Orezone Gold (ORE-T) plans to drill another 45,000 metres at its Bomboré gold project, in Burkina Faso, making its 170,000-metre drilling program even bigger.
The 215,000-metre program should be complete by the end of the first quarter, in time for Orezone to incorporate all the drilling into its next resource update, due out by the end of June. The current resource estimate, which came out in November 2010, outlined measured and indicated resources totalling 61 million tonnes grading 0.81 gram gold per tonne for 1.6 million oz. gold, plus inferred resources of 60.6 million tonnes grading 0.96 gram gold for 1.9 million oz. The 3.5-million-oz. resource is pit-constrained.
While the originally planned 170,000 metres mostly consisted of infill drilling, it also doubled the average depth of drilling to 120 metres from only 60 metres. Mineralization is open at depth, but drilling has also shown the deposit is also longer than the company previously thought. The new holes (30,000 metres of reverse-circulation drilling and 15,000 metres of core drilling) will probe areas of mineralization found outside of the pit shells the resource is contained within.
"What's unique about Bomboré is it's a shear-zone environment and it's over 11 km long," says Orezone president and CEO Ron Little.
Some of the pit shells established in the resource estimate are up to 4 km long and, where there are several parallel zones, up to 1 km wide.
"We're finding more mineralization than we expected outside the pit shells along strike," Little explains. "The only negative is that as we're drilling at depth, we're finding there's a plunge - so not everything is extending vertically at depth."
Little estimates that about 50-70% of the deposit is still open at depth.
Five core drills and two reverse-circulation drills are onsite at the property, 85 km east of Ouagadougou.
Results from the current drill program, which Orezone began in late 2010, have exceeded the grades in the resource estimate (they average just over 1 gram gold per tonne in both the oxides and sulphides) and expanded mineralized zones. That could mean a big boost to resources in June.
"The goal of the next resource is to try and get the oxides to about 2 million oz. gold," Little says.
If the company meets that goal, it could make a case for a 10-year standalone oxide operation producing 150,000 to 200,000 oz. gold a year. Oxide and transitional material currently accounts for 1.6 million oz. of the total resource.
The current resource is constrained within Whittle pit shells using a US$1,025 per oz. gold price; a cutoff grade of 0.3 gram gold per tonne for oxide material, 0.35 gram for transitional material, and 0.5 gram per tonne for the fresh sulphide material found beneath the oxides; and a top cut of 5 grams gold.
While a PEA released last June calculated two production scenarios at Bomboré - a smaller heap-leach option and a higher-volume project using a carbon-in-leach plant - both yielded thin returns at a base case gold price of US$1,100 per oz.
Under the heap-leach option, Bomboré would produce 118,000 oz. gold annually over eight years at an operating cost of US$713 per oz. and with initial capex of $205 million. Taking into account taxes and the government of Burkina Faso's 10% free carried interest, the project's net present value (at a discount rate of 5%) comes to $42 million and its internal rate of return (IRR) to 9.9%.
Under the carbon-in-leach option, the mine would produce 240,000 oz. gold per year over 9.1 years at operating costs of US$738 per oz. and initial capital costs of $500 million. This scenario yields an after-tax NPV of $125 million and an IRR of 6.9%.
At a US$1,500-an-oz. gold price, however, the IRR rises to 27.8% under the heap-leach option, and 19.7% under the carbon-in-leach scenario.
The company believes it can improve the economics of the project by increasing resources and reducing strip ratios, which for a heap-leach operation were pegged at 2.44:1 and the CIL option at 3.54.
Little says the strip ratio was on the high side because the PEA worked with an inferred resource, which had gaps in the continuity of the deposit.
"We ended up with about 28 pit shells and every one of them had a ramp - and we may end up with a fraction of that as the final pit shells and much less ramps."
Focusing on oxides only will also drop the strip ratio since they extend to an average of only 50 metres depth, Little says.
Metallurgical studies should also improve recoveries for sulphide ore, which, at the time of the PEA had not been well tested. Two samples yielded a weighted average gold recovery of 78%, compared with 93-94% for oxides, and 87% for a blend of oxides and sulphides fed through a CIL plant.
A feasibility study due out by the end of the year will examine a two-phase approach to developing Bomboré - first building a $350-million plant to process the soft, oxide ore. Because the oxides leach in under 10 hours, the company could use two leach tanks instead of the six called for in the PEA. The company could also save money by delaying the installation of a ball mill or semi-autogenous grinding mill and gyratory crusher until later, when it can be funded out of cash flow.
"So instead of a $500 million capex, which the PEA showed, we're going to be closer to $350 million for phase one," Little says. "And that's a lot brighter, and a lot better return for a market cap of our size."
A full feasibility study for Bomboré is due out by the end of the year.
The deposit is located within the 1-km-thick Bomboré Shear zone, considered a subsidiary structure to the regional-scale Tiébéle-Dori-Markoye fault. Four other major gold deposits are also clustered along the regional-scale fault, which runs north-southwest through the middle of the country. That includes Iamgold's (IMG-T, IAG-N) 6-million-oz.Essakane mine, which it acquired from Orezone in 2009.
Orezone increased its concessions at Bomboré by 60% last August and carried out a 1,900-line-km airborne geophysical survey over the new area, called Toéyoko, in November. It will conduct reconnaissance mapping and prospecting at Toéyoko, which is just southwest of and adjacent to Bomboré, early this year. Auger drilling will follow in the second quarter.
Little says that so far there's a good correlation between geochemical and geophysical anomalies and mineralization at Toéyoko, but the company doesn't yet know whether the Bomboré orebody extends onto the permits.
Orezone hopes to bring Bomboré project into production by 2015. It has highway, water and power access nearby.
At the end of the third quarter, Orezone had nearly $37 million in working capital, which it says will last through 2012.
The company has been cited as a potential takeover target, but Little says Orezone is watching smaller juniors with good exploration packages in Burkina Faso for opportunities as well. At the same time, it's focused on getting into production at Bomboré and the market re-rating that will come with it.
"Our whole objective here is to add value and get great returns for shareholders and if we have the stars aligned with the market and we can get the debt and the equity to build it, we've got the Rolodex in place that we can rebuild the team we had to build Essakane and get Bombore built as well."
Orezone had to sell its Essakane operation in 2009 to Iamgold - the mine was under construction when the market crashed and Orezone's (then Orezone Resources) funding dried up.
Orezone also owns the smaller Sega and Bondi gold projects in Burkina Faso.
Shares in the junior ended the day at $2.54 apiece, up 5%. Orezone shares have traded between $2.15 and $5.26 in the past year, with 83.7 million shares outstanding.
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