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Orion has achieved vital funding milestone – S2 Research

S2 Research’s Simon Hudson-Peacock.

S2 Research’s Simon Hudson-Peacock.

26th October 2022

By: Martin Creamer

Creamer Media Editor

     

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JOHANNESBURG (miningweekly.com) – Mine development company Orion Minerals has achieved a vital funding milestone in very difficult market circumstances, S2 Research’s Simon Hudson-Peacock states in an analysis of the convertible loan of the Industrial Development Corporation (IDC) and a valuation update.

Orion’s Prieska copper/zinc mine is now firmly on its way towards commercial production in the Northern Cape following the R250-million IDC kickstart in exchange for what S2 Research estimates is an effective 16.5% economic interest in the mine.

Facilities are now in place for the advancement of both the Prieska copper/zinc mine project and the Okiep project, which is also in the Northern Cape.

The Prieska mine is funded beyond the early works bankable feasibility study (BFS) and dewatering programme.

S2 Research describes the valuation of Orion as remaining robust at reduced commodity prices and calculates the valuation per Orion share at current market commodity prices and exchange rates to be 132 cents per share (cps), compared with the current share price of the ASX- and JSE-listed company of 21 cps.

“I am very surprised that the market did not react more favourably to this news,” Hudson-Peacock said in an email to Mining Weekly amid Prieska copper/zinc being largely funded and further dilution for this project being limited.

“The financing risk has been substantially reduced, a keystone investment partner locked in and progress towards commercial production can now ramp up,” he added.

NORTHERN CAPE

The Northern Cape is a major mining investment opportunity and there is a lot more to come in the province from a mining development point of view.

South Africa has the mining skills that can turn the Northern Cape opportunity to positive account, as well as financial institutions that can serve as the cornerstones, such as the IDC and others.

At the end of the day, funding mine development projects in the province generates employment along the entire mining value chain, which serves as a powerful catalyst for economic growth and the generation of crucial foreign exchange.

Mining value chains entwine themselves around communities so meaningfully that near-mine people become part of mining.

The new copper/zinc mine that the IDC is helping to fund in Prieska will create economic activity from which many will benefit.

The ambition is to see more than 70% of employees of the near-term operation being from the Northern Cape and as many as possible from the local Prieska community.

The host community being an agricultural community needs to be reskilled and retrained, which takes time.

Orion, headed by CEO Errol Smart, will be running many training programmes over the next five to six years because the company wants to employ good, stable local people not only as core employees but effective development partners.

As a 5% shareholder of the Prieska copper/zinc mine, the community will benefit from the IDC funding paying for that 5% participation as well as what is a win-win development.

PROSPECTIVITY GALORE

The Prieska mine is being developed on one of the world’s biggest volcanogenic massive sulphide (VMS) ore deposits of its kind and it is open in every direction.

There is a VMS resource of 30.49-million tons at 1.2% copper and 3.7% zinc and a reserve of 14.5-million tons at 1.1% copper and 3.2% zinc.

An updated BFS completed in May 2020 showed a 2.4-year payback period from first production and an all-in sustaining margin of 47%.

Orion has stopped drilling because it has enough ore for 12 years. It has done the geophysics which show that there is 50% more than that, and it remains open.

So, this is a long-life operation and that is what makes it so particularly special.

It has already endured for 20 years and will probably endure for another 20 years.

What it does is create a development hub and only 65 km to the north of the Prieska mine, Orion has the fantastic Jacobmynspan nickel/cobalt/platinum project under development that is lining up to be really exciting, in addition to Okiep.

The biggest challenge with Prieska has been the concern of investors about dewatering and Orion needed funding to take that risk on, which has now been done by Triple Flag with A$10-million and the IDC with R250-million.

This is sufficient funding to get the pumps in and the water out. Within six months, investor nerves should be settled through demonstrable dewatering.

Some of water that is pumped out of the mine will be treated for use as agricultural water, some of the water will be used as mine water and for dust settling and final volume into a brine in which all the metals and minerals are progressively concentrated.

A new technology can pull all the salts and the metals out of the brine to produce a product that is useable in agriculture.

The blasting of ore as part of a trial mining exercise is expected to begin in January while dewatering is underway, with the mined product stockpiled on surface.

“We needed to demonstrate that we can mine the underground pillars so we’ve got ore on. While we are dewatering, which will take three years, we are going to start mining the ore that is above the water level and treating that,” Smart has told Mining Weekly.

“For the next six months now we’re just going to mine a little bit of ore and demonstrate the methodology which will prove the costs of mining the ore.

“Then, based on that, we will bring out a definitive study in mid-2023, and then do the final bit of financing to go alongside the $80-million of stream funding that we’ve got from Triple Flag.

“Between the stream funding and having IDC as a major funding partner, this project is just materially derisked. We’ve got a group in like the IDC, and I think it says a lot about Orion that for our two big projects, we’ve got the IDC as a key partner in each one of them now.

"So, we’ve got Okiep fully funded for the next year, we’ve got Prieska fully funded for the next 18 months, and it’s a big step for us,” he added.

Ultimately, Orion wants to be up at a milling rate of 200 000 t and producing about 22 t of copper a year and about 60 000 t to 70 000 t of zinc concentrate a year.

“That’s where we’ll probably be at four to five years from now. But the most important thing is that it’s not taking three years before we produce out first ore,” said Smart.

The first production could literally be in 18 to 24 months, with early revenue helping to pay for some of the development costs.

“There are no processing facilities in place currently. We have to re-establish everything, which we are quite pleased about.

“We want a fully modern, best practice of a very well-proven and well-tested process to produce a very good quality concentrate and that’s always the advantage of Prieska. It’s had a 20-year history of producing top-quality concentrates.

“As the world is now running out of copper and zinc, people are producing lower and lower quality concentrate and they need good quality concentrate to blend with it because the existing smelters and refineries need good steady state production runs with known qualities.

“As a result, they tend to take these very good quality concentrates, such as Orion can produce, at a premium price above the average market value and they blend it with the poorer quality concentrates to get their required feed into their smelters,” said Smart.

OFFTAKE AND FINANCING

Offtake is also a potential source of finance.

“There is such a desperation at the moment to get particularly copper concentrates, but also zinc concentrates,of the quality that we can produce in the world, that the offtakers are prepared to pay you in advance or provide financing facilities and it becomes an important part of your financing consideration.

“But you really want to do your offtake agreement as late as possible and it ultimately fills the hole that remains once you’ve got your Triple Flag and banks in place and now we’ve got the IDC funding. Into that, you can read who is going to be the debt financier for the project, then you use your offtaker to give you that last bit of money to get going,” Smart said.

EQUITY RAISING

“We’re a development company, we’re growing. Our Okiep project is now funded with the IDC for the next 12 months, and Prieska is funded but at some time we will raise equity and when we finally build the mine, there will always be an equity ticket but that ticket is becoming progressively smaller.

“The people that expected that we would have to come to the market to raise R1.5-billion to R2-billion will find that the number is going down considerably and that’s a nice position to be in.

“We don’t have to dilute our existing shareholders and it presents a marvelous derisked investment opportunity for the equity investors that we will bring in,” Smart added.

Edited by Creamer Media Reporter

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