Orezone pulls gold at Sega

Orezone Resources (OZN-T,OZN-X) saw its shares shoot up and fall back down over the last two days – much in line with other gold mining companies — as investors took profits after a record breaking session on the Toronto Stock Exchange on Tuesday, Jan 3.

The volatility of Orezone’s shares, however, was enhanced by the announcement of promising drill results from its Sega gold project in the West African country of Burkina Faso.

In Toronto on Wednesday, the companies shares went from $2.32 to $2.43 before closing at $2.28 on roughly 550,000 shares. Shares closed at $2.15 on Friday, Dec. 30.

In a release issued on Wednesday, the company said highlights from its 17,000-metre expansion drill program included: 30 metres grading 4.1 grams gold per tonne, 7 metres grading 14.1 grams gold per tonne, and 9 metres grading 7.4 grams gold per tonne.

The holes are located roughly 8 km north and east of the already established zones of RZ, Bakou and Gambo, all of which are part of the Sega project. Most cores were drilled at widths of 2.5 inches, while some test drilling was done at 3.3 inches.

Orezone’s vice-president and chief financial officer Greg Bowes isn’t surprised the release helped the company’s shares settle back down.

“It’s a meat-and-potatoes press release,” Bowes says. “It shows good progress, but we still have a ways to go.”

Having recognized the geological potential in Burkina Faso – the country shares largely the same geology as mining hot spots Ghana and Mali – Orezone has six of its seven projects in the country. The seventh, Kossa, is in Niger and is the eastern half of the same sedimentary basin of Orezone’s Essakan property, a joint venture with Gold Fields.

Described by Orezone as its “premier property,” Gold Fields earned a 50% interest in Essakan by spending US$8 million on the project and can increase its share to 60% by producing a bankable feasiblity study.

Essakan’s resource is currently at 30.5 million tonnes averaging 1.95 grams gold per tonne for a total of 1.91 million oz. Inferred resources are currently listed at 4.4 million tonnes averaging 2 grams per tonne for a total of 300,000 oz. gold.

Those numbers were calculated with drill results completed in 2004. Since then, an additional 100,000 metres of both infill and expansion drilling has been completed and Orezone expects to release a major status report by the end of the month.

Beyond Essakan, Orezone is focusing on its Sega and Bondi projects. Both are 100% owned by the company and bringing one of them to production is essential to Orezone becoming into a mid-tier company.

Bowes says drilling at Sega is ongoing and will be continued based on results. With roughly US$35 million in the bank, the company can push forward with drilling. It hopes to have Sega at the prefeasibility stage by the end of 2006.

Bowes estimates the burn-rate for the year will be between US$5 to US$7 million, but, he adds, because Gold Fields is financing 100% of the drilling at Essakan, the total amount spent on projects that Orezone is participating in will be between US$15 and US$20 million.

Bowes, who along with the rest of Orezone’s management team, has an extensive geological background, believes being well established in Burkina Faso puts the company in an optimal position for growth.

“We viewed Burkina Faso as a place we could get in early,” Bowes says.

Orezone’s ability to get into the country before exploration reached a frenzied pace was in large part due to the country’s tardiness in adopting a mining code and developing a stable fiscal regime.

Currently, the Burkina Faso government has a 10% carried interest in all projects, a 25% tax rate and a 3% royalty.

Bowes says those numbers aren’t burdensome to doing business.

“They’re pretty standard in West Africa,” he says. “As long as you know the rules and they don’t change, you’re okay.”

While permits in the country are only good for three years, they can be renewed twice, and beyond that, Bowes says, the government has been willing to negotiate further extensions.

Thus far, Orezone has had one permit run its full 9-year course. The property in question was divided into two smaller properties and Orezone was able to restart the 9-year cycle.

On the infrastructure side, Bowes says while water and power supplies are not overly abundant, the country has one of the best road systems in Western Africa. Orezone has been using diesel-powered generators for power and a combination of retainer dams and well-fields for its water supply.

Bowes says corruption in the country is in check and transparency is good — a contention backed up by the country’s qualifying for International Monetary Fund’s (IMF) debt relief. To qualify, countries must meet a standard of transparency and have corruption in check.

As for familiarity with mining, Bowes says Burkinabs have a fondness for artisanal mining. The area was once part of what was called the “gold coast,” and folklore has it that your average Burkinab can spot a nugget of gold in a ditch while driving by at 100 km an hour.

Bowes believes that the success of mining seen in neighbouring Mali and Ghana has made Burkinabs eager to see a similar scenario in their own country.

“Mining has been a big boon to those countries,” Bowes says. “When mining is done in an organized fashion, and with government participation, it’s much better and more environmentally friendly than the way it is down now. It’s viewed as a good thing.”