Pegasus snaps up El Condor

The proposed merger of El Condor Resources (VSE) into Pegasus Gold (TSE) would put a fresh feather in the cap of the Robert Hunter-Robert Dickinson team.

Pegasus plans to offer $7.50 (payable in common shares of Pegasus) for each share of El Condor, for a total value of $108 million.

As president and chairman, respectively, of El Condor, Dickinson and Hunter head a well-known group which specializes in developing copper-gold porphyry deposits to an advanced feasibility stage.

The team hopes to attract a third-party buyer, as it did with the Mt. Milligan project in north-central British Columbia. Placer Dome bought Mt. Milligan in 1990 for $260 million. The subsequent writedown of the project and the failure to develop it (to date) left the Hunter-Dickinson team with a bit of a black eye. Moreover, many local mining analysts doubted the viability of El Condor’s South Kemess gold-copper project, near British Columbia’s Toodoggone River.

The Pegasus agreement certainly vindicates the group’s confidence in that project — confidence which is backed up by a healthy share position in the company. The seven directors of El Condor hold an aggregate of 3 million shares in the company, worth about $22 million under the proposed offer. Dickinson is very pleased with the arrangement and notes that the group can now concentrate on its two other copper-gold projects.

Consultant Kilborn Engineering Pacific completed a prefeasibility study on South Kemess last year, estimating the minable reserve to be 220.9 million tons grading 0.018 oz. gold and 0.22% copper with a life-of-mine strip ratio of 1.26-to-1.

Based on a 44,000-ton-per-day operation, yearly output is estimated at 213,000 oz. of gold and 58 million lb. of copper over a 15-year life. Pro-rated cash costs are estimated at US$206 per oz. and US60 cents per lb. for gold and copper, respectively. The total capital cost, including working capital, is projected at $374 million.

The agreement in principal has been approved by directors of both companies but is subject to further due diligence by Pegasus and approval by El Condor’s shareholders.

Michael Steeves, spokesman for Pegasus, said the due diligence will involve the twinning of some holes on the property as well as a further review of El Condor’s data. He commended the El Condor team for a “first-rate job” and noted that a preliminary review of data on the project has not turned up a single discrepancy.

The merger deal with El Condor does not include St. Philips Resources (VSE), which owns the remaining 40% interest in South Kemess.

Steeves said Pegasus completed “the first step” by acquiring the operator, adding that the company has held some discussions with St. Philips. (The companies currently are not involved in discussions).

Michael Devji, a director of St. Philips, would not comment on whether or not Pegasus made an offer for the company, but he conceded St. Philips is open to offers.

St. Philips has 11.3 million shares outstanding on a fully diluted basis, which places its market cap at $45 million.