Semafo amends bid for Orbis Gold

Semafo (TSX: SMF) has amended its bid for 100% of Orbis Gold (ASX: OBS) to A$0.65 per share from its proposal on Oct. 12 of between A$0.62 and A$0.65 per share in a deal now worth A$163.9 million (US$143 million).

The Quebec-based company has also waived its due diligence requirement and its offer is conditional on Orbis shareholders rejecting a US$20 million financing at A$0.42 per share from Greenstone Resources, which shareholders of the Australia-based company are expected to vote upon in a meeting Oct. 24.

Despite the amended price, Orbis is continuing to recommend that shareholders take no action and says it is in “active discussions with several third parties regarding value enhancing alternatives to Semafo’s proposed offer.”

Kerry Smith of Haywood Securities believes the revised bid “will not be high enough to win the day and Orbis should be able to find a white knight willing to pay more.” The Toronto-based analyst also argues that if there was a component of stock in Semafo’s bid it would “help convince Orbis shareholders to tender.”

In addition, Smith notes that the waiver of the due diligence requirement is the biggest change and the riskiest condition of Semafo’s offer because “with only access to publicly disclosed information, Semafo cannot be as aggressive with their bid as other potential white knights could potentially be.”

Both companies have assets in Burkina Faso: Semafo owns and operates the open-pit Mana mine, which includes the high-grade Siou and Fofina satellite deposits, about 200 km west of the capital, Ouagadougou, while Orbis’ open-pit Natougou project is roughly 320 km east of Ouagadougou. 

With an average grade of 3.4 grams gold per tonne, Orbis claims Natougou is one of the highest grade open-pit gold deposits known across West Africa and points to the updated scoping study as proof that Semafo’s takeover proposal is insufficient. 

An updated scoping study released on Oct. 14 incorporated the results of a drill program earlier this year and an updated resource estimate completed in August. Based on mill throughput capacity of 2 million tonnes per year, a base case gold price of US$1,300 per oz. and initial capex of about US$234 million, Natougou serves up an after-tax net present value at a 5% discount rate of US$533 million and a triple digit after-tax internal rate of return of 100%. (At a gold price of US$1,000 per oz., the NPV slips to US$236 million and the IRR falls to 52%.) Cash operating costs were calculated at US$534 per oz. and the payback period is eight months.

Orbis also believes that exploration could uncover additional resources as the immediate deposit area remains open beyond the limit of current drilling (the average down-hole depth from all drilling so far has been 82 metres) and a number of hanging wall intersections recorded along the southwest margin of the deposit also have not yet been included in the current mineral resource estimate and are priority drill targets. A third drill target within the immediate proposed mine area, the company says, are “stacked” lodes or possible flat-lying repeat structures developed at depth below the base of current drilling. Exploration drilling is expected to get underway in about two weeks time, after the end of the rainy season.

Indicated resources now stand at 7.1 million tonnes grading 5.1 grams gold per tonne for 1.2 million oz. of contained gold and inferred resources at 11 million tonnes averaging 2.3 grams gold per tonne for 0.8 million oz. gold. The resource was based on a 0.5 gram gold per tonne cut-off grade.

The footprint of the open pit will be about 1,900 metres long by up to 950 metres wide with mineralisation mined from surface to a maximum depth of 100 metres. The strip ratio is expected to be 11.7:1 over the 6.7 year mine life. 

Orbis says it has completed more than half of a definitive feasibility study on Natougou and expects to complete it by mid-2015. Orbis owns 100% of Natougou but must pay a 1.0% profit-based royalty to the original permit vendor on any gold sales.