Orion Minerals scopes OCM for R649m in capital following proof of concept study

Errol Smart, CEO, Orion Minerals

ORION Minerals said today it would recommission the Okiep Copper Mine (OCM) in South Africa’s Northern Cape province for A$58m (R649m) producing annual peak copper concentrate of 9,000 tons annually, enough to produce a 40% margin at the current copper price.

This was in terms of a proof of concept study the findings of which would be subject to a due diligence study ahead of the proposed purchase of a 56.2% stake in the project for R183m. The Industrial Development Corporation (IDC), the government-owned finance development institution, currently has a 43.8% stake in the asset.

The early stage study also provides a foundation for expanding OCM further especially as the mine’s previous owners, Newmont Mining and Gold Fields, were able to extract as much as 30,000 to 40,000 tons a month of copper concentrate.

In a broader context, the project would provide Orion Minerals with early cash flow as it presses ahead with the redevelopment of the Prieska Copper Zinc project, also in the Northern Cape, at an estimated capital cost A$432m (R4.83bn). This project has been scoped for production of 20,000 tons of copper a year, and 70,000 tons of zinc a year.

At well over R6bn, Orion Minerals’ investment is the largest in the Northern Cape province, and among the most substantial in South African mining, since Vedanta committed about R20bn to the two-phase Gamsberg zinc development of which a single phase has been built to date.

Errol Smart, CEO of Orion Minerals, said last week that OCM was “… a case of the right deal at the right time and in the right place for Orion”. His comments came in a week in which the copper price surged. Whereas the copper price has been largely driven by demand, the latest improvement is informed more as a result of supply-side concerns.

“Given the current strong copper market conditions and the potential for further price escalation … we believe the potential for early profitable production from a small-scale foundation phase is very encouraging,” said Smart.

OCM’s scoping study assumes a conservative copper price of $7,600 per ton compared to recent prices of over $10,000/t, he said.

Based on the proof of concept study, OCM would produce first metal some 16 months after start of construction and generate annual undiscounted free cash flow of $32m post tax at an all-in sustaining cost of $4,478/t. This is an all-in sustaining margin of about 40%. Production would be for about 12 years.

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