Fate has been no friend to Ottawa-based junior-miner Orezone Gold Corp. in the past few years. First came the plummeting of the price of gold more than a year ago, forcing the company to rewrite its plan to extract the gold from its property in Bombor\u00e9, Burkina Faso more cheaply. Then came the Burkinabe political unrest and subsequent ousting of the country\u2019s government, raising the question of whether the company will get the treatment it needs from the new government to move forward.<\/p>\n
Both of these have affected the standing of the company\u2019s project in the eyes of investors, as Orezone\u2019s stock price has fallen and not come close to reaching the heights it did in 2011.<\/p>\n
Orezone has been working since its incorporation in 2008 to get its now-flagship, 168-square-kilometre Bombor\u00e9-property into production. Home to about 1,000 people, Bombor\u00e9 is a small town that is fewer than 100 kilometres away from the country\u2019s capital, Ouagadougou. According to the company\u2019s most recent resource estimate, beneath the property there is at least 4.5 million ounces of gold.<\/p>\n
When the company was first devising its plan for the property, gold was trading at high prices \u2014 just shy of $2,000 per ounce at one point \u2014 and investors were more attracted to companies in the gold sector. At these high prices Orezone decided to explore a process called carbon-in-leach to get its gold out of the ground. Then the price of gold tumbled, making the carbon-in-leach process too costly. The company postponed any further exploration and evaluation and had to reassess its options.<\/p>\n
\u201cWith lower prices it\u2019s a little more challenging,\u201d says Joe McCoy, vice president of administration at Orezone, before explaining that after reassessing its options the company opted for another process, called open pit heap leach, that would cost less but would also recover less gold. \u201cRight now we\u2019re going through the feasibility stage,\u201d he says, which means that the company is building the financial model it needs to gather the necessary technical information about the project.<\/p>\n
The company\u2019s plan, containing these more specific, technical details about the project, is set to be completed in the first half of next year, at which point the company will need more financing to go forward. Orezone Gold Corp. said in its third-quarter filing this year, for the three-month period ending Sept. 30, that it has financial commitments \u2014 including feasibility work, social- and environmental-impact studies, metallurgical work, professional fees, rent, and so forth \u2014 amounting to about $1.9 million.<\/p>\n
Sitting on roughly $6 million in cash and no long-term debt, management expects that, \u201cin addition to using the funds currently on hand,\u201d more \u201cequity capital will need to be raised in order to fund operations for the next twelve months,\u201d according to the company\u2019s third-quarter financial statement.<\/p>\n
Joe Mazumdar, a senior mining analyst at Cannaccord Genuinty Corp. who also covers Orezone, says the company\u2019s shareholders may unload their shares once the company\u2019s feasibility work is done. \u201c(Once that happens) everybody knows they\u2019ll have to come to the market for money,\u201d he says. \u201cThere might be some selling backed on that.\u201d<\/p>\n
In the company\u2019s third-quarter filing this year, management acknowledged that, thanks to the state of capital markets and weak investor sentiment, there is \u201cmaterial uncertainty\u201d as to whether the company will get its financing on \u201cfavourable terms.\u201d<\/p>\n
Trading at 50 cents per share at close on Dec. 3, Orezone\u2019s stock price has ranged from 37 cents to $1.07 over the past 52 weeks. It didn\u2019t break the dollar-mark until National Bank Financial began covering the company at the end of August, at which time the company\u2019s trading volume reached its highest point since the start of this year. Since then the stock price has fallen, taking a heavy hit following the political unrest in Burkina Faso.<\/p>\n
In October mass protests kicked off in the West African country after its president Blaise Compaore wanted to amend the state\u2019s constitutional rule on term-limits so that he could extend his 27-year rule. With demonstrators burning down buildings, among them parliament, Compaore declared a state-of-emergency and fled to the Ivory Coast. He resigned and a military leader took the reigns, announcing that he would lead a transitional government into the 2015 elections.<\/p>\n
\u201cWith any government you want stability and a vision for the country that is consistent to what\u2019s happening,\u201d says McCoy. \u201cFor a company like Orezone \u2026 you want to make sure that what you were told yesterday is happening today and what\u2019s going to happen tomorrow.\u201d<\/p>\n
Orezone deals with the Burkinabe government to get exploration and mining permits. The company is also at the government\u2019s whims when it comes to rules and regulations about mining and the country\u2019s tax-code. So a change in government can mean a change in policy, which means that an attractive project can quickly turn into an ugly one.<\/p>\n
According to the company\u2019s third-quarter financial statements this year, management went about renewing the exploration permit it needed for the Bombor\u00e9-property. Though management received a letter from the minister of mines in Burkina Faso indicating that its permit was renewed to February 2016, management has yet to receive the formal documents. The company also said in its third-quarter financial statements that there is \u201cno assurance\u201d that this documentation, which proves the permit was renewed, \u201cwill be received.\u201d<\/p>\n
What\u2019s more, the company plans to apply for a mining permit by the second half of next year, at which point construction will begin. Yet, thanks to the political uncertainty in Burkina Faso, the company faces more title-risk than it did before. In its third-quarter financial statements the company said there is also \u201cno assurance\u201d that it \u201cwill be successful in obtaining a mining permit\u201d once its exploration permit expires.<\/p>\n
Still, says Mazumdar, Orezone\u2019s management has been there for long enough to \u201cknow what\u2019s happening.\u201d<\/p>\n
\u201cOrezone is one of those companies that just didn\u2019t just fall from the sky into Burkina Faso and decided it was a good place to be,\u201d he says. \u201cThey have been there for a while and have sold an asset there to Iamgold\u2026so they\u2019re familiar with the way things work in Burkina Faso and would register with me as someone with relevant experience in that jurisdiction.\u201d<\/p>\n
Before Orezone started up, its chief executive officer Ron Little and vice president of exploration Pascal Marquis were at the helm of a company called Orezone Resources Inc. Struggling after the squeeze of the Great Recession, the former Orezone sold itself to another gold company called Iamgold along with its then-flagship property in Essakane, Burkina Faso. As part of the deal, however, the former Orezone\u2019s remaining assets, including its now-flagship Bombor\u00e9-property, were distributed to a new company called Orezone Gold Corp.<\/p>\n
Speaking about whether that could happen again, Mazumdar says that \u201canybody who might be thinking of taking over a company, all else being equal,\u201d would think it \u201cnice\u201d if he had 1.5 million ounces of heap-leachable gold and a few million more extractable at a higher price, because he would \u201cprobably get (those latter ounces) for free.\u201d<\/p>\n
According to stock reports by Reuters and Morningstar Quantitative Research, Orezone\u2019s stock price is undervalued and will be higher at the end of the year. In a report published on Nov. 21, Morningstar estimated that the fair-value of the company\u2019s stock was 93 cents per share, 43 cents higher than the stock\u2019s closing price on Dec. 3. In a report published on Nov. 26 Reuters computed that the mean estimate from analysts of Orezone\u2019s 12-month price-target was $1.04 per share.<\/p>\n
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