Gold Fields, Orezone wrap up Essakane feasibility

It will cost Orezone Resources (OZN-T) and Gold Fields (GFI-N) about US$346.5 million to start churning out gold at their Essakane gold property in the West African nation of Burkina Faso, a bankability study has found.

The capital costs of the project include building a 5.4 million tonne per year carbon-in-leach plant capable of producing an average of 292,000 oz. gold per year at an average cash cost of US$298 per ounce.

Gold Fields of South Africa one of the worlds largest gold producers — completed the US$11.4 million feasibility study in exchange for a 60% interest in the project.

Essakane hosts an indicated resource of 3.4 million oz. gold grading at 1.60 grams per tonne, and an inferred resource of 1.1 million oz. gold at 1.50 grams per tonne.

But the company plans to release a resource update in the next two weeks.

This project has a unique situation of having a fair amount of coarse gold and we have had to develop a new technique to estimate the gold in the system, says Ron Little, Orezones chief executive.

To get representative samples with coarse gold you need a bigger sample, Little explains. Its ended up costing Gold Fields considerably more to get to the final number but there is more confidence in those numbers.

The mine is expected to operate on the main ore body for about eight and a half years, although Orezone says there is upside for a minimum of 10 to 15 years of mine life based on the propertys inferred resources.

The wide, near-surface, oxide gold deposit is hosted within a volcano-sedimentary sequence in a greenstone belt.

Artisans have mined the gold-bearing quartz veins on the property since 1984, and in the late 1980s and early 1990s were churning out about 16,000 oz. gold per year.

Orezone, which has been working in Burkina Faso for the last decade and has nine other main properties in the country, applied for a mining permit for Essakane in August and expects to receive it by the end of October.

The government has committed itself to a 90-day permitting process, Little says. That is a lot faster than in many other countries in the region, where the process can take six to nine months.

If the project goes ahead, it would be the largest private capital investment in Burkina Fasos history, Little points out.

Its a big project and it means a lot to the country as well so it has got an incentive to get it underway, Little says from his Ottawa office.

The plant should take about two years to build and could be in production as early as the first quarter of 2010.

It is assumed the government will get a 3% net smelter royalty, which is built into the cash cost, Little says. The government will also earn a 10% carried interest, meaning that once the project is paid off, it will receive 10% of the dividend.

Orezone will start to pay corporate income tax of 25% at the conclusion of a three-year tax holiday. Thats like an accelerated write-down of your asset, Little says. Its typical of the West African region. The idea is to get your money back as quickly as possible and thereby you mitigate your shareholder risk.

In Toronto, shares of Orezone climbed 3.3% — or 0.06 a share to close at $1.88 a piece, while Gold Fields shares rose US49 to US$16.93 in New York.

Little expects the mine located 330 km northeast of the capital, Ouagadougou will create more than 600 jobs.

In terms of corporate responsibility, Little says Orezone contributes to the local community by donating millet seed in times of need. The landlocked country suffers from recurring drought.

Orezone also drills wells to enhance the areas supply of drinking water. It sinks about eight new wells a year to the tune of about US$100,000.