By KRYSTLE CHOW
Published in the Ottawa Business Journal newspaper and website.
Oct. 11, 2007 (Oct.15 in the paper edition)
Click here to view this article on OttawaBusinessJournal.com.
Ottawa-based mining company Orezone Resources Inc. has bought out its partner Gold Fields Ltd.’s share in its flagship West African gold mine for $200 million in cash and shares.
The deal means that Orezone has now moved from being a company focused mainly on exploration to an intermediate producer with expected production of 292,000 ounces of gold annually by 2010, at cash operating costs of $356 US per ounce.
“This transaction is very accretive, simplifies our structure, sharpens our focus on the region and enhances our production and growth plans,” said Orezone CEO Ron Little in a statement.
Orezone’s latest feasibility study showed that Gold Fields’s share in the Essakane project adds 1.6 million ounces of gold to Orezone’s reserves, plus 2.4 million ounces in measured and indicated resources and 761,000 ounces in inferred resources.
Through the Burkina Faso project, Orezone now owns a 100-per-cent interest in 2.65 million ounces of contained reserves, 4.4 million ounces of measured and indicated resources and more than 2.4 million ounces of inferred resources. The company has plans for a surface mine and carbon-in-leach facility processing an average of 5.4 million tonnes of gold per year.
In 2003, Orezone had said that it would be pursuing full commercial production of the Essakane project in Burkina Faso in partnership with Gold Field – the world’s third-largest gold producer – if its tests of the mine could establish that the reserve contained two million ounces or more of gold. If not, Gold Fields would step away and allow Orezone to retain 100 per cent control with the preliminary work for commercial production already completed.
Although the project’s reserves have exceeded the threshold of the original agreement, Mr. Little told the OBJ that Gold Fields’s relatively small stake meant that it would make more sense for the larger company to sell off its share in order to finance its other projects.
Gold Fields CEO Ian Cockerill said the company’s 60-per-cent stake in the Essakane project “mitigates against it become a Gold Fields franchise asset.”
Gold Fields will receive $150 million US in cash and $50 million in Orezone common shares as part of the buy-out agreement.
“It’s a good return for Gold Fields; they spent $50 million and will net $150 million,” Mr. Little said in a phone interview.
Mr. Little added that Orezone is currently getting more ounces of gold in the ground than the company is trading for, which means that its stock value will likely go up based on future cash flow per share. Orezone currently pays roughly $100 per ounce in the ground, compared to the average of $200 to $250 per ounce that other mining companies are paying.
“Now that we have a 100-per-cent stake, we get a bit of a takeover premium, as five million ounces is the threshold of a world-class deposit,” he said.
However, he said that Orezone plans to go it alone for a little while at least, add new people to its mining team, keep exploring and expand its project, as well as look at acquisition possibilities.
“Because of the size of the project and our familiarity with the area, we will attract some good people and turn this into a producing company in short order,” he said.
The deal is expected to close in mid-November.