African Mining Network

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AMN - SOUTH AFRICA: Prieska BFS delivers strong economics

A bankable feasibility study (BFS) for the Foundation Stage of Orion Minerals’ Prieska Copper-Zinc Project in Northern Cape Province has delivered strong economics. It confirms the potential of the project to underpin a significant near-term, low-cost development project, with exceptional opportunities for future growth.

Based on study assumptions, the project will provide excellent financial returns, for a relatively modest capital investment, given the scale of operations envisaged and the fact that the new production hub is within a highly-endowed but underexplored volcanic massive sulphide (VMS) district, with significant long-term exploration potential.

The BFS investigated the commercial viability of a mining plan for the Foundation Phase aimed at establishing mine infrastructure and operational capacity that is intended to establish the platform for further mining of

deposit extensions and the exploration and mine development of neighbouring prospects.

The Foundation Phase runs for 10 years of run-of-mine production at an annual design ore processing rate of 2.4 million tonnes. This phase targets the exploitation of those portions of the Prieska deposit that were upgraded to indicated and inferred mineral resources from the first surface-based drilling campaign conducted between 2017 and 2018.

The production target is composed of 65% probable ore reserves and 35% inferred mineral resources, with ore reserves predominating during the early stages of the mining plan.

Both underground and surface mining methods are planned to be used in conjunction with conventional froth flotation concentration to produce differentiated copper and zinc concentrates for export.

The Foundation Phase has undiscounted cashflows of A$1.1 billion pre-tax (A$819 million post-tax), a Net Present Value (NPV) of A$574 million pre-tax and post-royalties (A$408 million post-tax, post royalties), using non-inflation-adjusted estimates and a discount rate of 8%, and achieves an Internal Rate of Return (IRR) of 38% pre-tax (33% post-tax).

The NPV is based on long-term forecast metal prices of US$6,834/tonne for copper and US$2,756/tonne for zinc.

Peak funding requirements amount to A$378 million including a 10% contingency allowance. This would occur in the third year of the capital expenditure (CAPEX) program. CAPEX incorporates establishment costs for open pit mining which is planned at the end of the Foundation Phase. Payback is planned to occur five years from the start of construction or 2.9 years from the start of production.

Unit all-in-sustaining costs (AISC) over the duration of the Foundation Phase would be approximately A$5,470/tonne copper equivalent metal sold. The realised price (net of smelter charges) would be A$9,785/tonne copper equivalent metal sold, yielding in the order of a 44% all-in-sustaining margin.

The operating break-even grade is estimated at 1.2% copper equivalent, well below the ore reserves grade of 2.1% copper equivalent applied in the production schedule.

Beyond the Foundation Phase, it is anticipated that mine-life extension will be underpinned by delineated mineral resources not yet incorporated into the mining plan as well as known deposit extensions and existing pillars which

are anticipated to require low or no additional capital investment to extend the mine life.

Some 9.7 million tonnes of indicated and inferred mineral resources at grades of 1.1% copper and 3.6% zinc remain outside the immediate mining plan, providing near-term potential to optimise mine plans to incorporate more of these resources into the Foundation Phase. Significant potential for nearby satellite deposits has also been identified.

Orion’s managing director and CEO Errol Smart said: “We are delighted with the results of the BFS, which confirm the quality and scale of the Prieska project and put Orion firmly on-track to become a major new South African base metal producer.

"The BFS suggests that Prieska will be a high-margin, long life asset, delivering A$1.1 billion of pre-tax free-cashflow, a pre-tax NPV of A$574 million at an 8% discount rate and an all-in-sustaining margin of 44% during the 10-year Foundation Phase of the project.

"Importantly, the capital payback period is short - at just under three years from first production, with a low unit operating cost base to take advantage of most metal price environments.

"There is also ample scope to significantly extend the mine life through further mining studies, drilling and exploration programs to extend the deposit, which remains open at depth and along strike.

"The huge potential for additional satellite discoveries both within the immediate near-mine environment and within the broader region provides us with a very strong project pipeline which we believe will see us operating in this district for many decades to come.

"We have long believed Prieska represents a highly valuable strategic asset with the potential to become a significant source of high-quality copper and zinc concentrates that we believe are highly sought-after in global markets. The favourable results from the BFS strongly support that belief and provide us with the framework to progress this high-quality asset towards financing and production, with an initial focus on harvesting the high-quality resources delineated by our extensive drilling programs undertaken over the past two years.

"The Prieska BFS also provides the platform for us to progress the development of what will be a new-generation mining project for South Africa, fully-compliant with the new South African Mining Charter and backed by a strong group of BEE investors and including our host community and employees as shareholders alongside our existing cornerstone shareholders.

"With the Prieska BFS now complete and granting of the Mining Right imminent, we intend to fully focus on progressing discussions with project financiers, concentrate off-take partners and key suppliers.

"We expect to be in a position to make a Final Investment Decision for the Prieska project development in the second half of this year, putting us on track to commence construction in late 2019 or early 2020,” he said.

“I would like to acknowledge the enormous effort of our hard-working team in delivering this outstanding result, which sets Orion up to begin its transformation from explorer to developer.”