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Condor Resources Plc Central American Gold Company
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OOCCEEAANN EEQQUUIITTIIEESS
This marketing communication is directed to professional investors only & is non-independent research. As such, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research & is not subject to any prohibition on dealing ahead of the dissemination of research.
Gold – NICARAGUA 6th December 2011
Market Cap
Listing:Ticker
Share Price
Shares o/s
52 week High/Low
Net Cash/(Debt)
£42.57m
AIM:CNR
7.625p
558.34m
11.5p / 3.625p
~£3.5m
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Source: Bloomberg
Condor Resources Plc (‘Condor’) is an exploration company focussed on its La India gold-silver project in Nicaragua. In 2010, the company leveraged its strong position in the gold rich area to secure a mutually beneficial concession swap agreement with B2Gold (TSX:BTO, C$1.19bn). Condor expects to return strong exploration results through the upcoming drilling campaigns as it firstly converts the historic Russian resource to JORC and then expands it with drilling along the unexplored strike lengths of the many high grade gold-silver veins within the Company’s licences.
La India Deposit
Condor’s flagship La India mine was discovered in the early 1930s. The mine is made up of many high-grade veins that are either quartz veins or confined hydrothermal breccias. Mining at La India started in 1936 and continued to 1956 with underground workings reaching a recorded depth of 200m. Approximately 0.6Moz gold, at a grade of 13.2g/t, and 0.3Moz silver were produced from the mine during this time. The mine was extensively explored by Soviet geologists in the 1980s at which time La India was controlled by the state. The Soviet geologists delineated a resource of over 2.4Moz in C and P categories providing a solid benchmark for Condor to meet.
Phase 1: Aggressive Resource Growth
Condor’s main objective is to aggressively expand the JORC compliant resource at its La India project and the Company is confident that it can pass the previous high tide mark of 2Moz defined under the Soviet classification system. The Company has set a high resource growth trajectory and mobilised four rigs onto site to deliver results. After this initial phase of JORC classified resource growth, Condor can then focus on high priority targets to upgrade resources and develop early stage mine plans. In our view, Condor will be in the position to do this by mid-2012.
El Salvador – Still part of the portfolio
Condor also owns a 90% stake in two concession areas in El Salvador that host a combined resource in excess of 700koz gold and 22Moz silver. No value is currently attributed to Condor’s stake in these assets as mining is currently not permitted in the country due to a temporary moratorium. The El Salvador Government has enlisted the help of The Tau Group, an independent consultancy, to review the current and future impact of mining in the country.
Value Proposition
Condor Resources offers an interesting play in Central American gold and silver. We see particularly interesting upside from the potential to mine some of the more narrowly spaced veins in open pits. Narrow vein gold mines can be difficult to operate profitably; grade being the obvious controlling factor. Where these mines are profitable they can be exceptionally so, Medusa Mining’s Co-O project being a good example (where cash operating costs are currently <$300/oz). As Condor embarks upon the technical studies on its La India gold district we will get an insight into the potential profitability of mining at the district. As a historical producer (mining finished in the 1940s due to a flooding event) we expect that application of modern mining techniques should ensure economic rehabilitation.
The resource growth trajectory should be steep due to the earlier Soviet work as well as the inherent down-dip and along strike organic growth options. The Company is employing an aggressive exploration strategy which should enable Condor to fully leverage the geological potential of the mine.
The Company has an enterprise value to in-situ gold ounce multiple of $53/oz on its Nicaragua based resources alone. The Company has projected a steady increase to its resource over the next 12 months and if the Company maintain this EV/oz multiple, it should see healthy share price growth during that timeframe. The Company can also de-risk its gold resource through technical and socio-environmental studies that are likely to improve its EV/oz gold multiple.
Highlighted Related Research:
28th Nov’11: Maiden Resource for Rio Luna
18th Oct ’11: Latest Drilling Results from La India
7th Oct’11: Takes ownership of La India to 100%
23rd Sep’11: Interim Results
8th Sep’11: Breccia Zone discovered of El Cacao Licence
6th Sep’11: Latest Drilling Results from La India
24th Aug’11: Acquires 0.5Moz Espinito-Mendoza project at heart of La India project
Analysts
Christopher Welch
+44 (0) 20 7786 4377
Sam Spring, CFA, CA +44 (0) 20 7786 4378
Adam Lucas +44 (0) 20 7786 4382
Richard Nash +44 (0) 20 7786 4386
*Refer to the final page of this report for the full Ocean Team’s contact
details
Disclosures & Disclaimer
Ocean Equities acts as broker to and is seeking investment business from Condor Resources Plc
This report must be read with the disclaimer and disclosures on the final page that forms part of this report.
Ocean Equities Limited. Authorised and Regulated by the Financial Services Authority. Member of the London Stock Exchange.
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Investment Thesis
Condor is in an aggressive resource growth phase, adding ounces rapidly through both organic growth and strategic acquisitions. The Company is employing a step-out drilling strategy at La India to quickly expand the known resource and convert the Soviet classification resource to JORC compliance.
Condor has a portfolio of gold assets that contains several high grade epithermal vein deposits in both Nicaragua and El Salvador. La India is the focus for the Company where it is growing the resource around historic gold mines. Early indications are that gold will be relatively easy to liberate from the ore, which should give the mine a low operating cost. Potential to delineate an open pit resource would further improve the economics of any operation the Company constructs.
Blue sky potential at La India
Open pit resource potential – there are several areas where open pit mining may be possible. This would greatly reduce operating costs which would make Condor a standout producer, similar to Medusa.
Hanging wall mineralisation – There are areas around the main vein structures where gold mineralisation has spread into the hangingwall, or where several smaller veins are narrowly spaced.
Finding the root to the system – The dense population of high grade gold veins across Condor’s La India district suggests there is potential for a larger scale deposit at the root of the system.
Acquiring other high grade deposits to feed a centralised mill – once constructed, it would be relatively easy for Condor to feed a gold mill with third party ore. Artisanal activity is rife in the area, creating small scale environmental liabilities at little benefit to the miners. There is considerable scope for Condor to take in high grade third party ore.
Company Blue Sky & Upside Potential
El Salvador – Slow progress is being made in El Salvador regarding its mining moratorium, but progress none the less. This is of particular importance to Condor which has a large gold-silver resource in the country.
New Discoveries – Condor has many other licences throughout Nicaragua that host high grade gold veins. It is likely that Condor will discover further gold veins across its ground, or could discover larger scale assets.
New Acquisitions – Condor has already demonstrated its ability to make strategic acquisitions to build its portfolio. Given the abundance of gold mineralisation in the area there will be many opportunities to add to its land package.
Stake in B2 Gold JV – The Company has retained its 20% stake in the Cerro Quiroz joint-venture property with B2 Gold. The concession is next to the Canadian large cap’s producing mine, La Libertad. Should B2 Gold develop the property it will either have to purchase Condor’s stake or share profits with Condor, both options offering good upside to Condor shareholders.
News Flow & Catalysts
Condor has developed resource growth momentum over the last 12 months, adding to the Company’s resource base through organic growth and acquisitions. Resource growth is expected to continue in the near term as more of the Soviet classification resource is upgraded to JORC compliant resources. This news flow will be supplemented by technical and environmental studies to de-risk Condor’s resource inventory.
Figure 1: 2010 was a transformational year for Condor through the granting of many licence areas and the concession swap with B2Gold.
Zopiloteadit to be reopened
2009 2010 2011 2012 2013
Past Future
Espinito Mendoza concession acquired
Estrella exploration results
Resource increased to 1,029,000oz
Macquarieinvests
£3m @ 9p
Second drill rig starts at La India
Drilling and trenching results from El Rodeo
Drill core re-sampling results
Trench results from El Rodeo
Two new concessions granted adjacent to the Cacao resource
Cerro Quirozconcession granted
Estrella concession granted
Rio Luna concession granted
Condor and B2Gold swap
licences
Initial results from trenching at
La India
SRK appointed to write resource report
on La India
Results from trenching and drilling at La India
5,000m drilling campaign commences
868,000oz resource announced
El Salvador mining ban moratorium
lifted?
Resource Growth to 2Moz at La India?
Pre-Feasibility study on La India?
At least 200koz of Espinito Mendoza
resource to be Added to La India Total
New California vein discovered parallel to
La India vein
20,000m drilling campaign results
Maiden resource for Rio Luna of ~80Koz
gold
Zopiloteadit to be reopened
2009 2010 2011 2012 2013
Past FuturePast Future
Espinito Mendoza concession acquired
Estrella exploration results
Resource increased to 1,029,000oz
Macquarieinvests
£3m @ 9p
Second drill rig starts at La India
Drilling and trenching results from El Rodeo
Drill core re-sampling results
Trench results from El Rodeo
Two new concessions granted adjacent to the Cacao resource
Cerro Quirozconcession granted
Estrella concession granted
Rio Luna concession granted
Condor and B2Gold swap
licences
Initial results from trenching at
La India
SRK appointed to write resource report
on La India
Results from trenching and drilling at La India
5,000m drilling campaign commences
868,000oz resource announced
El Salvador mining ban moratorium
lifted?
Resource Growth to 2Moz at La India?
Pre-Feasibility study on La India?
At least 200koz of Espinito Mendoza
resource to be Added to La India Total
New California vein discovered parallel to
La India vein
20,000m drilling campaign results20,000m drilling campaign results
Maiden resource for Rio Luna of ~80Koz
gold
Source: Ocean Equities
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Near term catalysts include:
Condor expects to produce an updated resource estimate for La India by the end of Dec’11. This is likely to include a maiden resource for the California vein which runs parallel to the India vein. Early drill results have been encouraging and the latest results are supportive of those findings.
The current exploration drilling at La India is anticipated to add ounces to the currently defined resources across the main vein systems of India-Arizona, America-Constancia-Guapinol and Tatiana-Mestiza by extending the established resource blocks at depth and along each vein.
The Company expects to add a large proportion of the Espinito-Mendoza concession hosted gold resource to its attributable ounces through conversion from Soviet classification to JORC.
Resource Growth Potential
We expect Condor to maintain its resource growth rate throughout the next 12 months to give a base case resource expectation of 2Moz by end 2012. There is good potential that the company will exceed this resource target by the end of this period, without including any of the El Salvador resource.
Figure 2: Our base case and upper case resource growth expectations for Condor Resources.
Source: Ocean Equities & Condor Resources.
Risks
Exploration Risk – The Company is a mid-stage exploration play and carries the associated risks. The latest exploration campaigns have been successful in increasing the inferred resource category but there is a risk that the conversion rate to indicated resources might be low.
Technical Risk – Existence of earlier mining operations gives us confidence that the application of modern mining techniques will be both successful and profitable; however, mining narrow vein deposits is at the more technically difficult end of the mining spectrum. Condor will soon start technical studies into the potential mining of La India that will give more clarity on the proposed mining methods and construction/operating cost assumptions.
Country Risk – Nicaragua has one of the lowest risk profiles of Central America. The El Salvador risk that Condor is exposed to is fully priced into Condor’s share price. We do not expect Condor’s risk profile to change negatively in the near term.
Potential Value
In our view there are too few narrow vein gold exploration companies at a similar stage as Condor to develop a peer group based valuation. The Company’s current market cap of $65m (£42m) equates to an EV of approximately $53/oz with no value included for the Company’s El Salvador resources (which is over 1Moz gold equivalent).
We would argue that an industry average EV/oz value of $100/oz in-situ gold is appropriate for Condor’s indicated resources and we assume a 40% conversion rate of inferred to indicated to give the Company’s inferred resource an arbitrary value of $40/oz. Under our base case resource growth assumption of 1.5Moz, the above valuation assumptions give Condor a 12 month enterprise value of £62m. This equates to 11p per share based on the current number of shares in issue (558.34m). Should the company achieve its target resource growth of 2Moz, this would lift the fair value of the share price over that time period to 15p per share under the same valuation basis.
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Condor Resources - Overview
Condor - Project Portfolio
Condor is focused on its La India gold project in western Nicaragua but also has a wider spread of Central American gold assets across Nicaragua and El Salvador. The geomorphology of Nicaragua consists of three major terranes. A northwest striking graben, 30km to 40km wide, parallels the Pacific coastline along the western margin of the country. This graben hosts up to 16 active or recently active volcanoes and is the site of thick Quaternary to Recent volcanic deposits. To the southwest, between the graben and the Pacific coast, a 10 km to 20 km wide belt of Tertiary, Mesozoic and Palaeozoic rocks are preserved. To the northeast of the graben; the Tertiary, Mesozoic and Palaeozoic “basement” is overlain by a major unit of Tertiary volcanic rocks, the Coyol (Miocene-Pliocene) and Matagalpa (Oligocene-Miocene) Groups.
Figure 3: Condor has a portfolio of five concessions in Nicaragua of which La India is the most advanced.
Source: Condor Resources
Figure 4: Condor also has two concession areas in El Salvador. Should the mining moratorium be lifted in the near term, as expected, Condor’s
portfolio of mineable ounces will double overnight.
Source: Ocean Equities
Figure 5: Condor’s La India project is the most advanced within its project portfolio.
Source: Ocean Equities
Production
Development
Grass Roots
Feasibility
Advanced Exploration
Nicaragua
El Salvador
Pre-feasibility
La India
El Pescadito La Calera
Rio Luna
Nicaragua (B2 Gold + Condor JV)
Cerro Quiroz
PotrerillosEstrella
Production
Development
Grass Roots
Feasibility
Advanced Exploration
Nicaragua
El Salvador
Pre-feasibility
La India
El Pescadito La Calera
Rio Luna
Nicaragua (B2 Gold + Condor JV)
Cerro Quiroz
PotrerillosEstrella
Potrerillos
La India
Estrella
Rio Luna
Cerro Quiroz
Potrerillos
La India
Estrella
Rio Luna
Cerro Quiroz
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Primary Asset: La India Gold District, North West Nicaragua
Condor’s primary asset is its La India gold district, a historical mining district in Nicaragua that hosts more than 1Moz of gold in a JORC compliant resource. The district is 150km north of Managua, Nicaragua’s capital, and is made up of six contiguous concessions that cover a combined area of 166km2. Condor began building its land position in this part of Nicaragua in 2006 and subsequently has grown its position to cover the entire La India district.
Figure 6. Condor’s land holding in the La India Mining District covers a total of 166km2.
Source: Condor Resources
Historic Mine Production
The La India Project hosts the historic La India Gold Mine which processed an estimated 1.7Mt at 13.2g/t for 576,000oz Au between 1938 and 1956. The majority of the production occurred under the ownership of Canadian mining company Noranda Inc. At the height of production in 1953, mine records show an annual production of 41,861oz gold at a grade of 0.3442oz/ton (11.8 g/t) and 39,282 oz silver (equivalent to 11.0 g/t) was achieved. The mine worked a dozen narrow high-grade veins using traditional back-stoping techniques with the mine drained and ore transported to a central mill via an extensive network of interconnected drainage and transport adits.
Mining was concentrated on two veins: the La India vein where a 1200m strike length was mined to a depth of up to 200m below surface; and the America-Constancia vein where a 2200m strike length was mined to 250m below surface. Mine development at these locations and at the smaller satellite workings was incomplete and in some cases had not advanced beyond exploratory stope development. In 1956, mining was halted abruptly due to flooding and extensive damage to the plant, at which time Noranda opted to move the remaining equipment to their fledgling operation at nearby El Limon; a mine that is still operating today under the ownership of B2 Gold.
Since the closure of the La India gold mine artisanal miners have intermittently worked the most accessible upper levels of the mine and extracted ore from small pits throughout the district.
Gold Mineralisation
Gold mineralisation at La India occurs in narrow steeply-dipping quartz-calcite veins which are typical of shallow forming, low sulphidation epithermal systems. The veins are hosted within massive andesites, andesitic and felsic tuffs or felsic lava flow deposits, which often include a brecciated component and vary in thickness typically between 0.7m and 2m. The grade of gold and silver within these ore shoots can vary from 1g/t up to significant intersections with grades in excess of 30g/t gold.
In many areas the wallrock hosts a breccia or stockwork zone with vuggy quartz veinlets (small veins with cavities) up to 5cm thick and accounting for up to 70% of the rock mass. The breccia/stockwork zone is up to 10m thick and is associated with silica-haematite alteration. The quartz in the breccia zone often carries gold mineralisation although the country rock component means that gold grades are diluted compared to the veins.
The highest grade gold included in the current resource is hosted by: (1) quartz and quartz-calcite veins characterised by epithermal features such as saccharoidal, chalcedonic, banded, vuggy and bladed textures; (2) tectonically-brecciated quartz veins characterised by vein quartz or polymict vein quartz and wall rock clasts in a silica-haematite matrix; and (3) fault gouge and fault breccias, often containing some finely ground silica (quartz). Unlike numerous other epithermal systems worldwide, mineralisation at La India is not associated with a sulphide assemblage; there is virtually no sulphide within the drill core. Gold mineralisation appears to be associated with
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clay-rich fault gouges along the main hosting structures. These zones are also the most difficult to recover in drilling, and a number of the holes have recorded low recoveries through such areas.
Project Overview
The project can be divided into three main vein systems:
La India vein set – current JORC resource of 451,000oz, which is only just short of the Soviet resource of 482,000oz. When we visited La India the final hole of the current India vein drill programme was close to completion.
America vein set – current JORC resources of 378,000oz is 143,000oz short of the Soviet estimate of 521,000oz. While we were on site there were three rigs on location drilling a significant programme across Guapinol and America-Constancia.
Mestiza-Tatiana vein set – JORC resources of 310,000oz following the conversion of the Soviet resource to JORC on the Mestiza Vein, which is 556,000oz short of the Soviet resource of 867,000oz gold.
In October 2011 Condor released its most recent resource estimate for the La India Project, totalling 1Moz gold at an average grade of 6g/t, which remains significantly less than the historical Soviet Classification resource of 2.4Moz at an average grade of 9.5g/t. This illustrates the prospectivity of the Company’s current ground holding. The current resource excludes the silver content at La India, however, if a conservative Au:Ag ratio of 1:1 was inferred, this could add up to 1.5Moz silver or 30,000oz gold equivalent to the Company’s resource inventory.
The 1Moz includes 290,000oz at an average of 7.6g/t in the indicated category and 756,000oz of inferred resources hosted in a series of narrow steeply-dipping epithermal quartz-calcite veins. 18 separate veins have been identified in the district, with a total of 17km defined by trenching and rock chip samples. Only 8km of strike-extent has been tested by drilling, with the remaining untested veins providing additional potential to add ounces to the current resource.
The Company anticipates adding significant ounces to the La India vein set and across the America-Constancia-Guapinol system in a new resource estimate to be released before the end of the year. We believe that reaching the anticipated 1.5Moz milestone could be the foundation of a significant re-rating for the stock.
Figure 7. The veins included in the SRK resource estimate published in May’11.
Vein
Strike Length (m)
Av True Width (m)
Av Au Grade (g/t)
Indicated Resource (t)
Av Grade (g/t) Au (oz)
Inferred Resource (t)
Av Grade (g/t) Au (oz)
Total Resource (t)
Av Grade (g/t)
Total Contained Gold (oz)
La India 2000 2 6.8 630,550 7.2 145,929 1,161,580 6.8 254,073 1,792,130 6.94 400,002
America 1100 1.4 4.68 432,745 7.61 105,941 585,781 4.68 88,163 1,018,526 5.93 194,104
Constancia 600 0.9 5.94 119,250 9.97 38,229 109,216 5.94 20,842 228,466 8.04 59,071
Guapinol 1200 0.9 5 775,655 5 124,706 775,655 5 124,706
Tatiana 500 1.6 7.26 431,270 7.26 100,729 431,270 7.26 100,729
Cristalito-Tatescame 350 1.6 5.27 202,361 5.27 34,306 202,361 5.27 34,306
San Lucas 610 1.2 4.7 159,929 4.7 24,169 159,929 4.7 24,169
Arizona 350 0.9 4.53 122,976 4.53 17,900 122,976 4.53 17,900
Teresa 150 0.6 13.85 40,143 13.85 17,875 40,143 13.85 17,875 Agua Caliente 150 0.5 10.27 46,657 10.27 15,412 46,657 10.27 15,412
Cacao 500 1.6 3.05 590,000 3.05 58,000 590,000 3.05 58,000
Total 7510 1.4 6.49 1,180,000 7.6 290,000 4,230,000 5.6 756,000 5,410,000 6.00 1,046,000
Source: Condor Resource, Ocean Equities
La India Mining District
The La India Mining district is characterised by eroded stratovolcano vent areas consisting of volcanic rocks of calc-alkaline affinity varying in composition from andesite to rhyolite. Andesitic flows and tuff breccias are predominant and can be divided into a lower, regionally propylised andesite package, and an upper unaltered andesite package. The whole suite is considered to be part of the highly prospective Lower Coyol Group of Miocene-Pliocene age, which also hosts the known vein gold deposit at El Limón.
Mineralisation at La India is controlled by a complex array of major southeast to east trending structures and subordinate north-south trending structures that formed due to the effect of the ongoing subduction of the Cocos Plate beneath the Caribbean Plate along a northwest-southeast orientated front to the immediate southeast of Nicaragua. This is believed to have resulted in northeast-directed compression in the Late Miocene and Early Pliocene, with subsequent rollback of the subduction zone during the late Pliocene and Pleistocene which replaced the compression with an extension regime. The result of the change in regime formed the Nicaraguan Graben.
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Figure 8. Geological Map of La India Mining District.
Source: Condor Resources.
Building the Portfolio – Taking Control of the La India Gold District
Condor has been gradually building its land position in this area of Nicaragua since 2006. The last major acquisition
completed earlier this year being the deal the Company agreed with local partners to bring the Espinito-Mendoza
concession back into the project.
The company-changing events began in 2010 when Condor Resources and B2Gold were granted concessions that
were adjacent to the other party’s area of focus. This led to the two companies creating joint-venture agreements to
vend these concessions into separate vehicles. This allowed each company to significantly add to their land positions
around their areas of focus, at the same time retaining a 20% interest in the exploration/development ground that
was to be operated by the other party.
Earlier this year B2Gold announced that it would relinquish its 20% interest in the joint venture vehicle that held the
La India district concession previously owned by the Company. The deal essentially brings forward the inevitable as
La India currently does not fit B2 Gold’s size requirements. Condor will not lose its connection with the large cap
Canadian miner however as it still holds a 20% stake in the Cerro Quiroz concession which is in a strategically
important location for B2 Gold.
Condor and B2Gold have a good working relationship which will benefit both parties. La India’s resource is growing
steadily. The increase from the Cacao concession was not a huge increase, but that area of the district remains
relatively underexplored. There are areas of high grade mineralisation at Cacao that future drilling will be able to
prove up into a much larger resource. Gold mineralisation across the property has an emplacement profile whereby
high grade vein sections are interspersed between low grade sections. The next resource increase is likely to come
from the conversion of the Soviet classification resource at the Espinito-Mendoza concession, which is expected to
add ~200,000oz to the total resource through Soviet era data conversion.
The Espinito-Mendoza Acquisition – Inorganic Growth
In 2011 Condor took the opportunity to capture the remaining portion of the La India district by acquiring the Espinito-Mendoza concessions. This was a major achievement for the Company giving it control over the entire La India gold district. We are impressed with the relative value of the deal. With an effective cost of $3.25/oz for non-JORC ounces, or ~$8/oz for JORC-able ounces, it compares favourably to any discovery cost multiples in the gold exploration sector. The inclusion of the EM concession has many benefits for Condor, including:
Economies of scale – The EM concession holds the highest concentration of gold veins found to date across the property and could well form a secondary mining centre away from the La India vein. If Condor finds more vein outcrops on the EM concession there could also be potential for the use of larger scale mining techniques.
8
Known mineralisation – The Soviet era geological work carried out across the whole La India property is of a high standard which enables a large portion of the known mineralisation to be converted immediately into JORC compliant resources immediately. It also means that relatively little work has to be carried out to convert the outstanding ounces or increase the size of the deposit. We expect that Condor will soon carry out deep drilling across the EM concession that should return positive results according to the geological interpretation of the veins.
A better understanding of the general geological model – combining the concessions and using contemporary exploration techniques will allow Condor to draw a clearer picture of the gold emplacement model for La India. For example, the Tatiana vein extends onto the EM concession. Drilling this vein across its entire strike length will help to equip Condor with the data needed to construct a mine plan for Tatiana.
The full payment of $1.625m will be paid on completion of these contingencies:
US$250,000 on signing the agreement;
US$100,000 on approval of the transfer of the concession from Mestiza to Condor S.A. by the Director General of the Department of Mines;
US$275,000 by the way of issuing new shares at 9p each to the value of US$275,000 on approval of the transfer of the concession from Mestiza to Condor S.A. by the Minister of Energy and Mines. US$100,000 will count as a loan;
US$250,000 on approval of the transfer of the concession by the Minister of Energy and Mines. US$100,000 will count as a loan;
US$250,000 12 months after signing the agreement. US$100,000 will count as a loan;
US$250,000 24 months after signing the agreement. US$100,000 will count as a loan; and
US$250,000 36 months after signing the agreement. US$100,000 will count as a loan.
Upon completion of the acquisition, the project vendors will continue to hold a 2.5% net smelter return on all gold produced from EM ore. There will also be a bonus payment to the vendor of 1% of the gold price for every ounce of gold that Condor has upgraded to the proven and probable reserve category. The $500,000 loan payment to the vendor will be deductable from the bonus payment.
La India was an exciting proposition before the addition of the Espinito Mendoza concession. In September 2010 Condor and B2 Gold swapped concessions that lay adjacent to each other’s specific areas of focus in Nicaragua. This left Condor in a strategically strong position whereby it did not need the EM concession but could greatly benefit from its inclusion in the large La India project concession. The Company has done well to secure the licence, a task that previous owners were not been able to complete.
Analyst Site Visit November 2011
In November we visited Condor’s La India project concessions in the northwest of Nicaragua. Signs of growth are abundant across the country, and mining has been ongoing since the 1940s. There are currently several mines in operation across Nicaragua including Mina El Limon and La Libertad, which are both operated by B2Gold, a JV partner with Condor at Cerro Quiroz. The strong support for foreign investment, especially within the mining sector shown by the current government substantially de-risks Nicaragua as an operational jurisdiction and the future potential development of La India.
Condor has a basic field office in the village of La India with local camp accommodation. At the time of the visit the Company was in the process of updating and expanding its core storage and processing facilities to a site that has been secured on the edge of the village to minimise noise produced by core cutting and processing on site. Bulldozers are preparing to mobilise to level the site for the new building.
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Figure 9. Drill rig currently onsite at La India targeting the down-dip extension of the Guapinol Vein.
Source: Ocean Equities (November 2011)
Figure 10. The Condor site office with newly drilled core laid out. Moving core to a new storage facility is a priority.
Source: Ocean Equities (November 2011) Figure 11. Surface exposure of the India Vein with fault surface along the hangingwall contact.
Source: Ocean Equities (November 2011)
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Figure 12. Discrete quartz-calcite vein with haematite-silica alteration and fault gouge in the Zopilope adit.
Source: Ocean Equities (November 2011)
Figure 13. Mineralisation in core is associated with narrow en-echelon quartz veins and fault gouge with discrete haematite-silica alteration
(from LIDC067 within an intercept of 20.93m @ 2.67g/t Au and 10.9g/t Ag from 96.01m on the India Vein)
Source: Condor Resources, Ocean Equities
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Figure 14. The top 20 drill intercepts by true grade-width (gm/t)
Prospect Vein Hole ID From (m) To (m)
Interval (m)
True Width (m) Au (g/t) Ag (g/t)
True grade-width (gm/t)
India India HW1 DH-LI-08 95.00 99 4.00 3.28 28.65 27.0 93.87
India India HW1 LIDC067 96.01 119.1 23.09 20.93 2.67 10.9 55.89
India India HW2 LIDC074 143 145.4 2.40 2.04 25.37 17.0 51.64
India India DH-LI-01 178.00 188 10.00 7.66 5.51 6.8 42.22
Cacao Cacao 2 CCRD002 87.00 101.05 14.05 6.38 6.05 2.5 38.62
Tatiana Tatiana P090 78.50 83.7 5.20 3.13 10.43 10.2 32.65
Tatiana Tatiana P074 154.70 163.3 8.60 5.29 6.06 33.1 32.08
Cacao Cacao 6 CCRD006 132.90 135.5 2.60 0.76 34.12 4.8 25.94
Tatiana Tatiana P081 161.50 165.4 3.90 2.40 10.35 6.3 24.86
Tatiana Tatiana P075 84.60 87.9 3.30 1.89 12.71 4.1 24.05
India India LIDC069 155.45 158.6 3.15 2.85 8.40 8.8 23.98
Tatiana Tatiana P086 45.20 49.8 4.60 2.83 8.36 16.1 23.68
Tatiana Tatiana P062 74.50 77.9 3.40 2.07 10.63 23.8 21.99
Guapinol Guapinol P040 93.80 98.1 4.30 3.14 6.81 18.0 21.43
Cristalito Cristalito DDHT09 93.30 99.9 6.60 5.98 3.58 7.5 21.40
Tatiana Tatiana P073 94.60 98.8 4.20 2.41 8.73 31.2 21.02
India India LIDC067 129.15 134.01 4.86 4.40 4.76 30.2 20.96
Arizona Arizona LIDC059 159.90 164.8 4.90 4.47 4.60 3.7 20.59
Constancia Constancia LIDC023 62.30 65.3 3.00 2.30 8.52 2.4 19.58
Source: Condor Resources, Ocean Equities
Current Drilling
Condor currently has four diamond drilling rigs on site at La India through three different contractors: Energold; R&R; and Swissboring. While we were onsite three of these were drilling on 100m-spaced holes on Guapinol and the fourth was finishing the last planned hole on India. The current programme includes five 100m-spaced holes along Guapinol and nine deep holes beneath America-Constancia to test the depth extensions of the veins.
Since the end of January 2011 Condor has been conducting a diamond drilling programme aimed at increasing the inferred mineral resource, create new resource blocks and test several conceptual geological targets. Ounces are being added by drilling on 100m intervals at 50m and 150m depth along strike and below the principal resource blocks where historic trench sampling has demonstrated high grade gold mineralisation at surface.
Other areas to be tested in the current programme include exploration of the central breccia depth extension and California, a multiple narrow vein system in the India Vein hangingwall. Overall Condor has completed 13,000m of the 20,000m programme, and is currently starting 9 holes for 2,690m beneath the America-Constancia Vein set.
Initial drill results indicate:
A new high grade shoot on the America-Constancia Vein, approximately 300m along strike to the east of the known limit of mine development with a discovery intercept of 1.4m at 17.6g/t gold from 63.9m drill depth;
Greater definition and increased strike extent of the existing resource block on the Tatiana Vein;
A high grade intercept returned from the southern zone of the San Lucas-Capulin Vein of 4.5m at 3.82g/t gold including 0.65m at 19.5g/t; and
Definition of the zone interconnecting the La India-Teresa-Agua Caliente-Arizona veins has returned a high grade intercept of 6.3m at 3.65g/t gold below the historic Arizona mine workings and narrow high grade intercepts of up to 0.6m at 5.23g/t gold from wide spaced drilling further along strike.
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Figure 15. Map of the holes to be drilled on the Guapinol and America-Constancia veins. The current programme is highlighted in blue.
Source: Condor Resources, Ocean Equities
Technical Challenges to Overcome – Fault Gouge Difficult to Drill but Easy to Process
Condor faces a series of technical challenges that have previously been highlighted by SRK consulting while on site in Nicaragua. Gold mineralisation appears to be associated with discrete quartz-calcite veins that are cut by fault gouge and narrow breccia zones. Recoveries through the zones of clay-rich fault gouge are often low as drilling washes the soft unconsolidated material and associated gold mineralisation out of the sample. This could potentially result in the under-reading of gold grades across the vein systems. However, looking to the future of the project, the gold is easy to liberate from the material and therefore indicates that simple processing will recover a high proportion of the gold hosted in the fault gouge ore.
While visiting La India we walked along the surface exposures of a number of veins along which the controlling fault appears to switch between the hangingwall, footwall and internal contacts. At depth there is strong potential for areas of the vein to be thinned or cut-out entirely. The variance of vein characteristics on a metre-scale due to the post-mineralisation faulting at La India is a challenge during target planning and interpretation of data from drilling conducted on the current 100m spacing.
Figure 16. Surface exposure of the India Vein with the internal slip surface close to the footwall.
Source: Condor Resources, Ocean Equities
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Figure 17. Possible thinning and thickening of the veins at depth caused by post-mineralisation faulting.
Source: Condor Resources, Ocean Equities
At La India, post-mineralisation faults appear to switch between the hangingwall, footwall and internal contacts of the vein, meaning there is strong potential for areas of the veins to be thinned, cut out entirely or thickened by duplication. At depth the fault can refract from the hangingwall to the footwall contact, cutting out and displacing a lens of the vein down-dip and effectively duplicating the vein thickness. This could explain the absence of vein intercepts from some of the Condor drillholes targeting the main vein systems.
The result of the dip-slip faulting is shown conceptually in figure 17, where intercepts of the structurally-controlled quartz-calcite veins at La India can vary from a 10cm to 2m. During initial exploration drilling and resource calculations this could be a complication, as it makes it difficult to interpret the gold mineralisation over the strike-extent of the system. It could also mean that until the Company completes infill drilling, the resource estimates for La India could potentially over/underestimate the grade and tonnage of mineralised ore zones.
Infill drilling of the current 100m-spaced holes will not only add value by progressing ounces from the inferred category through to the measured and indicated categories, but will also add confidence by proving the continuity of the mineralised veins and mineable potential of La India.
Resource Growth Potential
Condor’s current resource of 1Moz remains over 1.4Moz short of the 2.4Moz previous defined by the Soviet GKZ Classification for the La India concessions. We see the significant exploration programme ongoing at La India adding considerable ounces to Condor’s balance sheet in the near term. The current resource incorporates only half of the veining observed at surface and in historical underground workings; a total of 17km of gold-bearing veins have been defined by trench and rockchip sampling. Approximately 9.5km of strike extent remains untested and outside of the resource, leaving major potential in the near term to add considerable ounces to the Company’s attributable inferred gold already in the bank at La India.
Significant potential exists for:
Addition of down-dip extensions below the current resource blocks,
‘Blind’ veins in the hangingwall and footwall zones of the main vein systems e.g. (California),
Bulk mineable low grade stockwork.
We expect Condor’s updated resource estimate for La India to include a maiden resource for the newly discovered California vein, which is located parallel to the hangingwall contact of the India vein. It is also anticipated that a large proportion of the Espinito-Mendoza concession hosted gold resource will be added to Condor’s inventory through conversion from Soviet classification to JORC, which is particularly attractive as the ounces come at little cost to shareholders.
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Figure 18. The potential resource growth potential for Condor Resource’s La India Project.
Source: Ocean Equities
In the short-term, Condor’s objective will be to continue to add ounces to the currently defined resource from the drilling across the main vein systems of India-Arizona, America-Constancia-Guapinol and Tatiana-Mestiza. We believe that the growth of these areas, in extent as well as ounces, will be important to prove the potential for an economic mining operation, and will allow the Company to gradually extend exploration to some of the prospective peripheral targets in the project pipeline at La India.
The current strategy involves drilling low risk, relatively low cost holes to extend established resource blocks at depth and along each vein with a view to publishing an upgraded resource estimate before the year end. Priority has been given to taking the resource on the America Vein set to over 500,000oz, and adding ounces to the Tatiana-Mestiza Vein set which is currently ~550,000oz short of the Soviet data.
Over the next 6-12 months we see Condor starting to bring early stage trench targets into the resource as well as drilling around the historically mined areas. This will build a project development pipeline enabling the Company to progressively add ounces to the La India resource, with the ultimate aim of reaching 2Moz of gold.
The Company has also commissioned a scoping study at La India that will help to establish the parameters of the exploration target, and the necessary width and grade requirements needed to make La India mineable. Metallurgical test work is likely to commence in the next 2-3 months, with two separate bulk samples to be sent to a laboratory to test processing techniques to maximise gold recovery. We anticipate a fairly simple flow process that will utilise a gravity separation to liberate the predominantly free gold from within the clay-rich fault gouges and breccia stockwork.
The Potential Future of La India
Condor is now starting the preliminary technical studies of the La India mine to examine development options for the project. The historic operations on site give confidence that application of contemporary underground mining methods, combined with a higher gold price environment, would ensure that future underground mining would be a profitable endeavour. Narrow vein mining is at the more difficult end of the spectrum and so detailed engineering studies will be required to evaluate the development options.
We believe La India offers a highly attractive production profile. Initial free milling ounces are likely to be extractable through a simple gravity circuit, allowing Condor to maximise the margins on ounces produced at the front end of the production profile. The second development stage would likely see the addition of a hydrometallurgical plant to extract the remaining gold from the refractory ore.
Narrow Vein Mining
For the most part, narrow vein mining is done through shrinkage stoping. In this method mining process, ore seams are developed from a lower level upwards to the next level. It is a relatively labour intensive process where ore is traditionally liberated by an air-leg operator working in the ore seam.
The profitability of this type of mining method is governed by grade of the ore, the width of the seam and the local labour costs.
Seam Width - shrinkage stoping can be operated on seams as narrow as 0.7m in extreme cases but works best on seams over 1m in width. The lower seam limit is the absolute minimum space that an air-leg miner can operate in.
Ore Grade - a large amount of development has to be established outside of the seam (for man/ore transportation and ventilation) so the ore needs to be of sufficient grade to economically support the associated development required for extraction.
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Labour costs - Air-leg mining is a specialised mining skill that is also slightly riskier than other types of mining. The best conditions are where local wage rates are low and the local people are sufficiently technologically adept to employ the techniques. The alternative is for a company to bring in ex-pat air-leggers which is initially more costly but does ensure dilution is kept to a minimum.
Figure 19: An idealised figure demonstrating how shrinkage stoping could be employed at Condor’s La India mine.
Source: Medusa Mining
Peer Group
Narrow vein mining is a niche sub-industry of the gold mining industry. As mentioned above, there are certain conditions that make the technique economically viable and in specific cases hugely profitable. Below is a brief outline of some of the peers that could be compared to Condor. However, the variables between these companies and Condor make a direct comparison inappropriate, particularly from a valuation perspective.
Medusa Mining (ASX/AIM:MML, MCap A$1,000m) – Mine: Co-O, Philippines.
Medusa Mining owns and operates the Co-O underground mine in the Philippines, which is developed on a series of low to intermediate sulphidation epithermal quartz veins hosted by Tertiary tuffaceous andesitic lavas and volcaniclastics. The veins contain low levels of sulphides, primarily pyrite, galena and sphalerite with total contents less than 5%. High grade gold has been intercepted coincident with banded galena-sphalerite rich silica. The veins have good strike continuity, with pinching and swelling controlled by vein branching, faulting and rock variability.
Mining at Co-O predominantly employs shrinkage stoping with the use of hand held rock drills to produce drives with minimum dimensions of 2.4m and stopes of 1.2m. We envisage a similar process would need to be employed at La India to minimise mining loses and dilution.
In 2010, production reached 101,474oz, an increase of 11,795oz or 13% above the previous year's total of 89,679 ounces, at a recovered grade of 12.63 g/t gold (2009: 16.52 g/t gold) and cash costs of US$189/oz (2010: US$184 per ounce). The free-milling ore is processed utilising a simple crush-grind-leach circuit.
Production for the forthcoming financial year is forecast for between 100,000 to 110,000 ounces at cash costs of ~US$200/oz. The mine currently has ~10 years of resources and ~5 years of reserves based on a production rate of 100ktpa. However, it is expected to have a life of 20-25 years, similar to the Diwalwal mine, located to the south of Co-O, which has been operating for 20+ years. Production growth from Co-O is likely to double from the current ~100Mozpa through mill expansion of the current 1,000tpd to 2,000tpd.
Vatukoula Gold Mines (LN:VGM, MCap £62m) – Mine: Vatukoula, Fiji.
Vatukoula Gold Mines (LON:VGM) is an AIM-listed gold producer with operations in Fiji. The Company acquired the historical Emperor Gold Mine in 2008, which has been a virtually continuous operation for 80 years. To date approximately 6.9Moz of gold and over 2Moz of silver have been extracted, with the current NI 43-101 compliant reserves of 830,000oz, of which 190,000oz are proven, and 640,000oz are probable. Total resources are 3.94Moz, including 1.40Moz in the measured category, 1.20Moz in the indicated category, and 1.34Moz in the inferred category. Vatukoula is developed on a series of narrow low-sulphidation, epithermal gold-style quartz veins hosted by andesitic to dacitic volcanics. Gold bearing quartz veins range from 1cm to 1.2m and are highly variable on a metre-scale. Historically, this has led to a broad range of annualised gold grades, from just under 9.5g/t in 2000, to 5.5g/t in 2010.
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Vatukoula began processing gold in May 2008. In its first full year of production, in FY09, the company produced 33,757oz of gold at average cash costs of US$881/oz. The following year, in FY10, a total of 59,658oz of gold was recovered at reduced cash costs of US$664/oz. In H1’11, 27,969oz of gold was recovered at US$1,326, similar to the run rate of the previous year, but with the markedly higher cash costs reflecting increased labour and engineering costs, as well as the continuation of an accelerated development programme. Ore mined and delivered from underground sulphide sources in Q2 FY11 was 73,086t compared to 80,914t in the previous quarter. This decrease was attributable to lower production from mine stoping areas and demonstrated the recent emphasis on development. In addition to underground ore, 30,143t of surface (oxide) ore was delivered to the oxide plant, down from 52,682t in Q1.
B2Gold (TSX:BTO, MCap C$1.100m) – Mine: El Limon, Nicaragua.
B2Gold is a Canada-based gold producer operating two of the three producing mines in Nicaragua; La Libertad and El Limon (the third, Bonanza, is operated by the state mining company Hemco and in 2010 produced ~40,000oz at a cash cost of $506/oz). Mina El Limon is an open pit and underground mine located in north-western Nicaragua which currently operates at a rate of 1,000t. The operation has a mine life of ~3.5 years based on projected average annual production of ~40,000 ounces of gold in 2010 at an estimated cash cost of ~$625/oz.
The system is very similar to La India with the bulk of gold mineralisation hosted within a series of steeply dipping, variable width low-sulphidation epithermal quartz-carbonate veins. The veins are also hosted by andesitic to dacitic volcanics of the Coyol Group. Pyrite is the predominant sulphide, but with an average content of less than one percent. Trace amounts of chalcopyrite, sphalerite, arsenopyrite, gold tellurides and native gold are also reported to occur. Gold is present in both the banded quartz and silicified breccias that form the veins. Gold is very fine grained and relatively uniformly distributed throughout the higher grade parts of the veins.
The productive vein systems are approximately 1-2km long, with widths of less than one metre up to 25m. Individual ore-shoots within the veins range from 60m to 450m long horizontally, and from 40m to 290m vertically. Strike orientations vary from north-northwest through northeast to east-west, and dips are from 40° to near vertical. All economic gold mineralization discovered and mined to date lies within 400m of surface. The productive and prospective elevations within the vein systems vary across the district. Post-mineral faults locally disrupt and offset the veins.
In Q3’11 El Limon processed 97,624t of ore at an average grade of 3.57g/t and process gold recovery of 91% compared to budget of 97,074t at a grade of 4.4 g/t at a processed gold recovery of 89%. For the nine months ended September 30, 2011, the Limon Mine generated gold revenue of $50.8 million from the sale of 33,445oz at an average price of $1,518/oz. The operating cash cost per ounce was $680 compared to a budget of $741/oz. The costs were lower than budget mainly due to a higher percentage of ore being supplied from nearby high grade open pits rather than from the underground operations in the first half of this year. Gold production from El Limon in FY11 is forecast for 42-46,000oz at an operating cost of $720-740/oz.
Corazon Gold Corp (TSX:CGW, MCap C$12m) – Project: Santo Domingo, Nicaragua.
Corazon Gold Corp is an exploration company with early stage exploration properties in Nicaragua. The Company was the first to explore the Santo Domingo concessions adjacent to B2Gold’s La Libertad mine 125km northeast of Managua.
Gold mineralisation within the Libertad-Santo Domingo district is considered to be a typical low-sulphidation adularia-sericite epithermal gold-silver system representing the along-strike continuation of the mineralised veins currently being mined at La Libertad. Mineralisation is predominantly hosted by quartz veins and breccia zones containing angular fragments of the andesitic host rocks enclosed in a quartz-chalcedony matrix. Colloform banded, vuggy, comb-textured, and amethystine quartz have also been identified. The vein structures are variably oxidised with a minor sulphide assemblage composed of pyrite, sphalerite, galena and chalcopyrite, although the combined copper-lead-zinc values are generally less than 1%. Vein widths of up to 8m have been intercepted by drilling, and assay results indicate that only portions of the structure contain strongly elevated gold grades. Broader zones of quartz stockwork, intersected in some of the shallow drill holes, may coalesce at depth into a high-grade coherent feeder structure.
From previous work conducted on the property, the mineralised zone of Santo Domingo is approximately 6km long (E-W) by 3km wide (N-S). Veins are generally located along a series of sub-parallel strike-slip faults which have both NE-SW and E-W trends. At least eight major veins have been historically identified within the concession – a detailed programme of 1:1,000 scale mapping identified more than 20 subsidiary parallel veins that are currently being catalogued. The first phase 5,600m drill programme was completed in September 2011, and the follow-up second phase commenced earlier in November.
PanTerra Gold (ASX:EVG, MCap A$76m) – Project: Azuay, Ecuador
PanTerra Gold is currently exploring its 2,200ha San Gerardo concession in Southern Ecuador, for which it has a 65% interest with the option to acquire 100% of the project for US$4m, exercisable by November 2013. The concession covers seven small-scale underground mines developed along high-grade (+10g/t Au) narrow quartz-pyrite-calcite-
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chlorite epithermal vein structures ranging from 0.5-1m in width. Placer Dome Ecuador historically reported the potential for a 1Moz plus orebody on the adjacent concession based on 9,000m of RC drilling, extensive chip sampling and mapping of surface mineralisation.
The Azuay project is at the centre of a highly mineralised gold belt with the Papercorp and Pinglio mines surrounded by reported NI 43-101 compliant resources of over 15Moz gold. The scoping study for the proposed project was released in Mar’11 which indicated a total development cost of ~US$92m including a substantial contingency allowance, and the cost of acquiring a 100% interest in the San Gerardo property. The first stage of development will include the construction of a gravity circuit to extract up to 50% of the contained gold, which is free milling. Initial gold production of ~50,000ozpa is expected following commissioning in Q2’13. The second development stage will see the addition of a CIL circuit combined with an Albion oxidation plant to extract gold from the refractory ore. Production from late 2014 could ramp up to ~95,000ozpa at a cash cost of $420/oz.
Based on the consistency of historical mining of narrow quartz-pyrite-calcite-chlorite veins (0.5m to 1.0m) grading 10g/t to 15g/t gold within the San Gerardo and adjacent leases, PanTerra has commenced a feasibility study at Azuay with a view to commencing production in Q2’13. A 10 to 12 year operation has been estimated based on the production forecast made in the scoping study. The Company will commence its scheduled 25,000m drill campaign on the San Gerardo lease in Jan’12, once it receives the necessary environmental approval, anticipated for Dec’11, which will permit construction of access roads and surface drilling. Exploration will be focussed around the seven existing small-scale underground mines as well as testing the open-pit potential of five identified areas of mineralised hydrothermal breccia and ‘Vittoria’; a large-scale 120ha copper-gold-molybdenum anomaly.
Beyond La India - Nicaraguan Portfolio
Outside of the La India Mining district Condor has a regional exploration portfolio comprising four highly prospective concessions covering 95km2. The Company has secured 100% ownership of three project areas all with known gold mineralisation and all but one either including or proximal to historic gold mines. Condor also has a 20% interest in a concession close to the La Libertad Gold Mine.
Figure 20. Condor’s four regional concessions outside of La India
Project Concession Ownership (%) Expiry Date Project Area (km2)
Segovia Potrerillos 100 December 2031 12.00
RAAN Estrella 100 April 2035 18.00
Boaco Rio Luna 100 June 2035 43.00
La Libertad – Santo Domingo Cerro Quiroz 20 April 2035 22.50
Source: Condor Resources, Ocean Equities
Rio Luna
The Rio Luna concession covers an area of 43km2 in the Central Highlands of Nicaragua which was granted to Condor in June 2010. The advanced exploration project was previous explored by First Point Minerals of Canada who reportedly spent US$1.8m on an extensive programme of soil, auger, rockchip and 7,000m of trench sampling which defined 18km of epithermal quartz veining in three northwest-southeast trending gold veins sets. Five of the seven principal prospects identified were drill tested over several phases between 2004 and 2006, with 58 diamond drillholes completed for a total of 6,250m.
Mineralisation at Rio Luna is predominantly composed of intermediate-sulphidation epithermal gold-silver veins hosted by a Tertiary-aged sequence of andesite flows intercalated with subordinate basalt.
Figure 21. Topographic map of the Rio Luna concession.
Source: Condor Resources, Ocean Equities
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Figure 22. View along the northeast trending Balsamo prospect.
Source: Condor Resources, Ocean Equities
On November 28th 2011, Condor announced a maiden resource for the project outlining a JORC compliant resource of 0.7Mt with an average grade of 3.5g/t for 80,000oz gold. The additional silver resource at the project comprises 0.28Mt grading at an average of 56g/t, equating to 500,000oz silver.
The current Mineral Resource is confined to five resource blocks where there is sufficient density of trench and drilling data to demonstrate continuity of gold mineralisation along strike and to depth. Three resource blocks cover a combined 1,050m strike length on the El Paraiso Vein Set, with a further 200m strike length on the El Rodeo Vein Set and 500m strike length on the San Andreas Vein Set. The Mineral Resource blocks have a combined strike length of 1,750m to a depth of less than 150m below surface, except on one cross section where drilling tested to a depth of 250m below surface.
Gold mineralisation on all five prospects included in the Mineral Resource remains open along strike and to depth. Trenching has already defined surface mineralisation along strike of the resource blocks on all three vein sets with some significant mineralised zones remaining to be drill tested and brought into the Mineral Resource, such as 2.2m at 8.3g/t gold from trenching on the Santa Juana Prospect on the El Paraiso Vein Set.
Potrerillos
Condor’s 12km2 Potrerillos concession is located less than 1km north of the historically producing San Albino Mine, with a number of abandoned shafts and adits illustrating the long history of mining activity along the Guayape Suture Zone. Four prospects have been identified to date along a 3,500m long segment of the Guayape mineralised corridor within the Potrerillos Concession. Gold mineralisation is contained within mesothermal quartz veins, hosted by a greenschist facies metasedimentary package dominated by graphitic schist.
Initial results from a 700m trench and rockchip sampling programme have been encouraging and suggest mineralisation is widely distributed and laterally continuous with considerable potential to discover a new lode gold system.
Estrella
The Estrella concession granted in Apr’10 covers 18km2 over the historic Estrella Mine, located ~20km southwest of Siuna, which is one of the three mining regions that defines Nicaragua’s historic ‘Mining Triangle’. Along the east-west trending mineralised structure three epithermal veins ranging from 12-20m in width have been defined over a strike-extent of ~400m. Artisanal miners have continued actively working the western 100m of mineralised strike extent. Initial trench sampling by Condor returned average grades of 11.85g/t gold and 23.1g/t silver over 1m intervals.
Cerro Quiroz
Condor was initially granted the Cerro Quiroz concession in Apr’11, but diluted its interest to 20% as part of the concession swap with B2Gold that was announced in Sep’10. The concession covers a 22.5km2 area within the Libertad-Santo Domingo gold mining district, representing the eastern extent of gold mineralisation discovered to date along the broadly east-west epithermal gold system. Previous explorer Chesapeake Gold Corporation reported rockchip samples assaying up to 2.5g/t gold from an outcrop of an east-west striking vein located within 100m of the Cerro Quiroz Concession.
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Nicaragua Country Review
Governmental Issues
Although now seen as one of the most stable countries in the area, Nicaragua has historically been blighted by a series of civil wars and only became a democratic republic in 1990. Violent opposition to governmental manipulation and corruption spread to all classes by 1978 and resulted in a short-lived civil war that brought the Marxist Sandinista guerrillas to power in 1979. Nicaraguan aid to leftist rebels in El Salvador caused the US to sponsor anti-Sandinista contra guerrillas through much of the 1980s. In 1984, the Sandinistas won a decisive victory, but their leftist orientation also attracted US hostility and drove them to turn to the USSR and Cuba. This set the scene for a US-sponsored counter-revolution, which saw Washington arm and finance thousands of rebels, or Contras, in order to carry out attacks on Nicaragua from bases in Honduras. The US also imposed trade sanctions and laid mines around the Nicaraguan harbours.
By 1990, when the Sandinistas were defeated in elections held as part of a peace agreement, Nicaragua's per capita income had plummeted and its infrastructure was in tatters.
Peace brought some economic growth, lower inflation and lower unemployment, but this was more than counter-balanced by the devastations of Hurricane Mitch in 1998, which killed thousands, rendered 20% of the population homeless and caused billions of dollars worth of damage.
After losing free and fair elections in 1990, 1996, and 2001, former Sandinista President Daniel Ortega Saavedra was elected president in 2006, and achieved a second term in power in the Nov’11 general election.
The Highest Recorded Gold Production in Central America
Nicaragua is the largest country in Central America and also has the highest recorded gold production in the region, estimated at almost 10Moz of gold. There are currently three large modern producing gold mines; Bonanza (3.1M ounces gold and 0.6M ounces silver produced), El Limón(2.7M ounces gold and 4.5M ounces silver produced) and La Libertad (170,000 ounces gold production, 16.3Mt at 1.5g/t gold reserves). The country’s gold production from these modern mines is supplemented by small scale artisanal mining of both bedrock and alluvial placer gold in mining districts throughout the country. Past mining activity includes some large resources such as the Siuna and Rosita Mining districts (3.8Mt at 5.6g/t gold).
A More Positive Outlook
The outlook for mining and exploration in Nicaragua is increasingly positive, with three operating mines, El Libertad, El Limon and Bonanza producing a total of 200,000ozpa gold. It has proven to be one of the safest operational jurisdictions in Central America and Condor Resources has proven it has a positive relationship with the mining department having been directly granted four of the six concessions at La India. Advantages for any company operating in the country include a 3% NSR, 30% Corporation Tax, and 25 year exploration and exploitation licenses.
Gold represents a growing industry in the country and in 2010 was the third largest export. As one of the poorest countries in the Western hemisphere Nicaragua has a GDP of ~US$6.55Bn, significantly less than East African countries such as Sudan (US$62.05Bn) and Ethiopia (US$29.72Bn) that have a thriving mining industry. Commodities are likely to play an increasing role in the growth of the economy, which we see helping Condor in the future development of the La India project.
Infrastructure
During our visit to Nicaragua and La India, we travelled from Managua to La India via Sebaco and found the project easily accessible via well developed infrastructure. The road system is well maintained and the main paved highway linking Leon to Sebaco passes along the south eastern side of La India, with a paved road leading to the Condor office. Off-road tracks are used to access the project area. A power lines also runs along the main highway, so the project is within easy reach of the electricity grid, to which the site office is already connected.
Sebaco (~20-30 minutes) is the closest town with amenities including banks and food stores, while also being the junction of the Pan-American Highway (N-S) and roads leading to the east of the country. The closest hospital is 30 minutes from site in La Trinidad, and the main centre of Leon is ~1.5hrs south west.
Condor employs ~100 local people from La India on site at the project and has very good relations with the local community. The Company has helped with building an extension to the local medical centre and plant trees around the village. Without the project it would be difficult to see there being an alternative source of employment for the local community.
Operational Issues – A Permanent Water Supply
While on site in Nicaragua we were able to discuss any operational issues that the Company anticipates facing in the near future. We see the main issue over the current dry season being the ability to access sufficient water necessary
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to supply the four drill rigs currently on site and allow the Company to maintain the momentum at La India. La India is supplied by water pumped from the local hydroelectric reservoir between El Hato de La Virgen and La Union. The local rivers and small dams that have been used to collect and supply water to the drill rigs have dried up during the latter stages of the wet season. In 2010, the Company used tankers to transport water up to the project, but were only maintaining a single drill rig. This year, with 4 drill rigs currently active, utilising tankers could cost upwards of $30,000/month. Luc English, the country manager in Nicaragua is currently looking into the viability of pumping water to a central storage tank close to La India which could supply all the drill rigs. This strategy will require additional costs to feed a diesel pump that will take water ~1.6km horizontally and 400m vertically.
El Salvador Portfolio
Condor currently holds four exploration concessions over two projects in El Salvador that have been subject of significant historical mining activity and have potential to host high grade epithermal gold deposits. However, mining is currently prohibited in the country as the government conducts a review of previous and future mining operations. The resources already outlined within the Company’s concessions have not been included in our valuation.
Figure 23. Condor’s El Salvador concessions (*Two year extensions for all licenses are in administrative freeze whilst El Salvador moratorium
on mining and exploration remains in effect).
Project Concession Ownership (%) Expiry Date Project Area (km2)
La Calera Potrerillos 100 3rd June 2011* 42.00
El Pescadito El Pescadito 100 26th August 2012* 50.00
Carolina 100 6th June 2011* 40.50
El Gigante 100 14th June 2012* 42.50
Source: Condor Resources, Ocean Equities
La Calera
The La Calera concession covers a 42km2 area ~45km northeast of the capital San Salvador and is 90% owned by Condor’s subsidiary Minerales Morazán SA de CV. Mineralisation is hosted by a series of structurally-controlled quartz-calcite veins and breccias within propylitically altered andesitic volcanics, volcaniclastics and agglomerate units.
A total of five sub-parallel north-northwest striking veins have been identified over a 500m cross-strike distance which are referred to as Acevado, Escobar, Calichal, Rosa and Rosa West. An extensive programme of trenching undertaken by Morazán in 2006 and 2007 identified the Acevado and Escobar veins and defined and extended the three other principal veins defined on an 80m trench-spacing. Significant intercepts include 20m at 3.6g/t gold and 3.9g/t silver from the Rosa Vein, and 12m at 7.5g/t gold and 6.3g/t silver from the Rosa West Vein. A resource calculation announced in February 2008 utilising the extensive trench sampling database and supplemented by the existing drilling coverage estimated an inferred resource of 6Mt at 1.6g/t gold and 1.4g/t silver for 310,000oz gold and 270,000oz silver.
Figure 24. Significant trench intersections from the La Calera epithermal veins.
Source: Condor Resources, Ocean Equities
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Figure 25. Cross-section of the gold mineralisation at La Calera.
Source: Condor Resources, Ocean Equities
El Pescadito
Condor’s El Pescadito project comprises three contiguous concessions for a total land holding of 133km2 located 95km east of the capital San Salvador and 20km northeast of San Miguel. Numerous old workings are located within the project area which has been exploited since the 18th Century. The El Salvador government estimates that ~100,000oz gold and 5.6Moz silver was extracted from El Divisidero at grades of 3.8g/t gold and over 200g/t silver.
Historical exploration has identified a series of prospects; Lomo del Caballo, Divisidero-Carolina, Agua Caliente-Virginia and Taladro. Mineralisation throughout the district is primarily hosted within structurally-controlled low and intermediate-epithermal quartz-calcite veins and subordinate breccia zones. To date, Condor have outlined an inferred resource for the Pescadito project of 7.1Mt at 1.90g/t for 430,000oz gold and 96g/t for 22Moz silver.
Once the mining moratorium in El Salvador is concluded, Condor will test the strike potential of the mineralised structures throughout Pescadito with an initial trenching programme and follow-up drilling.
Figure 26. Condor’s Pescadito project and identified mineralisation.
Source: Condor Resources, Ocean Equities
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Figure 27. Cross-section of the Carolina-Divisidero mineralisation and historical resource.
Source: Condor Resources, Ocean Equities
Report on Mining in El Salvador Completed
The independent consultants brought in to advise the Government of El Salvador on mining in the country are believed to have completed their report and submitted it to the relevant parties for comment prior to release. Condor holds 90% of several licences within the country that host a resource of 0.75Moz gold and 22.1Moz silver. Mining is currently suspended throughout El Salvador until the Government has carried out a review of its mining policy. Condor originally owned 100% of its El Salvador concessions but recently gifted 10% to a UK based charity set up to benefit the people of El Salvador.
Board and Management
Mark Child – Executive Chairman
Mark Child joined the board of Condor Resources on May 24th 2006 and has over 25 years of equity capital markets experience mostly as an institutional stockbroker and in corporate finance/private equity, primarily in emerging markets and specifically Asia. The 12 years of institutional stockbroking includes roles at W.I. Carr Indosuez, Hoare Govett and Prudential Bache Securities before becoming managing director of Sun Hung Kai Securities (UK) Ltd. At board level Mr Child spent four years as an executive director of Hong Kong-listed Regent Pacific Group, an emerging market fund manager and private equity group.
Jim Mellon – Non-Executive Director
Jim Mellon holds a degree in Politics, Philosophy and Economics from Oxford University, and has spent his whole career to date in asset management including roles at GT Management Plc, and Thornton Group before becoming an executive director for Tyndall Holdings Plc. Mr Mellon is the founder, principal shareholder and co-chairman of the Regent Pacific Group and is also founder, principal shareholder and a non-executive director of Charlemagne Capital, based on the Isle of Man and quoted on the London AIM market. He is also chairman of Manx Financial Group Plc, Speymill Plc, Webis Holdings Plc and Rivington Street Holdings Plc, co-chairman of Emerging Metals Limited and a director of Polo Resources Limited, Burnbrae Group Limited and various other investment companies.
Dr Luc English – Country Manager Nicaragua and El Salvador
Luc English is an exploration geologist with experience that spans more than 16 years, primarily in Western and Central Australia on projects ranging from greenfield exploration through to resource estimation and feasibility studies. Most recently, Dr English spent four years working for Tanami Gold NL during the resource definition and bankable feasibility study of the Sandpiper and Kookaburra deposits and commissioning of the Coyote Gold Mine. In addition, he has also worked on exploration projects in Gabon and Eritrea and as a technical consultant for the oil and gas industry in the UK and Middle East. Dr English joined Condor in 2006.
Armando Jose Tercero Gamez – Chief Geologist
Armando Tercero is a Nicaraguan national and graduated with a geology degree in the Soviet Union prior to gaining upwards of 25 years experience as an exploration geologist in Nicaragua. Mr Tercero has extensive experience in the discovery, exploration and definition of epithermal gold systems and importantly was the principal Nicaraguan geologist on the Soviet exploration project of the La India Mining District during the 1980s. Prior to joining Condor in 2005, he was also exploration manager of Triton S.A., the wholly-owned subsidiary of B2Gold operating the El Limon and La Libertad gold mines.
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Jose Mario Gonzalez Granados – Administration Manager
Jose Gonzalez has extensive business administration experience that spans 16 years which has predominantly been gained in El Salvador. Mr Gonzalez was involved in the setting up and development of Condor Resources’ subsidiaries Minerales Morazán SA de CV (El Salvador, 2004) and La India Gold SA (Nicaragua, 2006), and has most recently been acting on behalf of the Company in meetings and negotiations with the El Salvador government regarding the current moratorium and regarding the future of metallic mining in the country. He is also actively contributing work to the Nicaraguan Chamber of Mines.
Additions in the Near Future?
We believe that Condor’s current management and geology team on the ground are both slightly under-staffed given the increasing resources at the Company’s disposal. As a result, we expect both the board and senior management on site in Nicaragua to be bolstered in the near future, and see this benefitting the Company’s exploration of La India and the other regional concessions by allowing it to sustain the steady and encouraging resource growth pace achieved across its Nicaraguan assets.
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