Boutique investment research house S2 Research says ASX- and JSE-listed Orion Minerals’ share price is “hugely” undervalued at a time when the company needs to raise capital for the Prieska copper/zinc mine.
S2 issued a research note following Orion’s announcement that it had exercised its right to acquire and consolidate the mining assets, prospecting rights and exploration data collectively known as the Okiep copper project, ahead of the option’s expiry at the end of July.
In the six months since the option was negotiated and announced, Orion has completed extensive due diligence on these assets.
Arising from this work, Orion has consolidated and verified sufficient exploration data to stand behind a maiden mineral resource of 11.5-million tonnes grading 1.4% copper.
Orion also published a scoping study based on these resources that reported the economic viability of a small-scale, proof-of-concept, early cash flow generating mining operation at Okiep.
To effect the transaction, Orion has formed two new companies, which will acquire the assets and liabilities of Nababeep Copper, Bulletrap Copper and South African Tantalum Mining.
Notably, Orion is now acquiring the assets of the companies under option rather than the companies themselves, to enable a cleaner transaction and leave any historic liabilities with the vendors.
The acquisition will complete in two stages, with an initial purchase consideration of R76.5-million and a conditional payment of up to R98.3-million, depending on the success of future exploration activities.
Orion expects the acquisition to close in 2022.
The company now has two significant copper/zinc assets that can be brought to market – Okiep and Prieska – in the Northern Cape province of South Africa.
Metal-to-market is estimated within two years for Okiep and three years for Prieska, amid copper supply shortfalls for at least the next five years.
S2 notes that Orion’s current market capitalisation is R1.57-billion, or 38c a share.
It adds that it had previously separately valued the Prieska and Okiep foundation phase projects. Taking current copper prices of about $9 700/t into account, it now calculates the base case sum-of-the-parts valuation for Orion at about R7.56-billion or 95c a share.
S2 points out that Orion now has two significant assets that can be brought to market at a time when there is a global copper supply shortfall that is expected to continue for another five years.
Orion is also expected to benefit from the managerial, technological and marketing synergies that will be created from combining the two assets under one entity.
On the other hand, S2 says the recent violent unrest in South Africa has negatively impacted on investor sentiment.