JOHANNESBURG (miningweekly.com) – What South Africa’s base metals mining aspirant Orion Minerals has been trying to do over the last two years is to drive a very typical historic project financing arrangement for junior mining.

This very typical historic project financing model involves getting banks in for between 60% and 70% of the project finance and equity in for 30% to 40% and then you build a mine.

But it has been very clear to Orion Minerals that what was a very typical historic project financing model in South Africa no longer works.

The net rate and the cost of finance at which the financial institutions are prepared to lend in South Africa has just become exorbitant.

“The banks want an absolutely risk-free solution,” says Orion Minerals CEO Errol Smart, who spoke to Mining Weekly after the Sydney- and Johannesburg-listed company unveiled plans to raise up to A$13-million in a two-tranche share placement to sophisticated and professional investors, cornerstoned by privately owned mining group Clover Alloys, headed by South African mining stalwarts Philip Kotze and Adam Fleming.

Fleming is the former chairperson of gold exploration and mining company Wits Gold and Kotze the former CEO of Wits Gold. (Interestingly, Mining Weekly can report that Ian Fleming, the author of the James Bond spy novels, was Adam Fleming’s father’s elder brother.)

“The banks want to make sure you’ve done a bankable feasibility study and then an optimisation and then you’ve added a risk factor, which is awful, and then you build a mine that is so full of belts and braces that it becomes unmanageable. It becomes a vicious spiral. You just keep going up the capital cost curve and do not come to a solution effect,” says Boksburg-born Smart, 56, who is chairperson of the Junior Mining Leadership Forum of Minerals Council South Africa.

A year ago, Orion realised that it had to find another way and decided the only way to develop was in bite-sized chunks. It had an elephant team and it decided that that team needed to take one bite at a time and not try to build the Prieska copper-zinc mine project in one go.

While it was working on that model, it managed to secure the US$87-million funding package from Triple Flag Precious Metals and R250-million funding facilities from the Industrial Development Corporation of South Africa.

“People started paying attention when we let it be known that we were not going to build this monster mine on day one anymore but were going to start building it in modularised fashion, which will probably be somewhere between 40 000 t a month and 60 000 t a month.

“We will build one section and get it into production and cost positive, and then use that cash flow to cross-subsidise the next section as we build it up,” is how Smart explains the approach.

As Orion was having those conversations, it began being introduced to parties that showed interest.

These were not foreign investors, but particularly private South African investors, with Orion’s introduction to Clover Capital proving key.

Securing the involvement of Clover Alloys as part of a broad strategic funding package represents a game-changer for Orion.

The combination of a strongly supported A$13-million placement plus an options package that provides a clear pathway to securing a total equity funding injection of A$73-million, puts the company in a strong position to realise its growth vision as a major new South African base metals producer.

Clover Alloys is a privately owned mining group with a track record of value-creation and success in rapidly constructing and operating efficient processing plants.

Clover Alloys’ expertise will be valuable to Orion as it completes the feasibility studies at Prieska and Okiep and executes its rapid development plan.

“This investment brings huge momentum to our company and, together with the support of our cornerstone shareholders, puts us in an outstanding position to become a near-term producer.

“These are guys who understand junior mining in South Africa. Let’s be honest with ourselves, South Africa’s a more complex situation than most places in the world,” says Smart.

Clover Alloys has just built its own mine, which began very modestly as a 24 000 t/y operation.

“They’ve never missed a month of making a profit as they’ve taken that up to 1.5-million tons per annum and they’ve done that through a strategy of building modular processing plants and building on strengths.

“The more we got speaking to them, the more we realised that there was a more appropriate way for South Africa to be able to build mines. Instead of trying to build a 2.4-million-ton-per-annum operation, which takes four years to build to make revenue never mind profit, the target now is to get an operation going within 12 months.”

On a fully permitted site, Orion will now be building smaller at Prieska but getting the operations into production very quickly, and on a far more manageable basis, without extraneous influences of bank-enforced engineering, procurement and construction management, or EPCM, contracts.

Prieska and Okiep will now be unlocked using smaller engineering contractors who will not be forced to give guarantees but will manage construction.

In the next six months, Clover Alloys will be committing to more than R400-million, with an initial investment of R80-million and with a commitment to an option subject to performance – and there is a whole lot more money coming.

The new arrangement has been made to work for existing shareholders who have brought Orion to where it is, and the model has been fully endorsed by them.

Clover Alloys has subscribed for 440-million shares, or A$6.7-million worth of shares, and the placement has been supported by major shareholders Delphi Group and Tembo Capital.

“They have said this is the way you have to go in South Africa. Be more opportunistic and don’t wait for the banks. Get it started and ultimately the banks will come along,” explains Smart.

In his view, the combination of a strongly supported A$13-million placement, plus an options package that provides a clear pathway to securing a total equity funding injection of A$73-million, puts Orion in a strong position to realise its growth vision as a major new South African base metals producer.

“Clover Alloys’ expertise will be invaluable to us as we complete the feasibility studies at Prieska and Okiep and execute our rapid development plan.

“This investment brings huge momentum to our company and, together with the support of our cornerstone shareholders, puts us in an outstanding position to become a near-term producer,” Smart adds.

EMERGING NORTHERN CAPE HUBS

Orion’s two emerging Northern Cape production hubs – the Prieska Copper-Zinc Mine and the Okiep Copper Project – are opening the way for South Africa to be a producer of future-facing ‘green’ metals to support the global energy transformation and to help to combat climate change. 

With their surfaces barely scratched, Orion's properties have already brought back to the fore the province’s significant historical mining of copper, zinc, lead, gold, silver and tungsten, with notable diggings of lithium, rare-earth elements and uranium, along with virgin deposits of nickel, copper, cobalt and platinum group elements (PGEs) being identified.

The company’s Annual Report 2022 showed the approach being adopted by Orion as one of integration from exploration to market, with the company becoming a new-generation South African mining company focused on the development of advanced green metals projects, local refining of battery metals, and the use of green renewable energy from the Northern Cape's bright sunshine.

Orion’s core asset portfolio now includes mining and prospecting rights on the:

• Prieska copper/zinc project, the flagship development, which is permitted and ‘shovel-ready’;
• Okiep copper project, with potential for near-term production restart; and
• Jacomynspan project - a nickel, copper, cobalt, PGEs, and gold pursuit with potential to produce advanced battery precursor products.
• Encouraging results have been received from a successful maiden drilling programme on the Koperberg – Carolusberg line of intrusives, confirming historically reported results and proving shallow mineralisation.

Sixteen late-time electromagnetic targets (EM) have been identified from a SkyTEM™ airborne EM survey completed over Okiep, covering 26 historical copper mines and 150 known copper prospects.

A new copper-nickel discovery has been made at the Nous prospect from the first drill-hole completed to test a SkyTEM™ anomaly, with coincident magnetic and EM anomalies.

Targets are now being plotted for follow-up drilling.

At Jacomynspan, the battery refining agreement has been signed with Stratega Metals, embracing the development of a specialist refining facility, using Strategi’s licensed refining know-how. Presenting a major beneficiation value uplift is metal vapour refining technology that is used to produce battery precursor metal and nano powders used in the electronics industry.

Negotiations to acquire the remaining interests in the Jacomynspan nickel/copper/PGEs project were extended to provide additional time for the owners to discuss a potential expanded and revised transaction, whereby additional prospective Southern African nickel projects may be combined with Jacomynspan.

The Prieska project, 270 km southwest of Kimberley, is in a district that has access to well-established local and regional infrastructure. Prieska’s development will be uplifted by the Okiep project, with the two projects positioned to turn Orion into a diversified base metals miner.