Orezone cuts Bomboré 29%

VANCOUVER — Orezone Gold (TSXV: ORE; US-OTC: ORZCF) disclosed in August that more conservative engineering methods would likely drop global resources at its flagship Bomboré gold project in Burkina Faso.

On Sept. 7 the company reported that technical work had indeed lowered measured and indicated resources by 29%, while average gold grades decreased 4% to 0.97 gram gold per tonne. Oxidized and transitional resources dropped 31%, while fresh-rock — or sulphide — resources fell 28%.

Bomboré now hosts 102.9 million measured and indicated tonnes grading 0.97 gram gold for 3.22 million contained oz. gold. Oxide and transitional resources account for 47 million tonnes at 0.89 gram gold for 1.35 million contained oz. gold, while sulphide resources total 55.8 million tonnes at 1.04 grams gold for 1.87 million contained oz. gold.

Bagging samples at Orezone Gold’s Bomboré gold project in Burkina Faso in 2015. Credit: Orezone Gold.

“We had 50,000 metres of drilling in 2014 that we wanted to include to upgrade the inferred oxides into the indicated category, because we thought we’d add another year of mine life,” Orezone Gold president and CEO Ronald Little said during a conference call.

“Our intention was to update the reserves, and we went down this path thinking this would remain internal, because it would all come out after the feasibility study. We would have liked to avoid this situation, but we were given the news a couple weeks ago and had no choice but to disclose it, even though we didn’t have a clear background,” he added.

Resources were first calculated by SRK Consulting in 2013, and the new calculations are the work of Roscoe Postle Associates (RPA), which became more involved in Bomboré last year.

Orezone says that the new resource methods include estimating the grade in two domains: a higher-grade domain of material over 0.45 gram gold (the mineralization core); and a lower-grade domain of 0.2 to 0.45 gram gold. Grades are estimated using the composited assays within each envelope.

“We’ve gone to much more rigorous resource methods, which involves totally ‘hard boundaries’ on the envelopes,” Little said. “We’ve had comments from lenders in the past who said this was the method they favour. Both SRK and RPA said going this next step was a practical approach. We went into this process, perhaps naively, where none of us ever thought there would be a material change. We try to lean to the conservative and realistic side, and that’s what we were trying to do.”

Workers at the entrance to Orezone Gold’s Bomboré gold project in Burkina Faso in 2015. Credit: Orezone Gold.

During the call, management  also discussed the smaller resource’s effect on a “hypothetical eight-year mine plan.” Little noted that assuming the strip ratio increases to 1.7, and benefits from “fuel price, foreign exchange and lower operating costs” are taken into account, Bomboré should still bear around US$135 million in project debt.

This would mean Orezone lost between US$10 million and US$15 million of debt capacity due to the resource downgrade.

“We’ve maybe lost [that amount] in potential debt, but otherwise it’s still a go. It makes much more sense to keep the capacity the same and have an eight-year mine life with a quicker payback, than to try to stretch it to 10 years,” Little added.

The company said that owing to the hard resource shell imposed by RPA calculations, it cut higher-grade “pods” of material outside the current envelope. Orezone might drill more metres so that it can recover some of those lost ounces.

Management said nothing has changed in terms of its “geological understanding” of the mineralization and lithologies.

Bagging samples at the Bomboré gold project in Burkina Faso. Credit: Orezone Gold.

The company will update its feasibility study in the first quarter of 2017. Bomboré’s capital expenses are pegged at US$250 million for an initial mining phase that would produce 135,000 oz. gold annually over an eight-year life, at all-in sustaining costs of US$678 per ounce.

Orezone shares have traded in a 52-week range of 22¢ to $1.28, and lost 62¢ — or 51% of its market value — over two weeks of trading after the resource news to close at 60¢ at press time. The company has 154 million shares outstanding for a $93-million market capitalization, and had US$25 million in cash in late August.