S2 notes improved fair value sums of Orion shares

16th May 2022 By: Marleny Arnoldi - Creamer Media Online Writer

Market intelligence firm S2 Research has noted the peak funding requirement reduction from R2.4-billion to R2.25-billion for JSE-listed Orion Minerals’ Prieska copper/zinc project, in the Northern Cape.

This reduces the funding risk of the project, while the net present value of project cash flow attributable to Orion shareholders increases from R6.67-billion to R6.72-billion.

S2’s assumed equity raise from Orion shareholders has now fallen from R655-million to R299-million, implying a reduction in the dilution of shares-in-issue from 55% to 25%. 

Meanwhile, the value of the mine attributable to Orion shareholders increases to 121c apiece, up from 99c apiece prior. The total value per Orion share therefore increases to 141c apiece, up from 116c apiece.

Orion on May 9 announced its signing of a nonbinding term sheet with Canadian royalty finance company Triple Flag Precious Metals in respect of an $87-million funding package to advance the development of the Prieska project.

In its prior note, S2 anticipated Orion would need R2.7-billion to develop and optimise the Prieska mine.

In terms of the funding package announced by Orion on May 9, R1.28-billion has been secured against 84% of the future precious metals stream arising from the mine.

A further R113-million has been secured against 0.8% of future gross revenue, also ringfenced to Prieska. This theoretically leaves about R1.3-billion to be raised.

However, because there is no interest accrued on the stream funding component, peak funding requirements under this scenario drop from R2.4-billion, excluding a 10% contingency, to R2.25-billion, giving a new target funding level of R2.5-billion, including a 10% contingency.

Therefore, R1.1-billion is now required to complete the funding package, says S2.

Of this, S2 assumed that R370-million will be equity and R740-million will be bank financed.

The valuation uplift per Orion share, owing to the reduction in dilution, is over 22%.

The calculated value per share is therefore now 141c apiece.