Orezone issues paper for cash

Orezone Gold (TSX: ORE) has more money for its company coffers as it managed to raise another $5 million by issuing more equity.

The capital comes by way of a non-brokered private placement that will see Orezone issue 10 million shares at 50¢ per share — a slight discount to the 53¢ close at the day before the deal was announced on Oct. 29th.

With already $7 million in cash on its book Orezone already had enough to accomplish its near term goals of updating its preliminary economic assessment later this year and then pushing through to a full feasibility study by the third quarter of next year.

Orezone’s president and chief executive Ron Little estimates that the entire process would cost roughly $4 million, well within its current cash reserves.

Where the cash may find a use is in covering corporate expenses over the next year. Those costs are currently coming in at roughly $400,000 per month, and while Little said the company was looking to cut costs on the exploration side, there was no mention of cutting costs on the salary side.

Last year Little made a base salary of $330,198, but with options and incentives his total compensation climbed to $793,709, which was down from the previous year total of $975,785. Other high earners in the executive include CFO Sean Homuth, who earned $693,212, down from $1.095 million in 2011, and VP of exploration Pascal Marquie who earned $777,199 last year, down from $918,133 the year previous.

All three executives saw their base salaries increase in each of the past three years. And while the company’s stock ran up from 70¢ to $4 in 2010, since then it has been on a steady decline. Orezone’s shares finished 2011 trading in the $2.50 range, then finished up 2012 trading in the $1.50 range. In Toronto on Oct. 31 — the day after the equity deal was announced — its shares were trading for 51¢.

And while the stock performance has been dismal — as it has been for most junior gold miners — the team has stayed focus on driving its Bombore project in Burkina Faso into production.

Orezone calls Bombore West Africa’s largest undeveloped oxide gold deposit. And while the property also hosts a large sulphide deposit below the oxide cap, it is the oxide that is now the focus due to the leaner market conditions.

“We were going down the road of a $400 million CIL plant,” Little explains, “but we’ve reverted back to a heap leach operation that would cost in the ballpark of $200 million to build.”

The oxide deposit at Bombore has measured and indicated resources of 67.2 million tonnes grading 0.91 grams gold for 1.96 million oz. of gold. It also has inferred resources of 6.4 million tonnes grading 0.94 grams gold for 189,000.

The oxide portion of the deposit goes from surface down to a depth of roughly 40 metres and is open along strike in both directions.

When combined with the deeper sulphide resources, the overall deposit has measured and indicated resources of 139.9 million tonnes grading 1.01 grams gold for 4.56 million oz. of gold and inferred resources of 18.4 million tonnes grading 1.22 grams gold for 723,000 oz. of gold.

Orezone currently envisions a heap leach operation that would produce 80,000 to 100,000 oz. of gold per year over a 10 year mine life with recoveries of roughly 80%.

According to Jennings Capital analyst Dan Hrushewsky the new capital raise is enough to fund another 12 months of corporate expenses. Hrushewsky also notes that the company can sell the 11 million shares it has in Amara Mining (TSX: AMZ) from a previous transaction, which are currently worth roughly $2.5 million.

“The dilution inherent in the $5 million financing equals 18¢ per share,” Hrushewsky wrote in a research note. “We believe that a much larger impact on Orezone’s valuation will be the re-scoping of Bombore into a heap leach project, as well as the impact on valuation of its ultimate finance ability.”

Jennings has Orezone rated as a “speculative buy” with a 12-month target price of $2.65 per share.