Orezone Gold Corporation (ORE) Earnings Call Transcript & Summary

Hello, and welcome to the Orezone Gold Corporation Conference Call. [Operator Instructions] I will now turn the conference over to the President and CEO, Patrick Downey. Please go ahead.

Thank you very much, and welcome to the call. I'm really pleased to be here to unveil the next stage in the development of the Orezone Bomboré Project. To date, we have taken a very measured approach to development. We've managed our capital and really focused on return on invested capital, coupled with continuous growth and upside, and this study will again reflect that approach. The key highlights from today's presentation will be the significant growth in our Life of Mine production at a modest capital expenditure with robust cash flows and all-in sustaining costs. And it will also profile the next stage of our growth with low-hanging fruit beneath the shallow reserve pits and the potential to rapidly add to this production profile. But before I get into the details, I really want to thank the Orezone team and our consultants and their hard work in putting this study together and also for the ongoing support of our senior lender, Chorus Bank. Forward-looking statements, please take your time and read those. So a quick summary of where we are. Burkina Faso really is a mining country. It's a strong mining culture, high-quality people and well-trained workforce. We're in an excellent location with simple logistics, which has really been reflected on how quickly we got Phase I built on time, under budget and up into rapid operations and a very successful operation to date. And in that regard, just -- we have really set the platform for the next stage of growth with Phase I. The -- we have produced in Q3, 107,000 ounces to date, very strong performance in Q3 as well during the what -- so-called heavy wet season, which performed extremely well. Reflection of the design of the plant and the strong focused team that we have on the project. We know this circuit. We're building another one just like it. So we expect the same sort of performance as we move forward into this Phase II. So we'll -- next slide, we'd like to really focus on that expansion. In the 2019 study, we had approximately 123,000 ounces from year 4 to 11. Quite a strong project, but this next stage is really focused on the growth beyond that -- where we stepped up from that. So in our study reflects 209,000 ounces during those same years. So a very, very strong growth profile. Our current project will run at around 5.9 million tonnes. It's a name plate of 5.2, but it's been running at 5.9. And we will build a separate 4.4 million hard rock plant right beside that, a very compact layout, very similar circuit, which I'll walk you through. And we've laid it out so that the oxide and hard rock can be fed in the different ends of the plant. So really, it saves congestion going forward. Okay. I'm going to hand over to Peter Tam, CFO, will take you through the next couple of slides on the gold production and the economics of the project.

Thanks, Patrick. So on Slide 7, we're looking at annual gold production and all-in sustaining costs. And as shown on the chart, gold production will significantly increase upon bringing the Phase II hard rock plant into operations. For the first 3 full years of combined plant throughput of 10.3 million tonnes per annum, gold production will average 231,000 ounces per year at an all-in sustaining cost of $1,081 per ounce. Using a gold price of $1,750 per ounce, a healthy cash margin of $669 per ounce will be realized, which should generate pretax operating cash flows before changes in working capital of $155 million per year or $465 million over this 3-year period. On a life-of-mine basis, gold production will total 2.1 million ounces at an all-in sustaining cost of $1,122 per ounce. This is all before any further exploration upside, which we will touch on later. Next slide. A summary of 2023 study results. The Phase II expansion will drive improved profitability for the Bomboré mine. On a 100% basis, the mine has an enviable after-tax NPV of $636 million assuming a base case gold price of $1,750 per ounce. The NPV jumped another 17% to $741 million for a $100 increase in gold price. Bomboré is expected to maintain a competitive all-in sustaining costs, helped by a low strip ratio of under 2 and favorable ore characteristics that result in relatively low consumption of power and reagents. All-in sustaining cost has increased from the previous 2019 study as it now reflects current industry costs experienced by the mine. For clarity, the all-in sustaining cost presented excludes the cost of the Phase II expansion, growth capital and corporate G&A. Processing costs will benefit tremendously from the connection to Burkina Faso's National Grid, which remains on target for completion before the end of the year. Low-cost grid power is assumed in the study to commence at the start of 2024. Overall, on a life-of-mine basis at $1,750 per ounce gold, the study shows undiscounted pretax cash flow of $1.14 billion and after-tax cash flow of $885 million for Bomboré, demonstrating the mine's robust nature and its capabilities to generate impressive financial returns for its shareholders and other stakeholders. I'll now pass it back on to Patrick.

Thanks, Peter. So just first on mining. We're already moving 20 million tonnes per annum with our local mining contractor, which is a very, very good performance. We will ramp that up to 30 million tonnes in 2025 with the same contractor. Obviously, the fleet will be adapted for the hard rock conditions in the deeper pits. Drill and blasts will also be by local contractor. There are a number in country, and we have vision. We actually have a small contract on site right now. And we're already in negotiations with the contractor in regards to the hard rock fleet, et cetera, and all our costs reflect those details as we've shown in the economics. Processing -- so processing, we will have exactly the same plant. We reflect that and I'll show you that in later slides with crushing and milling in the front end. We will have the same team who know that plant. We know how to run it and operate it. The oxide and hard rock can be run independently. We've designed it that way. Therefore, we can improve plant availability. In essence, we can be maintaining equipment on the oxide plant while running the hard rock plant or vice versa. We can be running the hard rock plant while maintaining the oxide plant. It's common equipment which reduced spares inventory and working capital going forward. And our operational readiness has really already commenced. We visited a couple of these large SAG mills we're already thinking about the crushing plant, et cetera. So we're already in mode for getting this up and running. And the flowsheet is very, very simple in nature. There's nothing complicated about it. It's a standard metallurgical flowsheet, low work index of approximately 14-kilowatt hours per tonne. Very rapid leach kinetics on the hard rock, is 24 hours, the same as the oxide modest power consumption per tonne processed. It is a carbon copy -- carbon-in-leach circuit from Phase I, same concrete and earthworks, same number of tanks, same equipment, same structural steel. So in regards to building it and then operating it, we know exactly what it looks like. Common gold room, shared reagent circuits in terms of all of the reagents, nothing special on the hard rock that was in the oxide and shared infrastructure going forward on both plants. So we are positioned to deliver. It is a brownfield expansion. For those of you who don't understand that term, it means we're actually building on an existing building. So we have established infrastructure, our camp, our roads, our power, our water, our reagent storage and distribution systems, our warehousing and workshops will be the same, shop offices and assay labs are all in place. Our tearing storage facility is there, it's just an expansion on that product style design. Our permits are in hand. Critical, we have an experienced workforce who have built and started and run this plant. It's exactly the same plant going forward, except for the SAG mill in the front end. Our construction team is that team that built Phase I, they're in place. They know their contractors, they know the people we're dealing with. The same EPCM contractors that built Phase I, Lycopodium and knight Piesold. And very importantly and critically, we have established community relations and programs. We're not having to deal with that, explaining what we're doing. A lot of the communities are working for us right now. So they know the plant. They're very excited about the next stage. They know it creates more jobs, so that's in place. So it allows us to get ramped up quickly in both construction and operation. So what's our time line? Very critical important. As Peter said, the grid connection is well in hand and will be connected at the end of this year. The -- we have got hard -- sorry, firm bids for most equipment including the SAG mill. We'll be making a decision on that in the coming weeks. And that is the critical path item, that is SAG mill. We expect to place an order for that in the coming weeks with cancellation clauses. And subject to our financing, getting put in place in the coming months, we will start earthworks and early works in Q1 of 2024. And we expect to quickly ramp up that construction for first gold at the end of the second quarter into Q3 2025. What I'm also excited to talk about is our enhancement opportunities. You're going to see here right away that this project is far from over in terms of where we're at and where this goes. We had -- you'll see the shallow nature of the ore body and where we're going and where we're going to have near pit opportunities, along strike opportunities and exploration opportunities going forward. We had a limited budget and time line in 2023 to drill off these reserves. We were very lucky in fact, with our lender that we got $9 million freed up to do this in 2023. Obviously, we drilled up of what we could into reserves. But as you can see, the deepest pit here is 180 meters and into the oxide of the 2:1 strip ratio. So why would you stop there? Well, you stop there because that's where your reserves were laid out. But as you can see, this is -- pits in the north, a strike extent of over 500 meters. And you can see the drill intercepts that we have beneath the pits. Very, very strong drill intercepts here, 1.34 grams over 22 meters, 1.4 grams over 50 meters, 1.43 over 12. Why are they not in the current pit? Because it -- they're still in the inferred. We didn't have the time or the money at that time to bring them in. But we will do that. You can see that still only brings the pits down to about a 200-meter depth. So still wide open below that. Again, in the A1 pit with strike extent of about 300 meters. You can see the drill intercepts below that. Very high grades, great. These are all true widths, by the way. So you can see that these are not strike. They are actually true widths across that. And you can see the grades and intercepts that we're heading there. We will rapidly infill those drilling and expand these pits very, very quickly, so we can look at expanding this plan and keeping the grade up beyond the sort of current reserve grade that we're showing today. If you look at the strike extent, we've got 14 kilometers of a broad mineral trend. As I said, the deepest reserve pit is 180 meters. If you kick this up on the side, you can see the extremely shallow nature of the pits here. These are the reserve pits you're seeing today that we have in this study. And you can see where the drilling is beneath that. It's still not drilled off by any manner or means, and we also have to the north -- sorry, to the Southeast there, P17, which I will also show you, a very exciting discovery high-grade, still wide open for expansion. So the broader share zone is where the majority of the resources and reserves are. The new trend is P17, a totally different system. You can see the 2 pits that we have in the illustration to the right-hand side. And you can see that the hits that are outside of those pits. So it's still wide open there as well. So I just want to illustrate that with the next slide. There's the 1,500 ounce pit. You can see, again, the shallow nature of P17 pit, a 1,700 ounce reserve shell, you can see where we go we were there today. Of course, we'd be mining that, and I can tell you there are some really streaming hits beyond and outside of that. So we still see P17 as a very, very exciting extension to this. Current prices, obviously, we'll be mining more high grade. And even, as I said, beyond that, we still see some excellent opportunities to add to that as we go along. And we're still really only understanding P17 now. We've had a structural engineer on the site for the past 3 weeks. As you've given us our first report and lots of targets to go after beyond where we see this today. We also look at the operational upside. We designed this plan, so we could expand it. We always believe that, that would happen. And now that we see where the drilling is, absolutely, that will happen. So by adding a ball mill, pebble crusher and a CIL tank, we can get this up from 4.4 million tonnes per annum to 6 million tonnes per annum at a modest cost of about $30 million to $35 million. That's how we always look after our capital. We're always looking at that from the point of view of where we spend our money. We do not want to be over leveraged in terms of debt. So by looking at this, we can rapidly and easily do that. And by -- when you see those pits and you see how the low-hanging fruit is there, we're very confident we will be doing that, which will keep our production profile in that 250 plus [indiscernible] [ thousand ] ounces going forward. We also look at enhancement opportunities. We've got a very strong and very motivated team here. We're now stockpiling a lot of low grade to medium-grade stockpiles that will be processed at the end of mine life about 0.3 to 0.5 grams. We went down and visited the tailings reclamation projects in South Africa. They're mining 0.2 of the ground at 50% recovery. We'd be mining 0.3 to 0.5 at 90% recovery. So what we're really looking for there is margin going forward. And really and truly, it's -- that's what we always look at. We're constantly looking at improvements on the project and how we can squeeze another dollar out of every ounce. We also recently announced that we'll be going forward with the memorandum of understanding with our neighbor, West African, we've got a very good relationship with them. So we've really developed this work, and we save capital and operating costs going forward. As you can see, we're right besides -- is where [indiscernible]. Sanbrado was about 14 kilometers from us, and it's an operating mine. I'm really focusing on a number of key items right now, grid power, thermal backup power, renewable energy, we can save ourselves probably $0.02 to $0.05 a kilowatt hour going forward by having one large solar plant supply chain, by joining that we can -- and procurement, we can save money on our reagent supplies, our consumables, common spares. Our plants are very similar. Community and social -- corporate social. We're looking at setting up a training facility where we can train local people to be senior operators on the mine and overall security. So we'll flesh that out. I see significant savings there for both parties, and I'm quite looking forward to getting that into place. So in conclusion, 2023 study is very robust, 209,000 ounces at a modest all-in sustaining cost of $1,100 per ounce over 11 years mine life a $640 million after-tax NPV at $1,750 gold. We're well positioned to deliver it. It is a brownfield expansion, very manageable CapEx come in at, I think, $164 million. So -- which was -- and which still contains significant contingency. And I want to let you know we use 0 over-contingency in Phase I. So we hope that we can replicate what we did in Phase I and come in under budget. We had very, very advanced negotiations with our debt provider, so we expect to make an announcement on that in the coming weeks and months. But again, further exploration upside. We're really only down at an average of 130 to 135 meters in the hard rock at a 2:1 strip ratio. Really, you can see from that going forward. That will not be the end of this project. We see that we'll have stronger grades coming forward. We're looking at a further expansion of the mill. We look at operating synergies with our neighbors WAF. So I think we will set ourselves to be one of the largest single-asset producers in West Africa with a long mine life. There are multiple well-established producers in the region with limited growth pipelines. We expect M&A to continue in the region, and we expect to be part of that discussion. And I'll leave you with that for any questions going forward.

[Operator Instructions] Your first question comes from the line of Bryce Adams of CIBC Capital Markets.

I've got a couple. The first one is on the processing costs. Do you have that split out by oxide and hard rock, what's the delta in the processing cost there? It was separated in the previous tech report. Is that going to be split out when we get the full technical report here?

Yes, I believe so. Peter, will answer that.

Yes. So Bryce, in the study there, so we do obviously have the processing costs separated between the ore types. For the oxide processing cost, we're looking at it processing costs, just above $6 a tonne processed for oxide material. And on the hard rock, we're looking at cost just under $14 a tonne. So...

Okay. So that $6 compares pretty favorably to recent processing costs. Is it just economies of scale that drives that lower longer term?

Yes. The main thing really, if you look at our actual today versus what we have in the study and for the 9-month 2023 period, that is in the study, we have actually bumped that processing costs reflect the fact that we are now generating power using on-site power diesel generators, which is obviously the highest cost of power in Burkina. So we have stressed over time here that we are obviously working towards connecting to the national grid. And once we have that in place, we should see a substantial drop in our power costs going forward.

Okay. And then just sticking with processing, the recovery seem to be pretty -- quite variable for different zones and different pits. Is that one of your key factors for mine planning and ore blending?

Yes, it doesn't really change in terms of the metallurgy, the geometallurgy across it, it does affect the recover. There are different recoveries in different parts. But P17 South, obviously, it's better grade, but it's also the best recovery. It's 96% at that grind and it doesn't really change whether the grade's a gram or grade's 10 grams, it's 96%. And on the other ones, it varies from about 83% to 88% at the same grind. We're not really blending it. We don't see any change in the metallurgical performance of the plant, if we blend it at 60-40 of any type of pit, that does not really affect the operation. We've done all of that work. It's really pit sequencing, Bryce, that's how we're doing it. We're really -- we're mining different parts of the operation on a pit sequencing rate. Obviously, as we drill off some of these areas beneath the pits, we will likely concentrate the -- beyond that into where the higher grades are. Siga is the main sort of ore source at this point. It is the largest pit but it is the most modest grade. And whereas Maga, P8 and P17 are the better grades. Unfortunately, they are the shallower drill ones at this point in time.

Yes. Okay. Changing gears again. You've done RAP Phase I, and you've got a couple of phases in front of you. What's the risk around that? Like, Phase I was successful. Does that bode well for Phase II, III, IV? Or do you see any risks in the resettlement? Is there a chance any residents might want to resist to that program?

No, no. To be honest with you, they would rather we built it quicker than slower. No. I think the RAP Phase I was extremely successful. I mean the other villagers can go and see what's there and the facilities that everybody else has compared to where they are and how successful it has been as a community relocation. There's now large-scale restaurants, small works shops in the other RAP areas that are supplying us with equipment where we do small upgrades, et cetera. And we've helped developed that. So we're at RAP Phase II, which is the next big one, which is really around about the same size as RAP Phase I, is well advanced now. We've taken the same approach, local contractors building, a lot of -- the people who are actually moving into those houses are building their own houses. So that's moving along very well. We expect that to be completed in Q1, end of Q1. And then we'll move into the smaller RAP Phase III and IV, I guess, which is in the South. So no issues seen at this point. been very successful to date, and I expect that to be the case going forward.

Your next question comes from the line of Arun Lamba of TD Securities.

Congrats on the study, Patrick, good to exceed this out. Just in terms of the debt you're planning, I know in the release, you mentioned new lenders, the lenders said they're supportive of you guys, you've got about $100 million of debt, including [ $30 ] million in cash right now. What are you guys kind of thinking in terms of how this is going to be structured, would it be a debt facility? Would you potentially need some equity? Is cash flow or convert? Just maybe some color on what to expect in the coming quarter or 2 regarding that?

Yes. So we've obviously got a very good relationship with our debt provider. We are in constant contact with them. But in general, what you would expect to see is that the debt and our cash flows going forward will be all that's required to build this. That's what we expect no equity at all to be released to be issued going forward. So based on the really strong economics going forward from the study. I think we're in pretty good shape here as to where we're going. So that will all come out in the wash in the coming months. And -- but I think you probably saw the statement in the press release. Our banks are very familiar with what this looks like, what the cash flows are, what the debt requirements are. So I'm pretty confident that will have very solid debt piece in place going forward here.

And just maybe I know it's too early to do your 2024 budget. And obviously, it's dependent on what the lenders decide, but they gave you $9 million to kind of do on exploration. The work you've done has, as you mentioned in the presentation, suggested a lot more upside that is possible. Anything you can provide on how much you might want to spend next year on exploration, given the upside that we kind of have seen based on the results?

That's a great question. Look, we will be done in Burkina in the coming months with our debt providers. We're going to, again, show them. And that's how we ended up with that money for the debt. We show them where we wanted to go with the project and they were willing to release $9.5 million to us to do it very -- most guys don't get to drill during construction. We'll obviously have a very focused target. We want -- we really need to look at how do we get the upside brought forward quickly here. It will not be a lot of drilling to be frank with you. So I expect to be able to do some going forward here. Where we get with that with the banks and what the gold price they're assuming versus what gold price we're assuming will all come out in the wash, I think, in Q1 of next year.

Your next question comes from the line of Jeremy Hoy of Canaccord Genuity.

Just want to follow up on Arun's question about the upside and he was talking specifically about budget for drilling in 2024. But in today's release, you talked about not only the near mine exploration potential, but also the ability to easily upsize the plant. Do you guys have any sort of time line in mind as to when we might see potential Phase III study? Or is that sort of drilling dependent?

Well, obviously, it will be drilling dependent. But look, great question, Jeremy. I think really where we see this in terms of the first part is, there's very, very low-hanging fruit to bring in much better grade into the plant from -- we've got very good production from I, II and III, but it's obviously solid production through the life of mine. But if you look at those grades beneath the pits in the north, if you look at P17, the opportunity to bring forward more high-grade quickly is there. It just absolutely is. So that would be the first prize. And then continuing to look at where the other parts of the plant would be. I would think that the expansion would really only be planned in years 3, 4 and 5. We'll be looking at it then. We don't see any need to do it then. It's not a difficult expansion. I mean, truly, you could do that expansion in 10 months. That's how quickly you could do that. If you press a button and went with it, you would be up and running 10 months later with a ball mill in place. It's not a difficult expansion. But the focus would be on bringing significantly better grade. I mean, P17 still wide open. Maga, P8/P9 still wide open. We drilled holes in the footwall of P8/P9 that were very, very wide hole at 1.37 over 50 meters that didn't make it into these pits because we didn't have enough drilling around to do that pit, and we believe that's coming up to surface. So it will be a focus on bringing grade forward and then bringing the next stage of expansion beyond that. And the budget for that, it's still modest. The budget is modest because we're really infilling where we've now truly identified where that better grade is beneath the pit. Just unfortunate, we didn't get all the drilling done that we needed to get done in 2023. But again, we had a limited budget, and we had a limited time line.

Yes. Understood. Okay. Maybe one more for me. I guess, could you talk a bit about the trade-off between -- that you made with the increased cutoff grades in the reserves and resources. And what factors contributed to the decision to increase that?

Well, obviously, we're looking at sort of -- we wanted to bring the -- we could have done the usual stuff of keeping the resource cutoff at whatever and using the $1,800 gold price and have a massive resource. We really wanted to look at it. We've always looked at margin here, bring it back to reality. We took the resource cutoff a bit higher, closer towards where the reserves are. The reserve cutoff actually came down a bit to reflect some of the reality that we had on the operations side, and that's where that happened. So that was just a balance of the technical team looked at. That's how they wanted to do it, and that's what we decided to go forward with. So we didn't take the broad brush approach on the resource base of just keeping that sort of point to [Audio Gap] I mean that may happen as you go forward as gold price goes up, that could very well bring -- come back and it gets -- not as if they're not there. And then we just -- we put the reserve cut off to really reflect reality on the ground as we see it today.

We have another follow-up question from Bryce Adams of CIBC Capital Markets.

Yes. Thanks again. On the Phase III, I think Jeremy was touching on that. I was going to ask what was modest CapEx, but you talked to that already. But what I was thinking and what I wanted to ask was, was there a consideration to make Phase III part of Phase II? Look, why not just do it all now? And do...

Yes. Yes, great question, actually. Well, we've -- we got -- we have always taken a very balanced approach to how we approach debt and approach payback and approach what we can do. Our bank is a local bank. We don't want to really go outside of that. It doesn't evolve any political risk insurance and all those other things that go with it. They don't have any funky things like streaming or royalties or hedging or anything like that. So they're very, very, very straightforward covenant-like bank, and we enjoy dealing with them and that we work well together. So we know what their lending capacity is at this point. We know what our cash flow capacity is to them. If something happened and we thought we could bring it forward price, Absolutely, we would. If gold price took a spike and we got screaming cash flows, we'd be on it in a heartbeat. So we would do it. So we really looked at it by not spreading ourselves too thin and have people wondering where's this cash flow going to come from? Can these guys give us the sort of debt. Remember, it's a single bank. So there's -- it's not a club. So there's a certain amount of limited amount of debt that they can provide. So we've taken that approach, and we want the continued support going forward.

Okay. Risk management.

Risk management.

Yes. There are no further questions at this time. I will now turn the call over to Patrick Downey for closing remarks.

Well, thank you, everybody, for joining the call. I hope you got a good understanding of where we're at, where we're going and how we manage our sort of operations and our money going forward. But I think there's -- Bomboré is just on the next stage. I really want to emphasize that. It's really going to grow beyond this, I believe. Great group of people, a great team on site. I want to thank everybody for the work that they've done to date. And I look forward to keeping you updated as to where we go with this project. Thank you very much.

This concludes today's conference call. You may now disconnect.