Burkina Faso Red Hot for Gold Deals

Normally at this time of year, the only thing heating up in the vast, dry Sahel of Burkina Faso is its red sands. But with two deals involving two of the more prominent Canadian-based junior gold companies in the country, Burkina Faso is establishing itself as a hot playing field for gold deals.

Goldbelt Resources (GLD-T, GLDRF-O) — which has been busy expanding its project base in the country — has just been targeted with a takeover bid, while Orezone Resources (OZN-T, OZN-X) is buying out its partner, Gold Fields (GFI-N, GFI-J), at Burkina Faso’s largest gold project — Essakane.

The deal for Goldbelt comes as the company has built itself into one of the pre-eminent junior gold companies in the country. Oslo-based Wega Mining vaulted onto the scene with a strong bid announced on Oct. 18, motivated by Goldbelt’s Inata gold project.

Wega already has a presence in West Africa through exploration projects in Guinea and Mali, but has nothing in the region as developed as Inata. The $114-million deal will also significantly beef up its exploration portfolio thanks to Goldbelt’s recent acquisition of Barrick Gold’s (ABX-T, ABX-N) West African projects.

“We were looking at a number of projects in West Africa, but we wanted a single-project company that we found interesting,” says Wega Mining’s chief executive Lars Marius Furu.

“We saw that Goldbelt was exactly in the position we wanted. . . In terms of the development stage of Inata, it was a good time to come in. They just delivered a feasibility study, they have a preliminary agreement with bank financing, they have all the permits and a relatively simple processing plant that is already contracted and ready for development.”

Although Wega also has exploration projects in Ecuador, Romania, Canada, Portugal and Norway, the company is keen on expanding its presence in West Africa, where perceived political risks make for slight discounts on projects, Furu says.

“We approached them with that in mind,” he says. “We also identified Dundee Precious Metals as a potential seller of their stake.”

As of Sept. 30, Dundee Precious Metals (DPM-T) held roughly 46% of Goldbelt.

Dundee’s shares account for the bulk of the roughly 47% of shares that have been entered into a lock-up agreement with Wega for the offer.

While Goldbelt chairman Paul Morgan says he would have liked to push Inata through to production, he recognizes the value the bid offers to shareholders.

“The key is we’re in the business of making money for our shareholders and this is a good deal for them,” Morgan says. “They all make money out of it.”

The offer — which breaks down to $1.55 per share — represents a 42.7% premium to the 20-day volume-weighted average price ending Oct. 17, and has the full support of Goldbelt’s board.

The deal is contingent upon Wega completing a private placement financing for $54 million; the company announced the condition had been met on Oct. 22.

Inata is situated 220 km north of the capital of Ouagadougou. A recently completed feasibility study estimates 944,000 oz. gold in proven and probable reserves out of a total resource of 1.7 million oz. The study pegged the project’s mine life at seven years with 893,000 oz. of recoverable gold and a total cash cost of US$400 per oz.

The deal will see Wega pay an additional $14 million for 16 million Goldbelt shares — at 90 per share — so that development can continue.

“We would like to see the project moving forward,” Furu says. “If we wait until it is completely in our hands, which would be in three to four months, that would effectively delay the project. To ensure the project starts on time, the best way is to supply the financing early.”

Goldbelt’s shareholders will have until early December to vote on the offer.

News of the takeover bid came just over a week after Goldbelt finalized a deal to acquire all of Barrick Gold’s West African projects.

Initially announced at the end of February, the deal adds 18 concessions to Goldbelt’s portfolio in Guinea, Mali and Burkina Faso.

While the move represents a turn in focus away from West Africa for Barrick, it doesn’t mean the gold giant is done with the region altogether.

It retains the right to claw back up to a 75% interest in any project at feasibility that contains more than 3 million oz. gold. In that event, Barrick would reimburse Goldbelt a multiple of its exploration spending. If it doesn’t exercise its claw-back option, Barrick will retain a 2% net smelter return.

Barrick can also earn into projects that weren’t part of the deal. If a 3-million-oz. deposit is found within an 80-km radius of any of the existing projects, Barrick can earn a 25% interest at feasibility by reimbursing Goldbelt 100% of its exploration spending.

Orezone

As for Orezone, the company says its move to buy out its joint-venture partner Gold Fields from the Essakane gold project will elevate it to a new level.

“We see this as accretive on reserve and resources and production per share and NAV (net asset value) per share. We see it as positive in all respects,” Ron Little, Orezone’s president and chief executive said on a conference call. “Most importantly, it transforms us into an intermediate producer and we think there’s a lack of good names in this space.”

Orezone will buy Gold Fields’ 60% stake for US$200 million — $150 million in cash and $50 million in Orezone common shares.

As for any perception that Orezone may lack the expertise to bring a mine of this size into production, Little emphasized that the company has gained experience from operating in the area for 11 years.

“So it’s not new to us, and we just have to demonstrate to the rest of you that we can build the production team and carry the ball to the finish line,” he said.

Towards that end, Orezone announced on Oct. 22 that it had appointed Louis Gignac as project executive for developing the project.

Gignac brings a wealth of experience to Essakane; he served as president and chief executive of the former Cambior for 20 years, and has held management positions with Falconbridge Copper Co. and Exxon Minerals.

For Orezone, the deal makes for a 150% increase in gold reserves and resources including 2.65 million oz. of contained reserves, 4.4 million oz. measured and indicated resources and more than 2.4 million oz. in inferred resources.

Orezone says it will make a public equity offering to fund the deal.

A recent feasibility study estimates production at Essakane at 292,000 oz. gold annually by 2010 at cash operating costs below US$360 per oz.

Construction will take 18 months, with a total capital cost of US$346 million. The government of Burkina Faso has up to a 3% net smelter royalty and a 10% carried interest in the project.

“While the Essakane project is expected to make a good return and deserves to be built, Gold Fields’ relatively small stake in the project mitigates against it becoming a Gold Fields franchise asset,” Ian Cockerill, Gold Fields’ chief executive, said in a statement. “We believe that Orezone is well positioned to turn this asset to account.”