JOHANNESBURG (miningweekly.com) – Three years ago, Orion Minerals was trading at an eighth of an Australian cent a share. It had a market capitalisation of $4-milllion and set out to find something that could be turned into a mine.
The good news is that the company found that opportunity in South Africa, and its share price has since had a 4.5-times value uplift.
The opportunity came in the form of the Sydney- and Johannesburg-listed company encountering Nelson Mosiapoa and his partners, who had put together a company called Repli.
Repli had acquired the prospecting rights around the old Prieska copper mine, which the former South African mining major AngloVaal had closed in 1991 and had also bought the original company that owned the defunct mine. (Also watch attached Creamer Media video.)
This company had spent quite a few years looking at tailings retreatment and in-situ leaching possibilities but was struggling to find money in South Africa, where junior mining generally battles to make headway.
When Orion Minerals CEO and geologist Errol Smart was shown the Prieska opportunity, he realised that it had huge potential.
The upshot was that Mosiapoa’s partners sold out to Orion and Mosiapoa stayed in Repli to serve as Orion's black economic empowerment (BEE) partner and doing a great job to ensure that the Australian company obtained government permitting and developed strong community relations.
As in junior mining the world over, geologists see an opportunity, raise funds, drill holes and convince investors that they need more money to drill more holes. All this has a one-in-ten chance of mineral discovery and a one-in-twenty chance of reaching feasibility study stage.
Every step of the way requires the raising of more money, and every time more shares are sold to raise cash, founding funders suffer dilution unless they invest still more.
Generally, the big value of junior mining is that the shares owned can be openly traded, with the share value increasing as it ascends but in South Africa, the story is different for particularly BEE shareholders, who are locked in, which creates unfair disparity.
At this stage, as Orion now approaches the completion of its bankable feasibility study (BFS) into the redevelopment of the zinc and copper mine in Prieska, the exploration company has found itself on the brink of becoming a mine development company on a site that has a long horizon.
With that, the cheques that need to be written grow in financial magnitude and more funding has to be found.
During this period, Smart began exchanging notes with former Rio Tinto South Africa head Billy Mawasha and lamenting together about the way BEEs are straightjacketed and the need to find a better way.
In Canada and Australia, mines produce more minerals than South Africa with a third of the people and very few fatalities.
The difference is that South Africa has old mines that use outdated mining methods that have resulted in local mining entering a shrinking cycle.
Smart has set out to reverse that cycle by ensuring that foreign and local investors are on an equal footing as risk-and-reward contributors and participants at the listed company level, along with Mining Charter 3 compliance.
Needed in the next year is equity capital ranging from R500-million to R1-billion, with incoming BEEs needing to shoulder the responsibility of finding 20% of that.
This led to Mosiapoa exchanging his shares at project level for listed Orion shares and a new group of BEE investors entering the fray.
Brought together is a mix of seasoned executives, rising star entrepreneurs who never take ‘no’ for an answer and owners of engineering expertise that can help to contain construction costs.
In this way Orion has ended up clinching a potent and new-style partnership with new BEE company Prieska Resources, which will own 20% of Orion’s mining businesses in South Africa.
Prieska Resources, which is majority women-owned, includes Kimberley legal firm accountant Sharon Matthews and Prieska-born Jowell Tobias, who has extensive project finance experience. Their company has large engineering and steel fabrication workshops, which are being positioned for involvement in the Prieska project.
These BEE partners have invested at a premium to market, which puts them on a par with international investors at listed company level, to which the original founding BEE partnership has also been elevated. All are shareholders at the top level putting all investors on a par.
This coincided with a move to strengthen the Orion board, involving the appointment of former Anglo American executive Godfrey Gomwe and former BHP Billiton executive Tom Borman as nonexecutive directors.
Foreign investors are backing the BEE team and the company’s plans to develop a significant, if not giant, mine.
It is anticipated that the capital structure will migrate from Australia to South Africa, where the Orion share price is trading at a 25% premium to the Australian price.
With the latest placement, about 8% to 10% of Orion’s shares are in trading accounts on the Johannesburg Securities Exchange (JSE).
There are 670 South Africans on Orion’s share register and there is a growing appetite for the share.
“I think more and more people are going to see success stories like Orion, and there are others. There are currently eight Australian mining companies active in South Africa that are, to some extent, following in our track and people are seeing that there is an equity return, which is what drives the junior mining sector. It’s not about dividend yield. You don’t invest your whole pension fund in junior mining. It’s a high-risk business. What you do is you invest a small proportion of it on the expectation that if you’re very selective in your investment, you can make ten times your money,” Smart said in response to Mining Weekly Online at this week’s media roundtable.
“There’s always a risk in mining, but we’re probably plotting a new path in South Africa but there’s still no base metals board on the JSE and we’re counted with the gold counters. It’s a crazy situation, but we’re getting there,” he added.
As announced last month, the Anglo American Sefa Mining Fund (AASMF) will become a shareholder of Orion through the issue of shares to AASMF in consideration of preference shares held by the fund in Repli. These were issued to AASMF as part of a seed capital investment that funded early drilling and engineering work.
In the latest share issue, $8-million worth of shares have been issued to the new placees, including the new BEE grouping.
In the last 12 months, the Orion share has traded as high as 50c a share on the JSE and also as at a low of 29c a share. The low was caused by Australian shareholders, who bought at one Australian cent a share and 1.5c a share more than three years ago, opting to take their money home at what equated to 3c and 4c Australian.
ECONOMIC GROWTH CATALYST
Orion is holding thumbs that the mine will serve as an economic growth catalyst for the Prieska area, where a special economic zone is being contemplated.
“We can’t create a job for every person in Prieska,but we can drive an economy that can create a lot of jobs for the people Prieska and the surrounding district. We're there to be the growth catalyst,” said Smart, whose Orion is being held back from refining in the area by the high Eskom tariffs and the present energy insecurity.
The modernised Prieska mine will be a continuous, mechanised operation with an employment complement of 850 people. These employees will work on a rotating shift arrangement, so that there will always be one group working day shift, another group working night shift and a third group on leave.
Four hundred people have been selected for the first training programme and last week the training of the first 80 people was completed.
“It’s not about working at the rockface any more… machines [are] being used to do the hard, dangerous work. For us as the next generation miners, we’ve got to find a safe working environment that can deliver the minerals, then you’ve got a win. That’s where we’re at. Then you’ve got the multiplier effect of all the personnel providing the engineering services and maintaining the machines that keep the rock coming out of the ground,” Smart said.
“What I want to do is to stimulate business people to have engineering businesses that supply the services to us. Become a supplier to the mine and you will outlive the mine, which is the first seed,” he added to Mining Weekly Online.
Most of South Africa's renewable energy development has taken place in the Northern Cape and Orion has Juwi Renewable Energies South Africa investigating renewable energy potential for its Prieska mine. The preliminary scope of the collaboration is to assess the feasibility of a dedicated 35 MW solar and wind hybrid power plant for the project. The results of this work will inform the long-term power supply strategy for Prieska, in line with local government integrated development plans.
The Northern Cape region has the highest irradiance levels in the country, with a hot and dry climate suitable for solar farms, and it is also well-situated for wind farms with its wide open spaces.
“We can finance that ourselves and use the energy ourselves. The government doesn’t have to finance that for us. With our own energy generation, we can look at beneficiation. Trying to beneficiate without reliable, low-cost energy is a huge problem. By harvesting the combination of renewable energy, fantastic geology and skills, we can unlock value,” Smart added.
In the last two years, Orion has acquired and drilled out a 30-million-tonne resource, at a cost of less than a dollar a tonne, and taken that resource within a hair's breadth of BFS stage, which demonstrates what can be done in South Africa.