Orezone turns assets to cash in Burkina

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

The company set up the country’s first mine in the mid-nineties. Over the years it built such a strong portfolio of assets that when Iamgold (IMG-T, IAG-N) came calling for its crown jewel — Essakane — management ensured the deal was structured so that its shareholders would keep its early  stage exploration projects in the country.

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

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

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

While the deal still needs government approval, the companies say it should close by April.

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

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

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

The mine is sitting on a deposit with 402,000 oz. gold and a 1.6-gram average grade. Included in those resources are proven and probable reserves of 3.4 million tonnes grading 1.7 grams for 186,000 oz. gold. The mine went into production in October 2008 and produced 70,000 oz. gold in 2011 at cash costs of US$805 per oz. gold.

Sean Homuth, Orezone’s chief financial officer, says that along with its Bondi project in Burkina, Sega was considered next in line for Orezone’s project pipeline.

“It’s all hands on deck with Bombore now,” Homuth says. “We had baseline 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 Ouagadougou, has become one of Burkina’s largest undeveloped gold deposits with indicated resources of 60.9 million tonnes grading 0.81 gram for 1.6 million oz. gold, and 60.6 million tonnes of inferred resources grading 0.96 gram for 1.9 million oz. gold.

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 at Bombore.

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

Once the first phase is up and running and generating cashflows, that capital will build the next phase of the plant which will process the sulphide ore.

Orezone estimates first-phase capital expenditure at $350 million, with first-half 2015 production at a targeted rate of 150,000 oz. gold per year.

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

With that drilling, Homuth expects vastly different economics than those outlined in the preliminary economic study.

The company hopes to complete the feasibility study by year-end, and from there it aspires to become a mid-tier producer. While it already held one asset that would have achieved that goal (i.e. 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 the 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 on Feb. 3 — the day the asset sale news was released — while Cluff shares were flat at $1.30.