Coronavirus slows down Zimbabwe lithium mine’s prospects

A high grade core sample from Arcadia's drilling programme

Zimbabwe may have to wait a little bit longer to see development of its newest lithium mine, all due to the impact of coronavirus on raising capital on the world markets.

Prospect Resources, the Australian-listed company that is developing the Arcadia mine near Goromonzi, says it is to launch a rights issue and lay off workers, in response to the recent world market turmoil that has made raising working capital difficult.

The company had planned to start development at Arcadia in 2020, but progress may now be delayed as the company cuts costs and looks to shareholders for extra money.

Prospect will make a non-renounceable share rights issue to raise as much as US$2 million to keep operations running, pending finalisation of funding and off-take talks with Afreximbank and Russia’s Uranium One. Prospect’s executive chairman, Hugh Warner, said recent market “upheaval” has left the company unable to continue its fund-raising strategy.

“The company’s access to equity markets has radically changed due to the dramatic upheaval in global markets over the last few weeks. Our recent strategy has been to raise small amounts to minimise dilution while the company progresses its discussions with Afreximbank, Uranium One Group and potential off-takers. However, with the global markets changing so quickly, we can no longer rely on this approach,” Warner said in a statement.

“Given these market conditions, the company has a present need for funds to meet its ongoing obligations and continue as a going concern.”

Prospect’s directors have agreed to put up US$350,000 into the share rights issue and take up their share allocation and more.

Prospect will have to “dramatically” cut costs by 57%, which will see layoffs, a 50% cut on salaries for staff and a reduction of costs that are not directly related to current corporate activities.

“This is being achieved through a number of initiatives including salary reductions at all levels of the business and, unfortunately, redundancies which will result in the company having reduced its staff by 57 people in 2020. This will result in a business more capable of enduring the current global crisis whilst continuing to progress Arcadia.”

If the company does not raise the money it needs, it will have to make further job cuts, which will slow development of the project.

“Shareholders should note that further staff cuts may be implemented, depending on the funds raised from the share rights issue. In such circumstances, the company will be slowed in its development of Arcadia,” the company said.

Russia, Afrex talks

In December, Prospect signed an MoU with Uranium One, the Canada-based unit of Russia’s Rosatom, that could see the miner take up a stake in Prospect and buy over half of the lithium from Arcadia mine. Under the MoU, Uranium One was granted an exclusive period to complete due diligence, leading to negotiations for equity in Prospect and at least 51% of future lithium production from Arcadia.

Separately, Afreximbank in December was picked to arrange and manage a US$143 million project finance debt facility for Prospect. The bank agreed to fund US$75 million of the arrangement to support development at Arcadia.

“I trust shareholders can take confidence when companies the size of Uranium One Group, express an interest in investing and securing more than 51% of the Company’s lithium production,” Warner says.

Prospect expects that the minimum rights issue subscription of around US$727,000 will be enough to fund the company for six months while it works to conclude the debt financing and offtake negotiations. The full subscription, which is the equivalent of just short of US$2 million, will keep the company funded for the next 12 months.

Prospect has an ore reserve of 37.4 million tonnes, sufficient for a mine life of 15.5 years.

An updated definitive feasibility study in 2019 showed the project would deliver average annual earnings before interest, taxes, depreciation and amortisation of US$168 million for the first five years. Capital expenditure was at US$162 million with an expected payback period of 18 months.

Zimbabwe has been looking to Prospect to make the country one of the world’s top producers of the mineral, whose product variants are used in ceramics and the battery industry.

In February 2019, Arcadia was awarded special economic zone (SEZ) status, which grants the project generous tax breaks and other concessions. In December, Government exempted Prospect from paying a levy on unprocessed lithium for five years, a concession that cut the costs of developing the project, allowing faster development.