- Orezone Gold sells a 0.45% NSR to Sandstorm Gold for $3M which I consider to be an excellent deal.
- This is a surprising fact as it does look like Sandstorm might be overpaying for the NSR based on the current gold price.
- The investment thesis remains standing but will be impacted by the financing mix should the company decide to build the project.
Orezone Gold (OTCPK:ORZCF) which aims to develop the Bomboré gold project in Burkina Faso has announced it has closed an agreement with Sandstorm Gold (NYSEMKT:SAND) whereby the latter is purchasing a 0.45% NSR on the project for $3M in cash. Orezone can repurchase this royalty by paying $3.15M within the next six months or ($3M + 10% per year) in the subsequent 2.5 years.
The total amount of cash provided by Sandstorm Gold to Orezone Gold could increase to $8M as Sandstorm has the right to purchase another 0.75% NSR on the property at a fixed price of $1M per 0.15% NSR. As both royalties could be repurchased by Orezone, this deal could be some kind of a bridge financing whereby Sandstorm Gold secures an NSR on the Bomboré project as collateral. I was hoping Sandstorm would be making some smart acquisitions, but this Bomboré NSR purchase makes me scratch my head. Sandstorm is coughing up $8M for a 1.15% NSR which is actually quite expensive. As I explained in my previous article on Orezone, the hard rock phase of the Bomboré project has its merits but won’t be developed at the current gold price as the ROI would be too low to lure any financiers into providing the cash to develop Phase II. However, the first phase which consists of processing the oxide zone on the property will very likely generate a decent amount of cash.
It does look like Sandstorm is trying to buy some goodwill in order to be in pole position to provide a gold stream financing when/if the Bomboré gold project reaches the construction decision phase. Whatever the future brings, I consider this NSR sale an excellent deal for Orezone Gold and I’m actually quite surprised to see the company was able to pull this off.