VANCOUVER — Around seven months ago junior Orezone Gold (TSX: ORE; US-OTC: ORZCF) announced a notable shift in strategy at its Bomboré project 85 km east of Ouagadougou, Burkina Faso. The company had initially hoped to take advantage of one of the largest undeveloped gold resources in the West African nation with a large-scale mining operation, but tough market conditions have forced it to take a more conservative approach to Bomboré’s development.
On Jan. 22 Orezone released a preliminary economic assessment (PEA) that models a heap-leach operation, which zeroes in on higher-grade oxide resources at the site.
In June 2011 the company had envisioned a multi-phase operation that included a carbon-in-leach (CIL) component, and carried joint-development costs of US$705 million.
Orezone had been advancing both aspects of its development plan through feasibility when it decided to update its heap-leach economics and achieve greater market leverage from its oxide resources.
“I think everyone still remembers us along the lines of the “sulphide orebody” and “big CIL plant,” so we’re partly here today because we’ve been put into the box of the low-grade, big-capital project,” commented president and CEO Ron Little during a conference call.
“On one hand it’s simple to just jump ahead and draft in behind companies like TrueGold Mining (TSXV: TGM) and Sulliden Gold (TSX: SUE; US-OTC: SDDDF) and show the differences in the projects. Many of our peers with heap-leach projects are trading at better valuations, and when you compare, we should be trading at a much higher level. We have a lot of room to get the story out there,” he added.
Orezone’s most significant focus was on fine-tuning Bomboré’s heap-leach mine plan to further optimize head grades and stripping ratios. Little explained that the new plan would serve as a “pre-strip” for any sulphide resources that could be used in a CIL scenario down the road, with lower-grade material likely stockpiled.
And the company largely succeeded in streamlining what amounts to a start-up operation. Average grades at the heap-leach pad are up from 0.83 gram gold per tonne to 0.88 gram gold per tonne, while the strip ratio has dropped from 2.44 to 1.63. Mine life remains unchanged at eight years, with development costs down 12% to US$180 million. Anticipated anual production over the mine life is up slightly to 123,000 oz., with operating costs per ounce dropping from US$713 to US$677.
The new plan focuses on 45 million measured and indicated tonnes of oxide and transitional material grading 0.88 gram gold for 1.3 million contained oz. In terms of scale, that accounts for just 28% of Bomboré’s global measured and indicated resources, which total 140 million tonnes at 1.01 grams gold for 4.6 million contained oz.
As a result of the various adjustments, the economics have notably improved: Bomboré’s after-tax net present value at a 5% discount rate is up 50% to US$159 million, while the internal rate of return (IRR) has jumped 14% to 24%.
Some of the improvements can be attributed to higher gold-price assumptions, with the base case rising from US$1,100 per oz. gold under the previous model to US$1,250 per oz. gold.
“It’s sort of been Orezone’s fatal flaw in the past. Every time we’ve been ready to build, the market isn’t there. This time we have enough cash to get there and be ready,” Little continued, noting that the company had just shy of US$10 million in cash.
“I think we’ll be one of the few projects around that is multi-phased and has a good return on a start-up, though ultimately we may have to merge with a peer to get the thing built. I do, however, think we have to show the market our leverage on that sulphide orebody.”
The company is aiming to file its environmental-impact statement on Bomboré by September, and Little adds that turnarounds on environmental reviews in Burkina Faso typically take up to eight weeks.
The company shares have traded within a 52-week window of 32¢ and $1.80, and closed down 9% following news of the PEA, en route to a 59¢ close at press time.
Orezone has 96 million shares outstanding for a $56-million market capitalization.
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