Market relief was short-lived for punters in junior miner Orion, which on Monday confirmed that the long-awaited first chunk of a Glencore offtake prepayment is finally unconditional.
Its shares rallied strongly at first on the news that it will soon make its first drawdown of a $40m cash injection from the global metals player. Then the stock ended almost 4% lower, at 26c a share.
The funds are instrumental to start mining the Uppers at Orion’s historic, waterlogged Prieska Copper Zinc Mine in the Northern Cape, with first copper production set for December 2027.
“Today, we’ll have converted from a long-standing story to construction and production, and that is incredibly pleasing,” says Orion MD Tony Lennox.
While a R660m cash injection is nothing to be sniffed at, the bigger prize is the further $210m that Glencore has committed to Orion to start mining Prieska’s deeper levels. For that, several conditions still have to be met under an offtake agreement the two companies sealed just over a year ago.
“The real prize is the Deeps,” says Lennox. Orion, however, has to match Glencore’s next tranche of $50m with $50m of equity at the project level — where Orion itself, the Industrial Development Corporation and its BEE partners will have to contribute.
The last requirement from Glencore for the remaining $160m is that by then the project must be fully funded, a task that falls to Lennox.
‘Little difficulty’
“Over the next 12 months we are crystal clear about the need to protect a critical path, protect cost control, protect quality, and above those three, protect the safety of our personnel. We show we’re doing that well and there’ll be little difficulty in having the follow-on funds come in,” he says.
Orion is targeting a roughly equal split between debt and equity. “The debt always requires a higher amount of resource to be in reserves status and we do have to do more work,” Lennox admits.
As for equity, it seems would-be investors may be more likely to emerge on its South African shareholder register.
Orion, which is also listed in Australia, describes the JSE as “much more agile and supportive” of its listing and says “there is a transition within the company to make it stronger and more clearly South African”.
In exchange for the prepayment, Glencore expects a “market-related return ... that is consistent with transactions of this nature and which includes a step-down in the return rate once commercial production is declared”.
Lennox says Glencore has agreed to take all the copper and zinc produced at Prieska over the next 10 years of the mine’s life and has the first right of refusal on the timeframe thereafter.
“The Prieska orebody is open at depth and along strike, so we think we will be converting more material at depth into our resource and subsequently our reserve. So while it’s 12 years, round figures, we’d like to see the resource base support an even longer timeframe,” he says.
Orion also has the Okiep copper mine, which is “completely wide open” for any deal or investment, says Lennox.
