What South Africa’s base metals mining aspirant Orion Minerals has been trying to do over the last two years is to drive a very typical historic project financing arrangement for junior mining.

This very typical historic project financing model involves getting banks in for between 60% and 70% of the project finance and equity in for 30% to 40% and then you build a mine.

But it has been very clear to Orion Minerals that what was a very typical historic project financing model in South Africa no longer works.

The net rate and the cost of finance at which the financial institutions are prepared to lend in South Africa has just become exorbitant.

“The banks want an absolutely risk-free solution,” says Orion Minerals CEO Errol Smart, who spoke to Mining Weekly after the Sydney- and Johannesburg-listed company unveiled plans to raise up to A$13-million in a two tranche share placement to sophisticated and professional investors, cornerstoned by privately owned mining group Clover Alloys, headed by South African mining stalwarts Philip Kotze and Adam Fleming.

Fleming is the former chairperson of gold exploration and mining company Wits Gold and Kotze the former CEO of Wits Gold. (Interestingly, Mining Weekly can report that Ian Fleming, the author of the James Bond spy novels, was Adam Fleming’s father’s elder brother.)

“The banks want to make sure you’ve done a bankable feasibility study and then an optimisation and then you’ve added a risk factor, which is awful, and then you build a mine that is so full of belts and braces that it becomes unmanageable. It becomes a vicious spiral. You just keep going up the capital cost curve and does not come to a solution effect,” says Boksburg-born Smart, 56, who is chairperson of the Junior Mining Leadership Forum of Minerals Council South Africa.

A year ago, Orion realised that it had to find another way and decided the only way to develop was in bite-sized chunks. It had an elephant team and it decided that that team needed to take one bite at a time and not try to build the Prieska mine project in one go.

While it was working on that model, it managed to secure the R87-million funding package from Triple Flag Precious Metals and the R250-million funding facilities from the Industrial Development Corporation of South Africa.

“People started paying attention when we let it be known that we were not going to build this monster mine on day one anymore but were going to start building it in modularised fashion, which will probably be somewhere between 40 000 t a month and 60 000 t a month.

“We will build one section and get it into production and cost positive, and then use that cash flow to cross-subsidise the next section as we build it up.”

As Orion was having those conversations, it began being introduced to parties that showed interest.

These were not foreign investors, but particularly private South African investors, with Orion’s introduction to Clover Capital proving key.

Securing the involvement of Clover Alloys as part of a broad strategic funding package represents a game-changer for Orion.

The combination of a strongly supported A$13-million placement plus an options package that provides a clear pathway to securing a total equity funding injection of A$73-million, puts us in a strong position to realise our growth vision as a major new South African base metals producer,” said Smart.

“Clover Alloys is a highly regarded privately owned mining group with an enviable track record of value-creation and success in rapidly constructing and operating highly efficient processing plants. Clover Alloys’ expertise will be invaluable to Orion as we complete the feasibility studies at Prieska and Okiep and execute our rapid development plan.

“This investment brings huge momentum to our company and, together with the support of our cornerstone shareholders, puts us in an outstanding position to become a near-term producer.

“These are guys who understand junior mining in South Africa. Let’s be...