Orezone Gold (ORE) - Debt Funding Package Exceeds Expectations

February 16 2021, 09:33 GMT

Orezone Gold

  • TSX-V: ORE
  • Shares Outstanding: 252.65M
  • Share price C$0.96 (12.02.2021)
  • Market Cap: C$248M

Orezone Gold is a Canadian development company which owns a 90% interest in Bomboré, one of the largest undeveloped gold deposits in Burkina Faso. Bomboré hosts a large oxide resource underlain by a larger, open sulphide resource, and will be developed in 2 stages. 

We caught up with Patrick Downey, President & CEO of Orezone Gold Corp. for the first time since June when we discussed the business plan, strategies, people, experience and track record of the company. Orezone Gold has been busy this year, the numbers are good and we’re intrigued about the terms of the recent financing.

Company Overview 

Bomboré is a very simple project as is a large oxide deposit. Oxides are very simple because they are free-dig, no drill and blast, simple mining, simple processing and very quick. It is therefore, low cost, low power cost and low mining cost. Orezone plans to get into the sulphides in year 3 and will build it out of cash flow. They did all their economics at CAD$1,300 Gold and all their reserves at CAD$1,200 Gold so it is a robust project with a very low All in Sustaining Costs (AISC). Bomboré has a 13-year mine life with 140,000oz/year on average for the first 10-years. Beyond that, they will have 3-years of processing stockpiles based on the reserves they have to date, but they see way beyond that. The All in Sustaining Cost is low and comparable to West African projects.

Orezone Gold (ORE) - Debt Funding Package Exceeds Expectations

Press Release: Financing Structure, Terms & Negotiations

As a junior with no other producing assets, a single-asset company, it's always difficult to negotiate a good finance deal. Orezone was patient as it wanted to make sure they got the right package for the shareholders and then Covid came along and caused a delay.

Orezone managed to organise their finance within the country of Burkina Faso. There are no hidden costs such as Gold prepays, Gold look backs and there are no Gold streaming or Gold royalties. Critically, it doesn't have political risk insurance, so for Burkina that's a big number. So, the CAD$100M capital from the local bank stays in-country for local investment which the government is very pleased about.

Orezone Gold (ORE) - Debt Funding Package Exceeds Expectations

Company Valuation at Market

The Orezone share price is up by 40% since we last spoke and as the company moves towards construction, they expect to see further accretion in the share price. Construction is starting imminently and the mining contractors are mobilizing to site. Lycopodium has already started on the detailed engineering and they will be ordering the bore mill at the end of February which is the the lead critical item. Lycopodium and the contractors were mobilised to site in April/May and the schedule is for first Gold by Q3/22.

Orezone Gold (ORE) - Debt Funding Package Exceeds Expectations

All About Timing: Running at Full Capacity in a Month?

Lycopodium has out in place process guarantees, based on their track record which is something you don’t typically see in North America, but you do seeis more common in West Africa. On average, from first ore through the mill to commercial production and steady state is 30 days with guaranteed cash flow. An extraordinarily quick turnaround. 

Orezone is one of the lucky projects in Burkina where the property is next to a river, so they can gravity divert a flow and don't have to pump it into a pit. They will have the ore ready to go into the project and will have those stockpiles at the plant ready.

Normally when you're commissioning a plant, there is a jaw crusher, cone crusher, a bore mill, etc, and conveyors in between plus the process plant. This plant is a very simple circuit. They will install a feeder or a sizer, there are no rocks, then it goes straight into the mill. The mill itself is oversized and 80% of the stuff going in does not require grinding. It literally gets broken up, the metal gets made into a slurry and goes straight into the tanks. and that's it. 

The aim is to produce 140,000oz in the first 12-months so they will have strong cash flow in Y1 and will pay off a big chunk of their debt straight away, which allows them to get into the sulphide expansion very quickly. They will be carrying CAD$60M debt on the project at the end of Y1 and will have a further 3-4 years to pay it off on a standard schedule. They need to get into the sulphides quickly because they are a great grade and have a high margin on them. The sulphides will add to the mine life and give them cash flow to drill further as they have only drilled the sulphides to 90m. The plan is to extend the results to show that there is a 20-year mine life rather than a 14-year mine life and hopefully pay off that first tranche of debt. After that, they aim to do a 4Mt per annum sulphide expansion rather than a 2.2Mt per annum sulphide expansion.

Orezone Gold (ORE) - Debt Funding Package Exceeds Expectations

Blue Sky Opportunity; Allocation of Money

Orezone is staging their approach to the project by doing the oxides first, then de-risk it, then build the back end of the project. They get it up and running, then add the sulphides, which are completely independent at the front end to the oxide. Local bank, Coris Bank recognised this as positive, as did the international funders, as Orezone can continue to run the oxides full-bore if needed, even when they're doing maintenance on the sulphides. They've got inherent flexibility that is unique to this type of project. 

Orezone Gold (ORE) - Debt Funding Package Exceeds Expectations

Growth & Development: M&A Considerations

Orezone recognises the need to be more than just a single asset but they will be patient. The first thing to do is to ensure they understand their own asset, how it's going to perform and how it can perform in the future before looking around for other potential. 

Orezone could develop an additional asset organically from the sulphides and there's potential underground. They have 20 years of open pit mining at Bomboré which they can grow to 200,000oz/year if all goes to plan. This will all go to the share price accretion and they can use that to go out and look for other assets, be it a development asset or another producing asset.

This is likely to be a cash machine for Orezone. They will take their time to work out whether they buy another asset and decide how much they develop their own land bank, and potentially pay dividends further down the line if they can.

The company has been developing this for a while. Downey became CEO in 2017 and it's taken a while to turn it around, realign it, get the right development strategy, get the team on board, then they had the Burkina and the Covid issues. They have been patient in getting where they wanted to be and have developed this company and this asset the right way.

The share price has come up a lot since we last spoke and by the next time we speak it could be up further as Orezone has been developing and adding value to the project. It has been a good year for Orezone and we are looking forward to seeing how this build out goes.

Orezone Gold (ORE) - Debt Funding Package Exceeds Expectations

To Find out more, go to Orezone Website.

Club Waitlist CTA
Share this article

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Crux Investor does not verify information provided by contributors or video interviewees on this site, and makes no assurance as to the adequacy, completeness or accuracy of any such information. Crux Investor steadfastly disclaims any liability or responsibility for the outcome of any investments made by users of this site or our branded affiliates. Users of this site (and our branded affiliates) should consult with their own financial advisors to assist them in making investment decisions. By accessing this site and our branded affiliates, you agree to the terms of service and privacy policy.