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SOUTH Africa’s emerging mining sector needs a boost. Chrome miner Mantengu Mining is wreathed in controversy, Copper 360 is running out of cash, and Jubilee Metals has sold its South African assets to fund a Botswana expansion.
Against this gloom, there is a flag-bearer for the minerals development sector in copper company Orion Minerals, listed on both the JSE and the Australian Securities Exchange (ASX). Its shares are 27% higher over 12 months, though performance since June has been largely flat despite recent promising developments.
One such development was on September 17, when the Reserve Bank approved Orion’s copper offtake deal with Glencore, worth $250m in upfront cash. Less than a week later, Orion was added to the ASX’s all ordinaries index, which attracts tracker funds.
But Orion recently lost a cornerstone investor in Tembo Capital Management. The UK private equity firm has been a staunch supporter of the miner since 2017: it provided a convertible loan and backed several funding rounds for Orion’s headline act, its Prieska Copper-Zinc Mine (PCZM), a brownfields project in the Northern Cape scoped to deliver 22,000t of copper and 65,000t of zinc per year.
Funding puzzle
On October 1 Tembo sold 1.08-billion Orion shares — about 12.1% of the company — for A$20.55m. The shares were sold at 1.9 Australian cents each, a 16% discount to Orion’s closing ASX price of 2.25c. Former Orion chair Tom Borman bought about half of that allotment, taking his stake to just less than 15%. The balance was acquired by another party, whose identity was not disclosed.
Orion CEO Tony Lennox says both blocks of shares were sold to existing shareholders, which he views positively. "It’s a good outcome for us, because we didn’t have to run a bookbuild process and sell it to 20 different people," he says. "The fact that two of our existing shareholders took the stock was positive.
"We’re not heartbroken."
Orion will also be looking for additional finance. To fully fund PCZM as well as Okiep Copper Company, another brownfields development in the Northern Cape, Orion needs R6bn–R6.7bn, of which just less than R4bn has been secured. Lennox says it “wouldn’t be a good look” to be diluting a previous anchor investor. Quite simply, Tembo’s fund matured, so the company got out, he says.
The funding gap will also be financed by early cash flow from PCZM’s Uppers project, which, as the name implies, is near-surface. But a major piece of the funding puzzle is Glencore’s offtake arrangement. Despite Bank approval, Glencore is in negotiations with Triple Flag, a North American streaming company that provided Orion with $87m for PCZM’s gold and silver credits.
“We’re sort of on the sidelines watching and trying to help, but the two large organisations have been working through that over a longer period of time than we’d like,” says Lennox. There is no risk yet of adjusting the scheduled date for first production at PCZM, set for the third quarter of 2027. It’s critical, however, for this to be met, owing to the project’s funding arrangements.
“We are still saying the third quarter next year, and that’s on the basis that Glencore and Triple Flag get this last item of detail resolved within the next handful of days. So that won’t change. We have had a delay, but in our annual report we say the third quarter, and we’re still on track for that,” he says.
A rerate in Orion’s shares is unlikely, therefore, until the cash flow prospects improve. The addition of the stock to the all ordinaries index has improved visibility and liquidity but hasn’t materialised into concerted buying as yet. “We haven’t seen a huge increase in volume, but it is a net positive,” Lennox says. “As you know, some funds can invest in index stocks only. So from that perspective it’s a net positive, but we haven’t seen a material impact in the past week.”
A day of not producing copper is a day lost for Orion, given what’s going on in the metals market. The London Metal Exchange copper spot price advanced 4.41% in August, bringing its year-to-date gain to 16%, according to Toronto-based Sprott Asset Management. Copper miners surged 17% in August — 30.5% year to date — but it was the junior copper producers that led the charge. They gained 20.76% in that month, bringing their year-to-date return to 21.9%.
“The strength of mining equities has reflected their leverage to higher copper prices, with August’s rally driven by powerful margin expansion for existing producers and the growing strategic value of future copper supply,” says Sprott analyst Jacob White.
This article first appeared in the FM.