Is Zimbabwe the next resources investment destination?

Long considered a poor business destination, post-Mugabe Zimbabwe had taken major strides to improve its reputation and lure much needed foreign investment into the country.

One such step was to effectively dismantle the indigenisation policy, which had mandated that locals own 51 per cent of all businesses, some three years ago. It made capital intensive investments – particularly in resources – unviable.

Other major policy changes to improve the attractiveness of investing in Zimbabwe include allowing companies to apply for Special Economic Zone (SEZ) status that grants benefits such as zero capital gains tax, five-year tax holiday periods, and attractive 15 per cent corporate tax thereafter.

The SEZ also allows for the operation of a foreign currency account in any elected jurisdiction, and independence from the exchange control policies of the Reserve Bank of Zimbabwe.

The SEZ program and associated policy amendments aim to turn Zimbabwe into a middle-income economy by 2030, a policy that Finance Minister Mthuli Ncube believes the country is on track to achieve.

“We are on track; all we require is an average growth rate of about 5.1 per cent in GDP per annum until 2030,” Biznews quoted him as saying.

So have these policies succeeded?

At least two ASX-listed companies certainly think so. Invictus Energy (ASX:IVZ) is gearing up to unlock the country’s gas resources while Prospect Resources (ASX:PSC) is positioning its Arcadia project to be a low cost supplier of lithium to the battery sector.

Rich resources drawing investment

“Zimbabwe is a very mineral rich country with a rich history of some notable companies such as Rio Tinto and BHP Billiton having previously been there,” Invictus managing director Scott Macmillian told Stockhead.

He noted that while the previous regime’s policies had made investments too risky, the changes since then have been quite successful.

“Some of the companies that stayed like Zimplats (ASX:ZIM) have begun reinvesting in the country, so I think that’s a good sign when you see people who are there but know the environment well beginning to reinvest and increase their investment in the country,” Macmillian noted.

“Once we demonstrate that a company can come in and invest successfully, I think that will open the floodgates for investment into a very mineral-rich country that’s probably second only to the DRC in Africa.”

Prospect managing director Sam Hosack added that Zimbabwe is hugely reliant on mining to deliver the economic strength to balance payments and increase economic capacity that will enable it to meet the middle-income economy target.

“Prospect has directly benefited from the Government of Zimbabwe’s support over the company’s journey. Having a straightforward and rapid approval process is a massive advantage, which is unparalleled in other jurisdictions,” Hosack told Stockhead.

Zimbabwe-focused companies to watch

Prospect Resources is focused on delivering its Arcadia hard rock lithium project as the lowest quartile cost producer.

It currently boasts an ore reserve of 37.4 million tonnes at 1.22% lithium oxide and 121 parts per million tantalum pentoxide for 457,000t of lithium oxide and 10 million pounds of tantalum pentoxide.

Arcadia is envisaged as a 2.4 million tonne per annum (Mtpa) project with pre-tax net present value of US$710m and internal rate of return of 71 per cent, life of mine operating cost of US$344 per tonne, and annual earnings before interest, tax, depreciation and amortisation of US$168 million.

Development works on the pilot plant are progressing on schedule with Hosack noting that first product is expected by the end of this month.

Additionally, an optimised feasibility study is on track for completion in the third quarter of 2021 that would pave the way for the company to secure funding and start operations.

Meanwhile, Invictus is carrying out seismic work this month to refine the location and path of the Mzarabani-1 gas exploration well and possibly uncover additional prospectivity given the wide spacing of the current seismic grid.

Mzarabani-1 will test the Cabora Bassa project in Zimbabwe, which has the potential to host multi-trillion cubic feet of gas and was first defined from a robust dataset acquired by Mobil in the early 1990s.

Despite its gas potential, Mobil decided not to proceed with further exploration and development as a market for gas did not exist at that time.