Golden Sibanda Senior Business Reporter
AUSTRALIA Stock Exchange (ASX) listed Prospect Resources Plc has received exchange control approval to increase its ownership of Zimbabwe’s brightest lithium development project, Arcadia, by 17 percentage points to a controlling 87 percent.
The Australian lithium developer said conclusion of the transaction will enable the company to increase the pace of raising external capital to rapidly develop the project. The first phase of Arcadia project requires initial investment of $165 million.
Phase 1 of the Arcadia lithium project is expected to earn Zimbabwe US$3 billion over a 12-year life of mine period and the project is anticipated to go into full production mid next year.
The project has potential to become Africa’s largest hard rock lithium mine, producing petalite and spodumene, and strengthen Zimbabwe’s global ranking as a lithium producer.
Lithium is used to make various items including special glasses and ceramics, lithium-ion batteries and can also be alloyed with aluminium and copper to make strong, lightweight metals for aircraft.
The value of and demand for lithium has grown dramatically over the past few years owing to rapid increase in the use of the mineral in the production of electric vehicle batteries.
Lithium is one of the major minerals whose production Government intends to support to grow mineral exports in order to drive the medium to long-term growth of Zimbabwe’s economy.
The Government is targeting increasing mineral exports from US$3,7 billion in 2018 to US$12 billion by 2023 and envisions achieving the vision of becoming a middle income economy by 2030 with per capital income of at least US$3 500 per month.
Prospect said on Friday last week that on completing the Arcadia transaction, it will increase its shares in the Arcadia Lithium Project from 70 percent to 87 percent, and increase its share of future revenues and profits from the Project’s strong economics.
Commenting, Prospect Resources managing director, Sam Hosack said; “This transaction is value accretive for Prospect’s shareholders. By acquiring Farvic’s carried interest we increase our share of revenues without increasing our share of costs.
“Prospect is progressing discussions with multiple potential financiers at a rapid pace and the company is focused on progressing Arcadia and this transaction facilitates those discussions.
“The company has a number of value engineering activities currently underway that are expected to further strengthen Arcadia’s project economics.”
The Arcadia Lithium Project has net present value (discounted at rate of 10 percent) of US$533 million and cumulative life of mine (LOM) revenue of US$2,93 billion.
The project delivers a rapid payback for the project of 2,5 years from first production and an exceptionally strong internal rate of return (IRR) of 45 percent.
Further, the Arcadia project has average earnings before interest, tax, depreciation and amortisation (EBITDA) of US$109 million over LOM of 12 years.
The approval by RBZ of the acquisition of an additional 17 percent of the Arcadia Lithium Project is in accordance with the sale and purchase agreement dated October 3, 2018.
Prospect said last year that it will issue 94 976 800 fully paid ordinary shares to Farvic Consolidated Mines, representing a dilution to Prospect shareholders of 4,6 percent.
Currently, Prospect “free carries” the other shareholders in Prospect Lithium Zimbabwe to production, meaning that Prospect funds 100 percent of the project expenditure.
The outcome of this transaction is that Prospect increases its share of future revenues and profits from the Arcadia Lithium Mine by 87 percent without an increase in expenditure (or risk).
Arcadia lithium project is located approximately 38 kilometres East of Harare, Zimbabwe.
Since acquiring the project in mid-2016, Prospect has completed an aggressive drilling and evaluation programme that culminated in declaration of several joint ore resources committee (JORC) 2012-compliant mineral resource estimates on Arcadia.
Prospect Resources now has over 14 km2 of granted mining claims over the Arcadia pegmatite swarm that has an identified strike of 4,5km, making it the largest code compliant hard rock lithium deposit in Africa.
Following completion of a scoping study in late 2016, the company completed its pre-feasibility study in June 2017 that included declaration of maiden ore reserves.
In May, Prospect appointed global engineering firm, DRA to provide engineering services and upfront design for Arcadia. Arcadia was accorded Special Economic Zone status.
Zimbabwe is the world’s 5th largest producer of lithium although it has only one producing operation.
Currently only Bikita Minerals is producing lithium mine in Zimbabwe, but there are four other promising projects under development namely Kamativi, Zulu in Bulawayo and Lutope (Hwange).