Just one week after announcing a bought deal, Orezone Gold (ORE.V) was able to close an upsized bought deal raising C$73.5M in proceeds (net proceeds of just over C$70M after paying the relevant finders fees to the underwriters) by issuing 70.2M shares at C$1.05 per share. The company had originally eyed to raise C$65M but the underwriters exercised the 15% over-allotment option.

The equity raise was part of a financing package which includes a US$35M convertible debenture and a US$96M senior debt facility with a local bank in Burkina Faso (considering the bank has a total balance sheet of just $2.8B, spending almost 4% of its total assets on just one loan is a major risk for the bank so we can probably assume a very detailed DD process was conducted here). The cost of debt of the senior secured debt facility of 8-9% is reasonable for an African project, but it looks like Beedie Investments and Resource Capital Fund have done a good job at negotiating the terms of their convertible debenture. While convertible debentures typically have a lower interest rate due to the conversion feature and debenture holders hoping for share price appreciation as well, the 8.5% coupon on the convertible debenture is relatively high although there’s something to be said about the convertible debenture ranking junior to the senior debt. The conversion price for the debenture is US$1.08 which is approximately C$1.38 per share and that’s very reasonable and perhaps also a reason for the relatively high coupon.

All things considered, this is a good financing package. Orezone will pay about US$30M in interest on the term loans and approximately US$15M on the convertible debentures but considering there are no drawdown fees or arrangement fees, this seems to be reasonable. One important point of attention: the US$96M bank loans are originally issued in CFA Francs and will have to be repaid in Francs. As the CFA Franc is pegged to the Euro, the EUR/USD exchange rate may play an important role in the cost of debt. Should the US Dollar gain ground again and move up from an EUR/USD exchange rate of 1.21 right now to 1.10, the corresponding value of the bank debt will decrease to just $88M. Should the US Dollar continue to get weaker versus the Euro, the USD-denominated debt level will increase.

All things considered, Orezone seems to have negotiated a good financing package consisting of senior bank debt, (junior) convertible debentures and an equity portion and is now ready to hit the ground running in Burkina Faso.

Disclosure: The author has a small long position in Orezone Resources. Please read our disclaimer.

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