Orion chief says copper market is heading for a big rebound

Errol Smart, CEO, Orion Minerals

BANKING on a rebound in the copper price while developing several mineral deposits isn’t for the faint of heart. When the price of the metal slid by up to 20% over the past three months – amid a broader softness in commodity markets – Orion Minerals adapted its strategy to develop its Prieska mine.

“The fundamentals [for copper] are still in place,” says Orion Minerals CEO Errol Smart. He expects a big rebound in the copper market due to supply-side constraints. Despite tight supply, demand for copper from the renewable energy component manufacturers remains robust. “On the supply side we’re running in a great market,” Smart says. “We have a decade-long backlog in new supply. We can’t meet current demand [for copper].”

He says electric vehicles are but one of the copper-guzzling sectors, with renewable electricity technology – especially transmission and generation – being even more copper-hungry. Wind turbine components demand a lot of copper in their manufacturing.

“The whole infrastructure in generation and storage is reliant on copper, with few substitution opportunities,” Smart says. “There’s going to be a big rebound in the copper market. The world currently sits with the lowest stockpiles of copper in warehouses and supply can’t meet demand.”

The machinations of the commodities market – with its cyclical price swings – has seen Orion opt for a nimbler approach in developing its Prieska Copper Zinc Mine. The mine, previously owned and then closed by Anglovaal in the early 1990s, is estimated to deliver 22,000 tons of copper and 70,000t of zinc per annum over an initial 12-year lifespan. In addition, Orion is exploring Goldfields’ former O’Kiep copper mine in Springbok. Preliminary feasibility studies point to an initial copper output of 9,000t/year. Orion has aspirations of growing this to match historical production of 30,000 to 50,000 tons a year.

Orion devised an early production strategy that reaches early production and demands less capital, whether in the form of debt, equity or offtake funding agreements. On July 11, the company released new drilling results for a shallow pillar at the Prieska mine. Twelve of the 14 bored holes indicated significant copper, gold and silver mineralisation.

With rising interest rates Smart is wary about relying too much on debt to fund the Prieska project. He refers to larger mining companies which took advantage of the recent global low-interest rate environment to bulk up capital. “It’s ironic that the less money you need, the easier it is to get,” he says. Hence Orion opting for alternative funding, such as offtake funding agreements.

The company signed a deal with Canada’s Triple Flag International for an $87m stream funding package, pursuant on Orion finding an additional A$20m. The initial A$10m of funding will go toward a commencement of dewatering the Prieska mine. In return for the funding, Orion will cede 84% of the gold and silver which are a minor by-product to copper and zinc production at the Prieska mine for a 40-year period.

By end-June, Smart told the market that the company is on course to raise the A$20m after issuing two tranches of shares worth A$6m to “sophisticated and professional investors”. Existing shareholders were also offered the chance to buy shares on June 28, in parcels starting from R20,000 up to a maximum of R330,000.

Orion previously tidied up its balance sheet with its largest shareholder, Tembo Capital, converting a subordinated loan worth A$4.9m into Orion shares in June 2021. Orion is currently trading at 22 cents apiece in South Africa and A$0.02 in Australia, and has more than 4.1 billion shares in issue.

This article first appeared in The Mining Yearbook 2022 which can be accessed free of charge here >>