Gold Fields, Orezone, wrap up Essakane feasibility

It will cost Orezone Resources (OZN-T, OZN-X) and Gold Fields (GFI-N, GOF-L) about US$346.5 million to start churning out gold at their Essakane gold property, in the West African nation of Burkina Faso, a bankable feasibility 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 annually at an average cash cost of US$298 per oz.

Gold Fields of South Africa — one of the world’s 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 1.6 grams per tonne, and an inferred resource of 1.1 million oz. gold at 1.5 grams per tonne.

But the company plans to release a resource update soon.

“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, Orezone’s chief executive.

To get representative samples with coarse gold you need a bigger sample, Little explains.

“It’s 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 orebody for about 8.5 years, although Orezone says there is upside for a minimum of 10 to 15 years of mine life, based on the property’s inferred resource.

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 on nine other main properties, applied for a mining permit for Essakane in August and expects to receive it by the end of October.

The government has committed 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 Faso’s history, Little points out.

“It’s a big project and it means a lot to the country as well, so it has got an incentive to get it under way,” 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 3-year tax holiday.

“That’s like an accelerated writedown of your asset,” Little says. “It’s 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 on the news, Orezone shares climbed 3.3% — or 6 a share — to close at $1.88 apiece, 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 400 jobs and another 200 indirect jobs each year.

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 area’s supply of drinking water. It sinks about eight new wells a year to the tune of about US$100,000.