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Real Economy News in Real Time
R/€ = 15.53 Change: 0.01
R/$ = 13.89 Change: -0.03
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Pleasing Orion bankable points to fast project payback

24th June 2019 BY: Martin Creamer
Creamer Media Editor

JOHANNESBURG (miningweekly.com) – Zinc and copper exploration and development company Orion Minerals pleasantly surprised the market on Monday when it announced a bankable feasibility study (BFS) that paves the way for financing, concentrate offtake and mine construction of the Prieska project in the Northern Cape.

The BFS calculates payback at 2.9 years from the start of production from the underground mine.  

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“We’re delighted with the results,” said Orion CEO Errol Smart of the Prieska project BFS, which shows an all-in-sustaining margin of 44% over the first ten years, when 20.8-million tonnes of material will be mined and processed.

Exceptional opportunities are also presenting themseles for future growth.

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Peak funding of A$378-million incorporates costs for opencast mining, which is planned at the end of the first ten foundation years.

Completed mining right documents are awaiting approval and discussions with a number of South African and foreign banks are at an advanced stage.

“We’re at the point where we’re starting to exchange draft term sheets on some of the money, which is very encouraging,” Smart told Mining Weekly Online in an interview.

At the moment, somewhere between 60% and 70% of the R4-billion capital required will come from debt and the balance from equity or equity equivalents.

The company’s new black economic empowerment (BEE) partners are providing strong support and consideration is being given to taking up the opportunity to procure brand new mills and winders at a significant discount to market.

The Sydney- and Johannesburg-listed company earlier this year did a BEE transaction with a difference, when its BEE partners invested at a premium to market. The BEE entrepreneurs own 100% of the ordinary shares in the BEE holding company, Prieska Resources, while Orion holds a 10% voting right. BEE entrepreneurs are required to fund their equity contribution.

The announcement of the BEE transaction coincided with a move to strengthen the Orion board, involving the appointment of former Anglo American executive Godfrey Gomwe and former BHP Billiton executive Tom Borman as nonexecutive directors.

It is anticipated that the capital structure will migrate from Australia to South Africa, where the Orion share price is trading at a 25% premium to the Australian price.

At last count there were 670 South Africans on Orion’s share register and there is a growing appetite for the share.

“The world’s our oyster at the moment,” said Smart.

Not built into the BFS are potential byproduct credits for barite, which is trading at $190/t free on board, as well as producing a very clean arsenic-free pyrite, for which there is considerable demand.

‘We’ve got 9.7-million tonnes in resource right now that’s not in our plan yet and the orebody’s open. The open stoping mining method was used, large pillars were left unmined to provide stability. We’re going to be paste filling.

“From an environmental management perspective, and for a whole lot of reasons nowadays in the modern mining world, it’s actually an advantage to put your tailings underground in paste-fill. So, most of our tailings are actually going to go back underground, they are not going to be on surface.

“By doing that, you fill the old mining void and once you have filled the old mining void, suddenly that eight-million tonnes of pillar material that remains there at the old reserve grade becomes available for mining.

“We can see somewhere in the region of another 17-million tonnes still needs drilling and further work on it before it's a Jorc resource, but that could give us many years of further production and then it falls to the bottom line because you don’t have capital to repay,” Smart outlined to Mining Weekly Online.

A two-year construction period is scheduled to be followed by the production of the first copper, which is in high demand and short supply, and the first zinc concentrate, which is seen as a potential blending concentrate owing to its quality being well above average.

The zinc market is slightly over-supplied with concentrates but under-supplied with zinc metal, because of an insufficient zinc refining capacity.

The operating break-even grade, put at 1.2% copper equivalent, is well below the 2.1% copper-equivalent ore reserves grade.

Some 9.7-million tonnes of indicated and inferred mineral resources at grades of 1.1% copper and 3.6% zinc remain outside the immediate mining plan, and potential for nearby satellite deposits has also been identified.

The BFS puts pre-tax cash flows at A$1.1-billion and pre-tax net present value at A$574-million from potential payable metal production of 189 000 t of copper and 580 000 t of zinc, which would underscore Orion as South Africa’s only listed base metals mining company.

The BFS points to the project providing financial returns from a relatively modest capital investment as well as long-term exploration potential within a highly-endowed but under-explored volcanic massive sulphide. 

EDITED BY: Creamer Media Reporter
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