Orion Minerals Managing Director Errol Smart, left, and colleagues review the underground development at the Prieska project
Orion Minerals Ltd. is confident of securing up to 65% for the funding of its A$400 million Prieska copper project via debt from South African government-sponsored finance agencies who focus heavily on environmental, social and governance issues championed by the junior's new investor The Anglo American sefa Mining Fund.
Orion Managing Director Errol Smart was on the board of South Africa's then-Chamber of Mines, now the Minerals Council of South Africa, when the new mining charter was being formulated, and has now set up Prieska to help usher in a new generation of mines focused on ESG issues in accordance with that law.
The mining fund, or AASMF, part of Anglo American PLC's investment in South Africa to foster juniors and new mining projects, first came on board with Orion at project level on Prieska in 2014, and audits the junior on corporate social investment and responsibility as a financing prerequisite.
In 2014, the AASMF approved a funding facility worth 30 million South African rand, then in 2015 subscribed for 15.75 million redeemable preference shares in an Orion subsidiary at 1 rand per redeemable preference share as part of a seed capital investment for Prieska.
That seed funding allowed Orion to open underground workings for inspection, which Smart said negated fears about the geotechnical conditions.
In March 2019, the AASMF agreed to redeem those preference shares in exchange for ordinary shares in Orion, and now owns about 3.7% of the junior.
Smart said the key questions he gets from investors are around South African sovereign risk, though Orion had "put in an enormous effort" on ESG issues from day one, separate from any auditing done by Anglo's fund.
Orion opened a "corporate social office" in South Africa's Northern Cape when moving its first rig to site, purely as part of its operating strategy to "build a mine of the future," as Smart described what his company is endeavoring to do in the country.
Two years ago, Orion started a training program for the community, which Smart said gave locals a clear idea of "the opportunity and value of the mine, and how it can help them position themselves for the future."
All this feeds Smart's confidence that he will be able to source between 60% to 65% of Prieska's capex via debt from the aforementioned government-sponsored agencies, and Orion is already in advanced discussions with Public Investment Corp. (SOC) Ltd. and Industrial Development Corp., among others.
Despite the optimism, Orion's share price has fallen from 3.5 Australian cents per share in March to 2.7 cents on Aug. 14, which Smart attributed to non-South African investors "living in fear" that it will have to raise Prieska's A$400 million capex on the ASX which would be "desperately dilutionary."
Thus a major undertaking for Smart is educating retail investors who don't understand how South African mines are built, which is mostly via debt from agencies set up by the government to focus on job creation and export earnings over making a return on the debt.
|Geologists review a drill core on site at Prieska.
Source: Orion Minerals
Independent Australian analyst Mark Gordon, who has followed the stock for several years, said that is why Anglo's entry onto Orion's share registry in July is a "significant vote of confidence" for the project, Orion and South Africa itself.
Gordon, who has followed many South African resources companies, concedes that there are risks in the country, as "politics is quite complex" and president Cyril Ramaphosa "walks a tightrope between attracting foreign investment while accommodating local concerns."
Yet Gordon, who has visited Prieska four times, believes Smart's "quality team" is making inroads to assuage investor concerns by continuing to consistently deliver positive outcomes, including the bankable feasibility study in June, with a final investment decision expected in the second half of 2019.
Smart said the numbers outlined in the bankable feasibility study make Prieska an attractive project in an environment where base metal prices are mooted to start picking up by 2022.
Blue Ocean Equities Senior Mining Analyst Steuart McIntyre said at a copper-themed function during the August Diggers & Dealers conference in Kalgoorlie, Australia that his firm forecasts a 20% rally in the copper price from current levels to about US$3.20 per pound in the next 12 months.