you going to be able to get through this next phase that you're growing through?
Mark Child: We will need to come to the market for cash, we're in that business unfortunately where we don't have any revenues at the moment but we have delivered significantly by de-risking the project, we've bought the mill, we're doing an FS Study, we're ⅔ of the way through that FS Study. So an update on the FS since we last spoke, we have completed the FS designs on the processing plant. We've completed FS designs, like bankable feasibility as FS Canadians, our metallurgy we've completed the site wide water balance which is the hydrology. So those are, geotechnical we've completed 1,800m of geotech, we've got one rig, we might have to, we're going to have to go back and do a little bit more geotechnical drilling. But that's still on track to be delivered in Q1 of next year as we speak today, unless there's some operational difficulty on the ground but that's looking positive. We continue to de-risk we've bought pretty much all the land, I mean 97% or so of the land, the rest is, we have prices for it and we can close it should we want to so there's no risk on buying the balance of land in my opinion. I've been saying that for the last 12 months and we delivered on that, so it's getting to be… The site clearance we've completed the phase 1 of all the site preparation of 10ha. There's a nice photo on our latest PowerPoint presentation showing where that is so we've made significant process.
Matthew Gordon: You have but I'm just, so are you disappointed by the reaction to the PEA? Do you think that was a case of didn't quite understand why you'd done the PEA or, you know if the numbers are indeed deliverable, I mean what's the feedback that you got. Certainly when you were in the States at those conferences for instance?
Mark Child: We put it out on the sort of second day of the conference, so the precious metal summit in Colorado. The PEA's been well received, I think we did have, if you look a week ago, the HUI gold bank index is down 50% from its high 12 months ago. That's the main indices in our sector of the junior producers and explorers. So that's off 50%, they say all ships decline with a declining tide and rise with one to an extent so we are in a sector that… and if you look at people like Calibre Mining in Nicaragua, their share prices are off 50%. Hochschild Mining in Peru, all FTSE listed is off 50%, Barrick Gold, biggest gold producer is off 38% so, and gold's come off $250 so we're in a sector now where gold is a little bit out of favour. Some redemption is coming in the funds within people so I think it's more sector rather than us, in fact Condor isn't off halved it's actually held up relatively well over the last 2, 3 months because I think of the significant progress we've made in de-risking the project and the excellent drill results that we've actually put out. So as a relative performer in the last say 3 months, it's been, we've held up well, although that's not a great consolation to people.
Matthew Gordon: No, but so what do you do about it, as a management team because yes the market's weak, but it usually means that the money starts to look elsewhere or just holds it in reserve and waits until some sort of recovery. If you are going to need to go out to market you're either starting conversations, or you're in conversations and are aware that people are waiting for something to happen, or do you think it's a case of, you're just going to have to resign yourself to raising slightly more expensive money than you'd hoped?
Mark Child: We might have to raise slightly more expensive money than we hoped, we've got strong supporting shareholders as we've discussed before, the Directors have 22% of this and they're going to continue to be supportive and Jim Mellon who you know is an 8½% shareholder, I'm actually talking from his property at the moment. So we're, we continue to support…
Matthew Gordon: Are you trapped? Is he not allowing you to leave until that share price recovers?
Mark Child: No, no I think the share price is… no he's, I can tell you he's extremely supportive and thinks it's an extremely attractive opportunity to get involved with the company. At our level of small market cap companies, say £60M, the share price to an extent is not dictated by the institutions. It's dictated by retail investors buying and selling their sort of 10,000 or 20,000 or 100,000. It tends to be that way more driven and at the moment people are just sitting on their hands. We're seeing gold stabilise right now I think. It's forming a bit of a base and I just suggest this is a, you know if you look forward this is still an attractive proposition. I do think gold will go materially higher over the next 2-5 years particularly with sort of negative real interest rates and $18 trillion of Sovereign debt out there, but that's another story if we start to talk about gold so… I think firstly people have to be, take a reasonably positive view on gold and this is almost an option on the gold price from an investment perspective for many people and it could quite easily, we see gold go up another $100. This share could be back to £0.50 in a matter of days.
Matthew Gordon: And with regards to the CapEx on the PEA, I know it's open initially and I know you've done it at, well I wouldn't say full price $1,700/oz gold. What are we looking at? I know it's a 12 months payback. I just want to get into, remind people of some of the numbers involved here so, to the end, what I want to say is it's not an insurmountable amount of CapEx that you need to raise?
Mark Child: That's correct. We will, for our stage 1 we're looking at a CapEx of around $100M. So we're trying to keep it down to a round number and I'm trying to come it at the moment underneath that. Now for a PFS everything has to be brand new numbers, just bear that in mind. We have some costs, we bought the SAG mill for $6½M and just to remind people half that payment was in shares at £0.50 versus today's share price of £0.40 or around £0.38, £0.40. And that was by First Majestic Silver a $4Bn company accepting our shares and that's a nice validation. We've also bought the land, that's a sunk cost so we have a number of sunk costs which reduce our CapEx. We can also from here buy second-hand equipment to keep the CapEx down, just bear that in mind. There are, at this stage when you've got permits, you've got the mill, you've bought the land, you're clearing the site, I can tell you a lot of people are coming along offering gold loans or debt. There are different private equity funds I met at the conferences, provide debt and equity so it could be 60/40 debt to equity split. I recently hired, in fact since the 1st September, since we met I hired the former CFO of Calibre Mining that has 2 big commercial mines in Nicaragua producing 160,000oz. So I now have a full-time CFO and his mandate over the next 6 months is to look at the different financing options between debt-equity gold loans. We won’t use royalties or streams.
Matthew Gordon: So who's that? Who's that chap?
Mark Child: John, John Seaberg.
Matthew Gordon: Oh yes, yeah okay, yeah.
Mark Child: So he's ex Newmont for 12 years, VP at Newmont and IR and CFO former CFO at Calibre. That's a vote that he should want to come and join us he's studied the company extremely in detail as you can imagine, for a variety of reasons and he knows Nicaragua well and as he said to me, "I'd rather do business in Nicaragua than anywhere else in Latin America."
Matthew Gordon: Okay, strong words, very good, okay, so look he's on board, he must think he's capable of getting this thing funded whatever the equity/debt ratio is but you're some ways away from that so between now and what period do you think you're going to need to get up. Because I say you may need to raise money at a slightly more expensive rate than you hoped but it's all relative to how quickly you can get this thing into production, that’s what people need to believe that you can get this thing into production and how quickly that ramp up is. Presumably, I don’t know, 3 month optimisation process and then 12 months to you know get to a point where you're running at an annualised run rate of 100,000 is that the plan?
Mark Child: Well in terms of… normally when you commission a mill, the first 3 months has a few teething issues before they, the engineers announce commercial gold production I think's the sort of phrase. So they sign off and at that stage we'd be running, after 3 months the next 12 months after that the target's 100,000oz of gold a year, just to clarify that number that we're putting out as a base case for us.
Matthew Gordon: Yes, okay, okay well that's what I was getting at. So you do the money that you may have to raise between now and having to do the debt/equity solution with your new CFO, it's all, do you see its relative or would you say well actually we're going to try and raise as little as possible there. I mean how do you look at that, because again people looking in are just going, "oh man it's dilutory." How do you see it?
Mark Child: You're right I think anybody in a share like Condor knows there's going to be dilution around the market because there's no revenues and negative cash flows so I think that's a given and probably already reflected in our share price and to some extent perhaps one of the things that's an uncertainty on our share price is the question of how you're going to finance this and maybe that's what you're driving at. I can tell you that we will most likely need, or we will need an interim financing out of debt finance coming in and I mention the FS is in Q1 next year. So we're not going to have the upfront CapEx construction financing until Q1 at some stage next year. I can't give you the month yet, it just depends how we get on with the studies on the ground and SRX consulting in the UK and finalise the FS Study.
Matthew Gordon: Okay, so it all feels quite near, so what are the things that concern you between now and then?
Mark Child: Well the gold price, I think everybody would be concerned and we'd like to see that stabilise and ideally like it to go up, you know 200 points or so. But operationally, having just been to Nicaragua for a couple of weeks it's all going very well on the ground, the, if you like the ship has sailed, we are going to build a mine here. We’ve got the mill and 80% of it's in the country, I've been to the warehouse, I've seen it delivering, I get weekly reports coming in, we're clearing the site, we're doing all the engineering studies, we've hired also a mining engineer from OceanaGold. Their long-term mine planner at the Haile project in South Carolina. As I say we've hired, we're building a team to take this to this next level. I'm… there are presidential elections in a month's time in Nicaragua, that's been flagged for 12 months, it's fully, for me it's fully… we know the result, the President today is going to get re-elected. The good thing…
Matthew Gordon: Why do you say that?
Mark Child: … from a mining perspective.
Matthew Gordon: How can you say that?
Mark Child: Why do I say that?
Matthew Gordon: Yeah, well not why, how can you back it up?
Mark Child: Well the most diplomatic way of putting that is he's running for a fourth term and the Sandinista Party control most organs of state within Nicaragua from the military to the police and lots of people are just going to vote for that party so I think it's… and one of the thing's you'll see in the international press is allegations of the lack of free and fair elections. So I think that that, I'm not saying anything that is not actually out there in the public domain. What I would say is that the current government has been incredibly supportive of mining. I've met the Minister of Energy and Mines for 3 hours they want to see the project up there. This is a main area of economic activity for them but I think that the President will get re-elected. That shouldn't come as a surprise to anybody.
Matthew Gordon: Okay, it's just not everybody understands the economics of South America and it's sort of interesting. In light of conversations in Peru and Chile and Ecuador and you know, Nicaragua it's the same sort of language. But, well I say that, Nicaragua doesn't seem to have the same issues around socialism.
Mark Child: Well put, exactly thank you very much. It is socialist but with a firm hand at the tiller let's say. You could go the socialist route down in Chile or in Peru and look what happens to the share price of Hochschild. I mean their unions go on strike, they want to put taxes on, increasing royalty, it can be… a lot of people are questioning whether they want to do business in these parts of the world anymore and CapEx is on hold. You're not seeing that with Nicaragua at all and it's being incredibly supportive of mining.
Well if I could just talk to 2 others things since we last spoke, one is we put some drill results out on Mestiza project…
Matthew Gordon: Saw that.
Mark Child: … so this a high-grade pit, and 120,000oz at 8g. We're putting in 7,800m on that so that's quite a chunk of change, of drilling for us and we've actually only got about 800m left so we've put some drill results out about 10 days ago. Super high-grades we got 4.1m at ½oz at 15g, 40m beneath the surface and 80m beneath the surface we got 3.6m at almost an ounce at 29g/t gold. What's the significance of this? It's converting inferred to indicated, and back to your point, where's the mill feed coming from how do we expand? We're not doing the FS on that small pit. We're doing it on the main La India pit which has about…
Matthew Gordon: Sorry did you say inferred to indicated, yeah? Is that what you just said?
Mark Child: Yes, yes.
Matthew Gordon: Got it, okay.
Mark Child: That's what we're doing on Mestiza pit.
Matthew Gordon: Got it.
Mark Child: So, and that should come on our studies, that should give us a gold production of just over 80,000oz of gold and that'll be $130M of revenue and about $90M coming out of that pit, because the why, because the grade is 5.37g/t. It’s super high-grade and that gives you a quick, so I'm talking $80M of cash flow coming out of a single small pit of 80,000oz within 100m of the surface so that, those were great drill results. The market should have gone up 10, 20% on the back of that, our share price. It didn't. That's a status of the gold price coming down and general lack of interest in the sector which we discussed and the other thing, but the PFS is on the main pit of La India which is 685,000oz, of which about 650 is in the indicated category and will be res…, is reserves in the PFS and we're taking over, so we're financing this off the main pit of La India open pit which is much, much bigger. That's, it's 8x bigger than Mestiza but Mestiza has double the grade, that's the point. The main pit's 2.7g which is still a very high-grade open-pit, this is actually 5.3.
The second thing to talk to very briefly is Cacao. We put in drilling on Cacao, that had a strike of 450m and has 60,000oz on, we've expanded to 1,000m now and we've, most importantly as we've drilled down, we've got a whole system there of about 1,000m long and 10m wide and the geologists tell me this is a completely preserved epithermal vein system. Now we've clipped the top of the system it's in a downthrown block, the rocks on the surface which shows the top of a boiling zone. But if we're correct on this, we need more drilling, but this could easily be a ½M or 1Moz within that Cacao preserved epithermal drain system so that's the other part of our strategy, to show we have 5Moz and we've done that, again unfortunately, we're delivering at the operational level but the share price hasn't moved.