There aren’t a lot of new mining projects in SA to get excited about, especially world-class ones, but the Prieska Copper-Zinc Project in the Northern Cape is certainly one of them.
Previously part of the Anglovaal stable, Prieska was closed in 1991 after a halving in copper prices over the previous two decades and technical difficulties in mining the vast, 2.4km long Prieska deposit at depth. This prompted Anglovaal management to throw in the towel nearly 30 years ago.
JSE and Australian Stock Exchange-listed Orion Minerals picked up the project, applied some smart thinking to it, and decided to have a run at it.
What makes Orion think it can make a success of a project abandoned by the previous owners?
Firstly, the copper market is primed for growth on the back of a swing towards copper-hungry electric vehicles and renewable energy plants such as solar and wind.
Secondly, the quality of the copper and zinc concentrates planned to be produced from the new mine are sought after around the world because of their high purity. Commodity traders have already beat a path to Orion’s door in search of offtake agreements.
Much of the infrastructure left behind by Anglovaal, such as the 1 024m deep, 9m diameter shaft, can be refurbished as part of the mine’s revival. An updated bankable feasibility study foresees a 2.4 million tons per annum (Mtpa) ore processing operation, using infrastructure that was doing 3Mtpa when it was last operated.
Hurbey Geldenhuys, a mining analyst at Vunani Securities, says the target of 2.4Mtpa is likely conservative, and improved mining methods and new technologies allow for far more flexibility than was previously the case. Peak funding of R4-5 billion is needed to get the project moving and if all goes to plan, construction could begin as soon as next year with copper and zinc concentrates being ready for the market within 33 months of start-up.
Geldenhuys argues that many of the project risks are already known due to the previous mining conducted on the site. “There’s not much appetite in SA for junior miners, but at the same time it’s difficult to find opportunities like this where you have a predeveloped mine with known risks and geology.”
It’s not hard to imagine the impact an investment of this size will have on the Northern Cape and broader South African economy – quite apart from the message this telegraphs to the broader mining investment community.
Of the R4-5 billion of funding that is required to construct and commission the mine, 80% would be spent within South Africa.
Two-decade mine life realistic
The updated bankable feasibility study, published in May, extends the foundation phase of the mine from 10 to 12 years, compared to the original mine study completed in June 2019, though an extended mine life of 20 years seems realistic, with further exploration and reassessment of known mineral resources already planned.
The latest mining study targets approximately 22 000tpa of copper and 70 00tpa of zinc in the initial 12-year operating phase. This translates into a total production 226 000t copper and 680 000t of zinc during this stage.
Other highlights from the updated bankable feasibility study include:
- 43% increase in pre-tax free cash flow to Au$1.6 billion (R19.2 billion)
- 36% increase in pre-tax net present value (at an 8% discount rate) to Au$779 million (R9.3 billion)
- five-month reduction in the capital payback period to 2.4 years; and
- 6% decrease in all-in-sustaining costs to US$3 531/t (US$1.60/lb) of copper equivalent metal sold.
Copper price in US dollar
Orion MD Errol Smart says the group has the benefit of improving on the engineering understanding that previous management gained in operating successfully for 20 years.
Moreover, even in the planning process, improvements keep on being made: compared to the June 2019 feasibility study, the latest plan has an additional 20% of copper and 17% of zinc to be sold as a result of several changes, such as refining the mining schedule and improving the design of the ore processing plant.
This updated feasibility study envisages reducing the shaft dewatering timeline by 30%, while capital payback has been accelerated by focusing on extracting higher grade ore in the early stages of mining.
“This is an awesome ore body,” says Smart, “2.4km in length and up to 32 metres wide, which makes it cheap to mine.”
He adds: “The benefit we have is that we were able to approach this project with a clean slate and devise the most efficient method of mining. The orebody remains open beyond the limits of our current drilling, presenting an opportunity to look at near-term expansion or extension of the life of mine.”
Smart hopes to have the financing wrapped up by year-end, with roughly 60% in senior debt, and the balance of the funding to come from some combination of subordinated debt and equity.
Investors like to see a quick return on their money, so the expected 2.4 year payback could start to jolt interest among otherwise gun-shy mining investors prepared to take a five- to 10-year view on copper and zinc.
Orion Minerals share price
At full sprint, Prieska will be a world-class producer with a life of mine plan that incorporates 25.2Mt of ore and a short developmental runway.
Smart believes the timing of the project launch in 2021 will be near perfect, as the copper market starts rebounding and the deflationary impact of the coronavirus economic crash may help wring further cost savings in terms of construction, diesel and labour.
“The Northern Cape has seen virtually no base metal exploration over the past 40 years,” says Geldenhuys.
“Orion will change the economy of the province and send a signal that SA mining is still alive. I’m optimistic.”