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Orion Minerals retains speculative buy recommendation from Euroz Securities

The company has set itself an ambitious timetable to fast track Prieska into production.
Project area
Financing without significant equity dilution remains the key

Orion Minerals Ltd (ASX:ORN) (JSE:ORN) is targeting to complete a bankable feasibility study (BFS) for its Prieska Zinc-Copper Project in South Africa by next quarter.

Western Australia based Euroz Securities completed a site visit to Prieska earlier this month and was impressed with the size, scale and opportunity of the project.

Euroz has maintained its speculative buy recommendation with a price target of 10 cents.

Following is an extract from Euroz’ report following the site visit:

Key points

• We visited Prieska on the 3rd of Feb’19, as one of four site visits that straddled the Annual Indaba African Mining Conference.

• It was hard not to be impressed with the scale, infrastructure, location, site personnel, work completed and exploration upside. Whilst many companies talk about ‘belt scale opportunities’, ORN genuinely has it.

• A scoping study, released just prior to Christmas, confirms the economic viability of redeveloping Prieska. The study envisaged a 2.4 million tonnes per annum operation producing 70,000-80,000 tonnes of zinc and 22,000 tonnes of copper in concentrate for 10 years with AISC costs of US$0.55/pound (zinc metal sold). Peak funding of $300-330 million is estimated and an NPV of $400-440 million pre tax.

• What was very clear from the site visit is that the mine life is highly likely to extend. Mineralisation remains open beyond the current resource and the most southeast drilled hole in the Vardocube Deep Sulphide Resource returned 11.3 metres at 4.4% zinc, 3.7% copper, 0.51 g/t gold and 32.7 g/t silver from 1071 metres.

• The exploration package ORN has consolidated is excellent with little exploration in the past 30 years. Prieska is rated as one of the top five VMS deposits in the world (historical mining + remaining resource) yet there has been no other deposits found. This is an anomaly in VMS deposits with the rule of thumb that the clusters (other deposits) will add up to the total of the major deposit.

Investment case

ORN has made excellent progress at Prieska. The potential scale, infrastructure and exploration upside is impressive.

Financing, without significant equity dilution remains the key, but there are few projects of this scale and life currently controlled by juniors.

We expect a significant portion of the capital will be debt funded.

The DFS and mining rights are positive catalysts in the next few months and we still see the potential for ORN to become a mid-cap base metal producer and be worth multiples of its current price.

Analysis

ORN’s ambition to create a modern day mining operation at Prieska remains on track. With no township nearby or requirement to relocate communities and no legacy employment contracts, ORN is starting with a clean slate.

We understand that ORN has had significant interest from development banks and South African banks and recently appointed Endeavour Capital to assist with the financing.

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