Orezone - Bomboré

Orezone Gold (ORE:TSX) - Orezone has released a feasibility study for the Bomboré  gold project in Burkina Faso.  The study shows economics of a 24.4% after tax IRR and a NPV (5%) of $196 million using $1250 gold.

Initial capital costs have risen since the PEA and now come in at $250 million.  The rise in costs was due to including a mining fleet, a larger water storage reservoir,  and higher resettlement costs.

"The results of the Study are compelling and the project benefits from size, location, low reagent consumption, rapid leaching kinetics and low all-in operating costs," said Ron Little, CEO of Orezone. "Bomboré is one of the largest and most advanced undeveloped gold deposits in the region that lends itself to phased development. The initial 11 year phase requires less capital and has lower operating costs to process the shallow and softer oxidized ores. A second phase, at slightly higher gold prices (greater than US$1,400) could expand the standard CIL circuit with the addition of grinding to process the well-defined sulphide resource (73 Mt at 1.1 g/t for 2.6 Moz).

Orezone has the largest undeveloped oxide gold deposit in West Africa (5+ million ounces) and has only been drilled to a depth of only 120 metres. Management believes the project can get larger with additional drilling.

The Orezone team is  well experienced in West Africa and is led by Ron Little who has spent 20 years focused on African projects. Orezone previously sold the Essakane project to Iamgold in 2008.

Investors should be aware of elections in Burkina Faso are set to take place in October of this year. Currently an in term government is in place (since November) who has already issued 4 new mining permits. Mining is very important in Burkina accounting for 15% of GDP. No one running for the election in October currently has an anti mining agenda. Small changes to the mining code are being discussed though which could have an effect on mining companies in Burkina.

Other mining companies in Burkina include True Gold Mining, Semafo, Iamgold, Roxgold,and Endeavour Mining.

Now that the feasibility study is out Orezone will apply for a mining permit. The hope is for a permit before the elections but this could be pushed back.

The government of Burkina Faso currently has a 10% free carried interest and a 4% NSR royalty on the project.

I found this section of the press release interesting.

The project is also sensitive to operating costs, in particular fuel (diesel and HFO) which accounts for approximately 25% of expenses. Diesel pricing is set by the government of Burkina Faso. The Study uses the conservative delivered to site fuel prices of $1.20/L for diesel and $0.77/L for HFO. Although diesel prices are lower than those used in the 2014 PEA, they are not as low as the current price in Burkina Faso or the free market price. The project economics and other mining operations in the country would benefit if the government were to change their policy to allow free market pricing and direct supply.

Orezone has ~3 million in cash and a burn rate of $300,000 per month now that the feasibility study is done. A $5 million dollar credit facility with Sandstorm is in place and Orezone has already sold them a small royalty which can be repurchased.

Haywood Securities has a research report out with a price target of $1.10 very high risk.

I believe Orezone could be a takeover target once a permit is issued and the election is over as they have a large deposit (5 million ounces) with exploration potential. Names that could be interested that come to mind include Iamgold, Semafo, and possibly B2Gold.

Read: Orezone Announces Positive Feasibility Study for Bomboré

Related: The largest undeveloped gold oxide deposit in West Africa

What do you think of Orezone?

Discuss in CEO Live

This is not investment advice. All facts are to be checked and verified by reader. As always please do your own due diligence.