While Orion and Copper 360 have followed different strategies in starting up their projects, both have the same outlook on the endgame – they are not deliberately targeting being bought out by a larger mining group.
That is frequently the default strategy for many juniors: take the project up the value curve to the point where they get a mining major interested and then sell out at a healthy profit.
“We have done the hard yards and we are going to run it because we think we can make good money out of it,” says Nelson. “We are not trying to ramp it up the value curve and make it pretty, otherwise we would have pursued a different avenue. Then it’s a different game: you don’t allocate the capital; you build a small thing to show potential; then you drill out resources.”
But he also doesn’t intend spending the rest of his life at Copper 360. “Neither I nor Shirley are looking to run it for the next 20 years. If somebody walks into the office tomorrow and says here’s a cheque for five times the value of the company then we will consider it. But I don’t want to run Copper 360 until I am 70. There are other things I want to do.”
Says Smart: “My team is focused on building this business. We are going to build this thing until somebody comes and offers a cheque that my shareholders accept … against my recommendation. That’s what happens. We are a public company and it’s not me that decides. It’s when somebody offers the right-size cheque and the shareholders accept.”
The two entrepreneurs have chosen different development strategies with Nelson starting small and building up while Smart has come in looking from the outset to create a much larger operation with longer lead times.
Smart is looking at first production from both Prieska and Okiep in about 18 months – the beginning of 2026. “We cannot afford to burn bridges,” says Smart on the trajectory of his plans.
“We do not want to be in a position where we miss a production target. I think Jan’s route is the easier route and I wish I was there, but – five years from now – we will probably be pleased we took the route we have. As you go for greater expansion you want access to the big financial institutions and you have to build your credibility there.
“We have to be more certain of our outcomes before we spend the money. Our financiers want a plus/minus 10% estimation on everything.”
Funding dilemmas
Nelson’s strategy was to start small and get into production quickly. That was his approach to get around the biggest problem facing junior operators which is finding the money to pay for their projects. “By the time we have spent the latest R130m on expansion we will have spent R850m in total. There’s no way anybody is going to give a junior R850m upfront.
It’s been hard. It has taken its toll on me. It’s a hell of a difficult thing to do and I am not going to do it again – Jan Nelson, Copper 360
“With hindsight, we should have gone initially for the copper concentrate plant instead of the copper cathode plant but when we started there was no deal with Shirley meaning there was no access to copper concentrates.
“It’s been hard. It has taken its toll on me. It’s a hell of a difficult thing to do and I am not going to do it again.”
It seems that the “small versus large” debate lay behind the surprise decision last year by Clover Alloys not to follow their options in Orion and kick in R870m that Orion badly needed.
“Their view was: ‘Don’t grow it big. Just build a small mine and make money and pay dividends.’ They – like many South African investors – want an early dividend-paying business.
“Our other shareholders – the people who funded us when we started – all said they were in it to reach optimum production scale. They want the business to grow. That is my mandate.”
Turning to the thorny issue of financing, Smart says his approach has been to whittle down the initial high levels of capital expenditure needed for Prieska and Okiep to more “manageable” levels.
The scoping cost of Okiep is around R1.4bn while the original cost estimate to develop Prieska was around R5.5bn with the main problem being the requirement to dewater the workings which will take some three years.
Smart says revenue from the new, shallow mining operations bringing in early copper production will cut the peak funding requirement to about R3.5bn. “We have tied up an $80m funding facility with Triple Flag so that’s R1.4bn of the R3.5bn already. We have the IDC (Industrial Development Corporation) as a partner at Prieska. They put in R250m as a convertible note and will become around 19% shareholders. They will also fund the BEE requirement which is 20% of the project. So now 38% of the R2bn shortfall is spoken for by the IDC.”