Through its subsidiary Prospect Minerals Pte Ltd, the company has sold its 87% shareholding in Prospect Lithium Zimbabwe (PMPL) – the owners of the Arcadia Lithium Project in Zimbabwe.

Prospect Resources shares rose higher this morning, as investors responded positively to news it’s sold its 87% interest in the Zimbabwe-based Arcadia Lithium project to a subsidiary of new energy lithium-ion battery producer Zhejiang Huayou Cobalt Co.

Under the binding share sale agreement (SSA), Huayou has agreed to purchase the interest held by Prospect’s 100% owned subsidiary – Prospect Minerals Pte Ltd – for a massive US$377.8m, which equates to around A$1.23 per Prospect ordinary share.

The outcome represents a premium to Prospect’s 10-day VWAP of around 78%.

Validation of strong support

Prospect (ASX:PSC) said the transaction validates the strong support of the Government of Zimbabwe for Arcadia, and highlights the benefits flowing from its Special Economic Zone status, which has potential to put Zimbabwe firmly in the electric vehicle supply chain.

The move also represents the culmination of the strategic partnership process undertaken by Prospect since August., the company said.

Targeting 2022 transaction completion

The board of directors decided that the sale of its shareholding in PLZ to Huayou delivered the most attractive, risk-adjusted post tax value outcome for Prospect shareholders, compared to other proposed development options for Arcadia under either Prospect or joint venture ownership.

PSC managing director and CEO Sam Hosack said the entire Prospect team is delighted with this outcome.

“I would like to thank Huayou for their professionalism throughout the process and in arriving at this commercial outcome.”

“We look forward to working with Huayou and stakeholders within the Government of Zimbabwe to satisfying the conditions precedent, with a view to closing the transaction in late Q1 or early Q2 of 2022.”

Key conditions

Key conditions precedent to completion of the transaction include:

  • Prospect shareholder approval;
  • Requisite Chinese regulatory approvals being obtained by Huayou;
  • Requisite Zimbabwean regulatory approvals and exemptions being obtained;
  • PLZ’s existing offtake agreement being terminated;
  • No material adverse change to PLZ’s key mining tenements; and
  • No material breach of certain pre-completion.

Deposit

A deposit of US$20m is immediately payable by Huayou, non-refundable in certain circumstances where the transaction does not complete.

This deposit will be paid to a trust account nominated by Prospect and will be forfeited by Huayou if the transaction does not complete.

Exclusivity and break fee

A break fee of US$20 million is payable by Prospect Lithium Zimbabwe (PMPL) to Huayou if the transaction does not complete due to any of the following:

  • A completing transaction completing within 12 months, following the competing transaction being recommended by Prospect directors;
  • Any director of Prospect changing, withdrawing, or adversely qualifying their recommendation of the transaction;
  • PMPL failing to carry out its obligation to complete after all conditions precedent have been satisfied;
  • Prospect or PMPL being or becoming insolvent.

Looking ahead

The proceeds to be received by PMPL are expected to be subject to the Zimbabwean capital gains tax, which is levied at 5% of the gross capital amount for assets acquired prior to February 22, 2019 and 20% of the capital gain for assets acquired on or after February 22.

Prospect plans to use the cash balance of US$50m to progress its other battery metals projects in Zimbabwe, and potentially pursue new battery metals growth opportunities globally.

PSC advisers are Azure Capital and Vermilion Partners – legal advisors are King & Wood Mallesons in Australia and Manokore Attorneys in Zimbabwe.

 

 

 

This article was developed in collaboration with [Prospect Resources], a Stockhead advertiser at the time of publishing.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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