Just one year after our initial blog post on Orbis Gold (ASX:OBS), the company has received an unsolicited cash offer from Semafo (SMF.TO) at A$0.65/share (which is more than double the share price compared to when we first reported on Orbis). This offer was rejected by the company’s board of directors as it thinks it will be able to secure a higher value for the company after the recently updated scoping study on its Natougou Gold project in Burkina Faso.
This scoping study was a nice improvement over the first one, and the new mine plan now calls for a total mine life of 6.7 years wherein 1.5 million ounces of gold will be sold. The most important part is that the first year of production will see a production of 400,000 ounces of gold which results in a very impressive Internal Rate of Return and Net Present Value (with a 5% discount rate) of respectively 100% and $533M at a gold price of $1300/oz. Even at a lower gold price of $1000/oz, the economics remain extremely impressive with an IRR of 53% and a NPV of $236M. So it’s definitely understandable Orbis Gold is rejecting the offer of Semafo as it values the company at just 0.4 times the NPV of Natougou.
So what do we expect? Once a company with an impressive project is ‘in play’, it’s unlikely the target remains independent. We are expecting a higher offer from Semafo in the A$0.85-0.90 range but it’s also likely a second bidder arrives on scene. We think this project with a triple-digit IRR at a gold price of $1300/oz might still be of interest for Nevsun Resources (NSU.TO, NYSEMKT:NSU) which has reportedly been looking at assets in West Africa.
> Click here to go to the Orbis Gold website
Disclosure: The author holds a very small long position in Orbis and has sold some shares last week. Please see our disclaimer for current positions.
