Orion Minerals eyes early cash flow with R183m purchase of OKiep Copper Company

Errol Smart, CEO, Orion Minerals

ORION Minerals is to extend its Northern Cape province reach with an option agreement to buy control of Okiep Copper Company (OCC) for an initial purchase price of A$7.5m (R86m) which the firm believes could eventually be restored to historic copper production of 40,000 tons of metal annually.

The Johannesburg- and Sydney-listed company said in an announcement it would first conduct a due diligence into the OCC assets in order to confirm the current owner’s projections of potential production. OCC is privately-owned with Mergence Corporation Solutions, operated by veteran mining investor, Peter Major, as a shareholder.

Orion Minerals is currently seeking finance for the development of its A$432m (R4.95bn) Prieska Copper-Zinc Project which is located about 450 kilometres east of OCC, but still in the Northern Cape province.

Based on an optimised feasibility study completed last year, the Prieska Copper-Zinc Project is scoped to produce 20,000 tons of copper a year, and 70,000 tons of zinc a year. OCC could be redeveloped initially to produce 25,000 to 35,000 tons a year of metal production, rising to 40,000 tons annually after further development.

“We believe that the complementary combination of the advanced OKiep Copper Complex with our flagship Prieska Copper-Zinc Project will transform Orion into a significant base metals mining house, accelerating our journey to become a major producer in the Northern Cape region,” said Errol Smart, MD and CEO of Orion Minerals.

First production from OCC would be within 18 to 24 months of the submitted mining works program although Smart said in an interview today that production might be achieved in a  quicker timeframe. A mining right was under application.

In terms of the option agreement, Orion Minerals would have the right to buy a 56.25% stake in Southern African Tantalum Mining, joining the South African government-owned development finance institution, the Industrial Development Corporation (IDC) as a shareholder which would have a 43.75% stake.

Smart said having the IDC as a shareholder would help cement the relationship between them. The IDC may become an equity holder in the Prieska Copper-Zinc Project: “Watch this space,” said Smart, who added an update on that project was imminent.

The purchase consideration could rise by another A$8.5m (R97m) – leading to a total investment of A$16m (R183m) – in terms of a deferred payment which Orion Minerals said was subject to exploration success.

The OCC Project includes several unmined, drilled copper deposits, many with mine access declines and shafts in place. The current owner has completed resource estimates and a scoping-level feasibility study which Orion Minerals will scrutinise, the firm said.

One advantage of the OCC investment is that it may give Orion Minerals access to cash flow, benefiting from a strong copper market currently, earlier than initially envisaged in terms of its Prieksa Copper-Zinc Project timetable.

The investment model is similar to Prieksa Copper-Zinc Project – also a brownfield development – in that Orion Minerals will bring technology to old assets in a market that is incentivising new production.

According to a report by Jefferies analysts in November, copper demand will “significantly” exceed supply from next year with deficits set to blossom over the next seven to eight years. The multi-year deficits will drive the price of copper inexorably upwards.

Decarbonisation is a major factor in Jefferies’ assessment of increased copper demand. Copper plays a much greater role in the manufacture of renewable applications than in conventional fossil fuel power.

Smart said that OCC’s previous owners, Gold Fields of South Africa and Metorex, had not fully exploited the potential of the assets held in OCC. OCC was also previously owned by Newmont Mining, the US miner. Some two million tons of copper had been mined from OCC over 150 years to 2003.