PRESS RELEASE
7 November 2014
SEMAFO PROVIDES ITS OBSERVATIONS TO ORBIS’ NOTICE OF AGM AND UPDATED SCOPING STUDY
Montreal, Quebec, November 06, 2014, 17:00 EST – SEMAFO (TSX, OMX: SMF) provides its observations to the Orbis Gold Limited (ASX: OBS) notice of AGM and updated scoping study.
Introduction
If Orbis shareholders vote in favour of the A$20 million rights issue, it would effectively be a vote for Orbis to continue as a stand-alone company. In contrast, SEMAFO has put forward a A$0.65 per share cash offer for Orbis (the “Cash Offer”), representing a generous 86% premium to the closing share price of October 9, 2014, the day prior to Orbis’ appointment of a financial advisor.
As Orbis shareholders decide how to vote at their AGM on November 28, 2014, SEMAFO wants to ensure Orbis shareholders have the benefit of an alternate viewpoint to what has been presented by their company.
In considering how to vote, Orbis shareholders may wish to consider where Orbis sits on the development time line from exploration to production and the associated risks and uncertainties.
Orbis Shareholders Face Significant Risks and Uncertainties
The transition from explorer to producer for a stand-alone company in West Africa has repeatedly proven to be challenging, especially for shareholders. In addition to the capital markets’ lack of interest in the 18- to 24-month period, the track record and history of developers without existing production in West Africa do not favour Orbis shareholders.
Recent West African construction financings have demonstrated that traditional equity and straightforward project debt are not readily available. Whether or not Orbis will be able to obtain construction financing and if so, the associated dilution and overall cost to shareholders, remains uncertain and represents a significant risk.
SEMAFO Would Pursue an Alternate Development Plan to That of Orbis
It is clear that Orbis staff do not have the in-house experience the SEMAFO team has in developing, building and operating gold mines in West Africa. It appears that a significant portion of the Orbis technical analysis has been completed by third party consultants who work on a fee-for-service basis.
A developer, builder, owner miner and operator for more than a decade in various jurisdictions in West Africa, SEMAFO has the skills required in house to evaluate and advance the project. SEMAFO would pursue a different development plan from the one currently envisioned by Orbis’ updated scoping study.
Limitations of Orbis’ Scoping Study
SEMAFO has a firm and realistic understanding of the likely costs, challenges and risks facing a company such as Orbis that is at the scoping study stage. We believe that the following factors, amongst others, should be considered by Orbis investors.
Orbis’ Scoping Study is Preliminary and Insufficient to Provide Assurance of Economic Development
The 2013 scoping study capital cost and operating cost estimates were prepared to a notional +/- 50% level of accuracy. In addition, Orbis’ scoping study allows the inclusion of inferred resources into the mine plan, whereas pre-feasibility studies and definitive feasibility studies do not allow inferred resources and require ore reserves, of which Orbis currently has none. These facts can be overlooked, so we have reproduced the cautionary statement below from Orbis’ October 14, 2014 press release (our highlighting added):
Cautionary Statement Regarding Production Targets / Scoping Study
The Company advises the updated Scoping Study results and production targets reflected in this announcement are preliminary in nature as conclusions are drawn partly from Indicated Mineral Resources and Inferred Mineral Resources. The updated Scoping Study is based on lower‐level technical and economic assessments, and is insufficient to support estimation of Ore Reserves or to provide assurance of an economic development case at this stage, or to provide certainty that the conclusions of the updated Scoping Study will be realised. There is a lower level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral Resources or that the production target itself will be realised.
Orbis’ Scoping Study is only at the Project level, NOT at the Shareholder Level
Investors must realize that Orbis’ scoping study is limited to the project level and is not at the shareholder level. So, in formulating an equity price per share, return on investment and payback, consideration must be given to missing items to determine if shareholders can make a reasonable return.
Government 10% Free Carry and 6.25% Dividend Withholding Tax Excluded from Scoping Study Economics
Orbis’ scoping study presents project-level economics for 100% of the project. In the real world, the government maintains a free-carried 10% stake in all gold projects in the country. This means that when dividends are paid to shareholders, the government gets 10% of the dividends paid. In addition, the government has a 6.25% withholding tax on the dividends paid to Orbis. So, to get cash back into equity shareholders hands, you must reduce the cash flows by these amounts. In addition, the 10% free-carried government interest must be funded by Orbis shareholders.
Significant Working Capital and In-Country Based Expertise Required to Operate Successfully in West Africa
To manage and operate a gold mine in West Africa, significant working capital is required to support operations. Further, it is a difficult and costly undertaking to attract and retain experienced technical and operational people.
While SEMAFO has existing in-house development, construction, operational, administrative and government relations teams (all fluent in the French language), Orbis is at the very front end of that process, which poses significant risk and uncertainty.
No Dilution and Effect on Bid Conditions
SEMAFO is fundamentally opposed to Orbis issuing equity, especially at a price below its A$0.65 Cash Offer. SEMAFO is attempting to ascertain the terms and conditions of the US$4.3M working capital facility announced by Orbis on November 3, 2014 as having been established on October 7, 2014, and the effect of that facility, if any, on SEMAFO's Bid Conditions. SEMAFO only became aware of the existence of that facility when Orbis' Quarterly Activities Report was released on ASX on November 3, 2014.
- Forums
- ASX - By Stock
- SEMAFO responds to OBS AGM
PRESS RELEASE 7 November 2014 SEMAFO PROVIDES ITS OBSERVATIONS...
-
- There are more pages in this discussion • 6 more messages in this thread...
You’re viewing a single post only. To view the entire thread just sign in or Join Now (FREE)
Featured News
Add OBS (ASX) to my watchlist
Currently unlisted public company.
The Watchlist
SER
STRATEGIC ENERGY RESOURCES LIMITED
David DeTata, Managing Director
David DeTata
Managing Director
SPONSORED BY The Market Online