FROM THE BROKING DESK
OREZONE GOLD (CVE:ORE) (C¢84) — RELEASES UPDATED FEASIBILITY STUDY ON BOMBORE PROJECT
Positive updated feasibility study on 90%-owned Bombore Project in Burkina Faso
At 4.4Moz, Bombore in Burkina Faso is one of West Africa’s largest undeveloped gold resources. However, the updated feasibility study was focused on just the oxide portion of the resource, which totals 1.6Moz at a grade of 0.86 g/t. The company is also planning to undertake a detailed review of the large underlying free milling sulphide resource of 2.8Moz grading 0.97 g/t after some positive drilling results.
A low-grade project with high returns
With a reserve grade of 0.64 g/t, Bombore’s nature has often led to questions about its ability to deliver a decent return; however, a unique combination of qualities and a flexible approach to the project’s design have combined to generate an IRR of 44% at a gold price of US$1,300/oz in this study. This compares well with the 49% IRR returned by West African Resources’ much higher-grade Sanbrado Gold Project, also in Burkina Faso, which released its updated feasibility study results two weeks ago.
A proposed US$144m development with an IRR of 44% at a gold price of US$1,300/oz
The study is based on a 1.15Moz reserve with life-of-mine production of 1.02Moz over 13 years. Average production is 83,000oz pa, although it averages 135,000oz pa over the first three years. LoM AISC are attractive at US$746/oz. Initial project capital is US$144m, equivalent to a capital intensity of US$1,729/oz of average annual gold production. At a gold price of US$1,300/oz the project returned an NPV5 of US$231m and IRR of 43.5%.
Targeting construction in 2Q19 and first production in 4Q20
The project is fully permitted and construction-ready. Orezone has a healthy cash balance of C$51m (US$39m) that will allow it to commence work aimed at advancing the project to construction immediately. The company plans to commence detailed engineering in 3Q18 and also to start the US$24m resettlement programme for the 300 or so households that will be affected by the development. This programme is a critical path item and Orezone aims to complete the whole process prior to the construction of the project, de-risking this part of the process. This will allow the commencement of the construction of the water reservoir that will be required for commissioning and production. Construction of the main project is planned to start in 2Q19 and to allow production to commence in 4Q20.
Potential value enhancements to be investigated further
Value enhancements to be studied prior to construction include a possible low-cost expansion of plant capacity by 16% from 4.5Mtpa to 5.2Mtpa. Following positive exploration results from the fresh rock at P17S, the company will also review the development options for the fresh rock, including expanding the circuit to enable processing of some of the higher-grade fresh rock as a supplemental feed. The company is advancing towards final approval for the mining of previously excluded zones of known mineralisation that could add approximately 200,000oz of gold to the reserve. These zones are associated with seasonal river flows that cut across the deposit.
Although low-grade, the project has key advantages that help to keep costs down
The project’s key advantages include the focus on the weathered oxides and the upper transition material, which is free digging and requires no drilling, blasting or crushing. The material is also shallow, with the bulk of the reserve being within 45m of surface. It has a low stripping ratio of 1.7:1. The company is proposing contract mining using a large fleet of relatively small (30-50t), low-cost Chinese road-based trucks that are operating at a number of other projects in the area, including SEMAFO’s Mana and Robex’s Nampala; this could keep mining costs to US$1.72/t of material moved.
Financing and consolidation opportunities
We profiled Orezone and its Bombore Project in our piece West African Gold — Plenty to Play For, January 2018, and suggested that the completion of the updated feasibility study would provide visibility on the company’s plans and the project’s metrics that could act as a catalyst for third-party involvement in the project. Whether this is the case remains to be seen, but in the meantime Orezone’s strong cash balance will allow it to pursue the pre-development stages of the project, including the resettlement programme. We note that Bombore is located 20km NW of West African Resources’ Sanbrado Project and 20km north of B2 Gold’s Toega deposit. We also note that RCF recently invested C$34m into the company in return for a 19.9% stake. The company has a market cap of C$176m and, after adjusting for cash, an EV of C$126m, or US$96m