`Temporary setback’: Dickinson Pegasus passes on El Condor

Following a 4-month due diligence review, Pegasus Gold (TSE) has decided not to acquire El Condor Resources (VSE).

Pegasus had offered to buy all the outstanding shares of El Condor for $7.50, payable in common shares of the company. El Condor’s major asset is a 60% interest in the South Kemess copper-gold project in north-central British Columbia.

However, Pegasus has decided that South Kemess does not meet its investment criteria, says corporate spokesman Michael Steeves. He adds that Pegasus probably did the most thorough due diligence it has ever done on a project. Pegasus is very impressed with the job El Condor did at South Kemess, he says, adding that no major discrepancies were found in any of the data. Pegasus says, also, that its talks with the British Columbia government went well, and the province remains supportive of the South Kemess project. No single factor is being attributed to Pegasus’ decision to cancel the deal; Steeves says only that, after careful consideration, the company determined that the project does not meet its capital investment criteria. Consultant Kilborn Engineering completed a prefeasibility study last year, estimating reserves at 220 million tons grading 0.22% copper and 0.018 oz. gold per ton with a 1.26-to-1 stripping ratio.

The capital cost of a 44,000-ton-per-day operation was projected at US$280 million.

Output in the first six years of operation was estimated at 259,000 oz. gold and 65 million lb. copper per year, with a cash cost, net of copper credits (based on US$1 per lb. copper), of US$65 per oz. gold.

Pegasus estimated production in the first six years at 267,560 oz. gold and 65 million lb. copper per year at a cash cost, net of copper credits (based on US90 cents per lb. copper), of US$80 per oz. gold.

Both Pegasus and El Condor pegged the life-of-mine production cost at US$119 per oz. gold.

Although disappointed with Pegasus’ decision, Robert Hunter and Robert Dickinson, chairman and president respectively of El Condor, are nonetheless pleased that the due diligence review confirmed Kilborn’s prefeasibility work. Regarding recent developments as “only a temporary setback,” Dickinson and Hunter plan to re-activate talks with a number of parties who expressed an interest in the project prior to Pegasus’ offer.

St. Philips Resources (VSE), which was not included in Pegasus’ offer, owns the remaining 40% interest in South Kemess.