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Orion’s R893m funding placement will bring financial certainty to projects – analyst

Prieska copper/zinc mine

Prieska copper/zinc mine

10th May 2023

By: Darren Parker

Creamer Media Contributing Editor Online

     

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ASX- and JSE-listed Orion Minerals’ recently announced funding placement of R893-million will bring financial certainty to the company’s two Northern Cape projects – the flagship Prieska copper/zinc mine (PCZM) and the Okiep copper project (OCP) – boutique mining investment research house S2 Research mining investment research analyst Simon Hudson-Peacock has said.

In an analysis of Orion’s strategic funding package and valuation update, published on May 10, Hudson-Peacock said the market was now awaiting the outcome of the bankable feasibility study (BFS) on the accelerated mining plan for PCZM, which is expected to be made available in the second half of the year.

In addition, the BFS for OCP is expected by mid-year. A water-use licence for OCP is also expected during the second half of the year.

The placement would be applied primarily in the advancement of PCZM to target early concentrate production and cashflow generation for Orion.

The timing of the option expiry at the end of November would enable the conclusions of the BFS to be fully considered before these additional funds were committed, Hudson-Peacock said.

Orion’s plan is for proceeds from the placement to be made available to fund the construction of the first processing plant module at PCZM. This will enable concentrate production during the ramp-up to the initial Stage 1 production target of 100 000 t a month instead of having to stockpile ore.

As a result, cash flow from the sale of concentrate could accrue up to 12 months earlier than previously expected.

The placement also introduces a new cornerstone investor, Clover Alloys, which is a privately owned South African mining group with experience and expertise in the development of modular processing plants.

Clover Alloys will be subscribing for 444-million shares, just more than 50% of the initial tranche. If Clover Alloys thereafter exercises its options, it will then own more than 2.2-billion shares, which is 24% of the expected total ordinary shares in issue at that time.

Other major shareholders Delphi Group and Tembo Capital will be subscribing for about 171-million shares, about 19%, and the Orion directors will subscribe for about 52-million shares, representing about 6%, thereby maintaining their economic exposure to the Orion asset portfolio.

Hudson-Peacock said Clover Alloys’ experience in the successful commissioning of such modular plants would be advantageous.

Assuming a successful outcome of the Okiep BFS, funds will then be applied towards developing Flat Mine North towards production.

“The placement has diluted our fair value estimate for Orion but there is no doubt that funding the project portfolio has been a significant distraction for management for some time.

“Funding options for South African exploration projects are extremely limited and inflexible bank debt at a time of high and volatile interest rates is not necessarily preferable even if were to be available. Management can now focus on operational delivery and cash flow generation that should finally catalyse a share-price rerating towards fair value,” Hudson-Peacock said.

To this end, he expected Clover Alloys to bring operational experience in addition to funding, enhancing the stakeholder mix to the benefit of minority shareholders.

In addition, Orion management and other long-term shareholders, such as Delphi Group and Tembo Capital, have voiced their support for the placement.

Hudson-Peacock recommended that Orion’s other shareholders support the placement at the general meeting planned for May 19, noting that S2 Research had adjusted Orion’s fair value to 95c a share.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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