Site visit: Orca poised to succeed in Sudan

ABU HAMAD, SUDAN — It’s easy to tell when and where it last rained in the Nubian Desert. Grass sprouts up within a couple days and lasts as long as a few months. The green is a refreshing contrast against the reds and browns of the desert.

Grass grows 85 km west of Orca Gold’s (TSXV: ORG; US-OTC: CANWF) 70%-owned Block 14 gold property — a few hundred metres beyond a set of disused 19th Century train tracks, built by the British and once connecting Cairo to Khartoum. But the grass doesn’t grow because of rain.

“Water exploration was extremely important to us and we were very successful,” Orca chief operating officer Kevin Ross says. “We found this Nubian sandstone, which has got a lot of water in it.”

Standing on Block 14 we are 200 km from the nearest anything and 900 km north of the country’s capital, Khartoum. Despite the intense heat — averaging 30°C annually — it is dry.

And despite the endless expanse of sand, we are not alone. Crossing the desert in white Toyota Land Cruisers, we had more than flies for company, passing scores of artisanal miners squatting in shabby blue tents. They dig shallow holes and use massive metal screens to sift small quantities of gold.

The artisanal miners are active across the Sudanese desert — and that includes on Block 14, where Orca allows them to stay for now, though the Sudanese government will likely soon remove them.

In a place so dry and desolate, it’s hard to overstate the importance of access to water.

“The other thing with the water,” Ross adds, “is that the quality is potable. You may not want to drink it because it’s got a slight taste to it, but it’s certainly not harmful at all.”

Orca’s discovery of the aquifer initially increased its plant throughput estimates for a potential mine at Block 14 to 3.4 million tonnes per year.

After completing more drilling and analysis, Orca now says the water resource could support 6 million tonnes per year. Through its hydrogeological consultant, GCS Water & Environmental Consultants of South Africa, Orca established that it has at least 18 million cubic metres of water.

After drilling four more holes and finishing a 48-hour pump test, Orca determined it could pump 15 to 18 litres of water per second across 15 holes for the rest of the mine’s life.

Now the company needs to find the right ore.

“We’ve run a 6-million-tonne plan, but the life is only eight years, so that’s a little bit light,” Ross says.

Nevertheless, he’s confident that if Orca can keep converting inferred resources to indicated and extend the pit outline, it can get the anticipated life up to at least 10 years.

In a May 30 revised preliminary economic assessment (PEA) of Block 14, Orca shows in-pit resources of 41 million indicated tonnes grading 1.46 grams gold per tonne and 3.5 million inferred tonnes grading 1.56 grams gold. The PEA uses a US$1,200 per oz. gold price, and calculates a US$227.7-million after-tax net present value at a 7% discount rate and a 23.1% internal rate of return.

In August, the company started a 25,000-metre drill program to extend the resource at depth in two zones: Galat Sufar South (GSS) and Wadi Doum.

Orca announced results on Oct. 17 from the initial 7,600 metres of drilling at GSS using four diamond drill rigs. It found several gold intercepts below the resource delineated in the revised PEA. Highlights include hole 15 returning 19.1 metres at 3.98 grams gold per tonne (from 68 metres downhole) and 48 metres at 1.96 grams gold (from 184 metres). Hole 16 cut 96 metres at 2.68 grams gold (from 67 metres) and 20.4 metres at 3.8 grams gold (from 246 metres).

The Block 14 property comprises 2,170 sq. km, though the area was initially 7,000 sq. km when Orca acquired it. Orca has given some of that area back each year, and in May 2017, it renewed its exclusive prospecting licence.

“It’s your standard shear zone-hosted, mesothermal gold deposit, as you’ll see in many places around the world, similar to a lot of the Archaean deposits in Canada,” Orca president Hugh Stuart says.

The challenge is that compression underground folded the deposit 10–20%. It has caused Orca some headaches and a little uncertainty, but Stuart says things are getting clearer.

“We generally try to drill perpendicular to the orebody,” Stuart says. “Originally we thought we were doing that. Now we’re drilling probably in places 45 degrees to our deposit, which is OK, because we’ve got continuity from section to section.”

Part of the problem was that there hadn’t been much mineral exploration in Sudan. Orca is the first Western mining company to enter the country in the modern era, and as a result didn’t have much pre-existing data for guidance.

“We came to Sudan about six years ago looking at something else down towards the Eritrea border,” Stuart says. “And as we spent more time here we realized that Sudan wasn’t the kind of place that everybody thought it was. It was very different to what was being perceived in the media.”

Sudan has what Orca CEO Richard Clark refers to as “political perception issues.” They come from the country’s history with violence and terrorism, but also the significant sanctions imposed by the U.S. government.

“So put all that together and the rest of the world ended up with this view that Sudan was just a horrible regime, a horrible place to be — a breeding ground of terrorists,” Clark says.

The U.S. government initially imposed sanctions on Sudan in 1997 due to the Sudanese government’s role as a host and backer of terrorist groups  — including al-Qaeda, which was based in Khartoum between 1991 and 1996.

In 1998, the U.S. launched a missile attack on the Al-Shifa pharmaceuticals facility in Khartoum North on the north bank of the Blue Nile.

The U.S. government claimed the facility was manufacturing the highly toxic nerve agent VX for al-Qaeda, but later said there was no proof the plant was manufacturing nerve gas.

Sanctions included a travel ban and the prevention of Sudanese passport holders from entering the U.S., as well as several economic restrictions. As a result, there are still no credit cards in use in Sudan, and ATMs do not dispense foreign currency.

But Orca felt it could succeed despite the sanctions.

“We never ever expected the sanctions to be lifted before we financed and built a mine,” Clark says. “We fully believed and have been proceeding on the basis that we would develop, finance and build the mine while under sanctions.”

Sudan remains — with Syria and Iran — designated a sponsor of terrorism by the United States. Although U.S. President Donald Trump formally lifted most of the sanctions on Oct. 12, some remain, including a ban on weapon sales and restrictions on aid.   

“On the ground it probably doesn’t make too much difference,” Stuart says. “It’s going to probably make banking easier. Looking forward, it will make financing potentially easier.

“I’ve had emails from drilling companies, major gold producers, people I know, saying, ‘We’re coming to Sudan.’ They’re interested in coming here.”

If they do, they’ll join a gold rush that Stuart says started more than six years ago.

On July 9, 2011, Sudan split into Sudan and South Sudan. The breakup resulted from a 2005 agreement that ended Africa’s longest running civil war — 20 years of guerilla warfare that killed at least 1.5 million people. Post-split, Sudan lost some of the revenue from South Sudan’s oil, although because South Sudan still relies on refineries in Khartoum, Sudan still receives 50% of all oil revenues. Nevertheless, the economic disruption indirectly helped spark the search for gold.

It began with artisanal miners, and by following them, Orca figured out the best places on Block 14 to look for gold.

“They’re good explorers,” Stuart says. “They have found a lot of the gold deposits in Africa.”

Sudan accounted for 1.1 million oz. gold production in 2015, according to metal markets consulting firm Metals Focus, making the country Africa’s seventh-largest gold producer.

There are more than 1 million artisanal miners in the country, producing 85% of the total gold extraction, the Sudanese government says. The country produced 280 tonnes (9 million oz.) gold between 2010 and 2015.

Initially, Orca had 10,000 artisanal miners on its property.

Using satellite imaging, Orca was able to track artisanal mining patterns. Orca was then able to look at where they were having success, and extrapolate where deep, large orebodies might be located.

Since then, Orca has tried to keep a friendly relationship with the artisanal miners.

“We’re always very straight with them,” Stuart says. “We basically said: you can carry on — no mechanized mining — but you can carry on. There will be a time in the future where we’re going to say that you’re going to have to leave, and when that time comes we’ll give you notice and you’re going to have to leave.”

Stuart says that the company has relocated artisanal miners before on one of its satellite areas and it went “without a hitch.” He says at least 60 people were told they had to leave, so they moved a couple of kilometres away and continued to mine. Should the time come to ask the artisanal miners on GSS to leave, Orca will have the Sudan government come in to help. The government has a “mining police,” who would oversee the relocation, like before. Orca doesn’t expect any complications.

Orca’s continued success in Sudan hinges on keeping a positive relationship with the government.

Clark says that so far the government has been cautious. They don’t have a lot of experience with the mining industry, so Clark sees their relationship as a teaching process that he hopes culminates in a stability agreement.

He understands their perspective, however. While the government is more familiar with the oil and gas industry, it wants to see Orca go into production and gain the resulting tax revenue. Clark says a big part of the process is building trust.

“They patterned their mining laws and concepts after oil and gas concepts,” Clark says. “That’s what they knew, that’s what they understood, and it was like fitting a round peg into a square hole.”

But Clark is confident Orca can work with the government to get everyone’s needs met.

He says he and his team have seen similar situations in Ghana and Mauritania. With his former company, Red Back Mining, Clark says he and his team built the first gold mine in Ghana in 10 years, and under new regulations. In Mauritania, he says they helped the government build the kinds of basic protocols for supporting the gold mining industry that are often taken for granted in established mining nations such as Canada. But progress is slow.

“Probably one of the biggest frustrations with teachers and their students is you get up and you give a lecture and you go, ‘Are there any questions?’ and nobody puts their hand up,” Clark says. “But you would be incorrect to assume that everybody understood it.

“We go in, we have meetings, we have teach-ins with the department of geology, and we now realize that you don’t go and say, ‘Does anybody have any questions?’ You go, ‘You. Did you understand this point?’ And that works a lot better.”

A crucial next step for Orca with the government will be locking up rights to the aquifer. After that, continued cooperation between the two groups would be critical to Orca’s success. For now, the Orca team seems excited.

“It’s got the gold,” Stuart says. “It’s got the geology. It’s not been explored. This is a great place to work and I’m hoping that Sudan grabs that opportunity so that in five to 10 years’ time there are a whole bunch of mines here. And I think that’s one of the key things with the sanctions going: people would love to come and work here. They’d love to come and explore here. The country’s got to bring them in, got to reel them in. So I’m hoping that they do that.”