Orezone turns asset to cash in Burkina

Being in a gold rich company before the rest of the world gets turned on to it can pay some handsome dividends as Orezone Gold (ORE-T) is proving in Burkina Faso.

The company first set up shop in the then mine-less country in the mid 1990s. Over the years it built up such a strong portfolio of assets that when Iamgold (IMG-T, IAG-N) came calling for its crown jewel, Essakane, management made sure the deal was structured so that its shareholders will still hold its earlier stage exploration pipeline in the country.

And as it continues to prove up  the most advanced of those projects, Bombore, Orezone has sold off another project for a considerable chunk of change.

The company announced that it is selling its Sega project  to Cluff Gold (CFG-T, CLF-L) for US$29.6 million.

Cluff gets the 313 sq. km project for US$15 million in cash and 11 million new common shares of Cluff – which will give Orezone a 7.7% stake in Cluff.

While the deal still needs the rubber stamp from the government, the companies say it should close by the end of this quarter.

Sega currently has indicated resources 8.3 million tonnes grading 1.69 grams gold for 450,366 oz. and inferred resources of 2.9 million tonnes grading 1.58 grams gold for 147,344 oz.

Outside of the already defined ounces and potential for more, Cluff clearly has synergies on its mind with the acquisition as Sega sits adjacent to its producing Kalsaka mine. The two projects are situated roughly 150-km northwest of Burkina Faso’s capital, Ouagadougou.

Cluff plans to use Sega’s resources to extend Kalsaka’s mine life.

Along with its Bondi project, Sega had been considered the next in line in Orezone’s project pipeline.

“It’s all hands on deck now with Bombore now,” Sean Homuth, Orezone’s chief financial Officer says. “We had base line exploration going for both Sega and Bondi but it just made a heck of a lot more sense to focus our resources on advancing Bombore”

Bombore, which sits 85-km east of the Ouagadougou, has become one of Burkina’s largest undeveloped gold deposits with indicated resources of 60.9 million tonnes grading 0.81 grams gold for 1.6 million oz. and inferred resources of 60.6 million tonnes grading 0.96 grams gold for 1.9 million oz.

Those resources lie within optimized open pit shells that span 11 km, and include an average drill depth of just 60 metres.

“The sale of Sega gives us more flexibility as we get through feasibility at Bombore,” Homuth says. “We expect to end the year now with the proceeds from the sale still intact so we won’t have to come back to the market for exploration work.”

Homuth says the next financing won’t come until the company is ready to build to Bombore.

The development plan at Bombore is to build the mill in two phases. The first phase will be designed to process the oxide resource, which currently sits at roughly 1.5 million oz.

Once phase one is up and running and generating cashflows, that capital will be put to work as it will be used to construct phase two of the plant which will be responsible for processing the sulphide ore.

Orezone estimates that phase one capex will ring at $350 million with production coming in the first half of 2015 at a targeted rate of 150,000 oz. of gold per year.

Investors can also expect a resource update in the coming months, and if the amount of drilling is any indication – and generally it is – the company could be set to release a sizable upgrade to resources. Orezone is wrapping up a drill program that has seen 215,000 metres cut.

With all that drilling, Homuth expects the economics of the feasibility study to be vastly different from those outlined in its preliminary economic study.

The company expects to have the feasibility study done by the end of the year, and from there it plans to push towards its ambition of moulding itself into a mid-tier producer. While it already held one asset that would have achieved that goal, Essakane, by taking the cash and holding on to some key assets, Orezone is proving that there isn’t only one path to production success.

“We knew we had some assets of value when we did deal with Iamgold,” Homuth says. “We’ve definitely taken them a long way and we have a much better chance of building a mine this time.”

Orezone shares were up 4% or 12¢ to $2.87 in Toronto on Feb. 3, while Cluff shares were flat at $1.30.