“From the gross sales of A$528m, we estimate the company will need to pay Zimbabwe capital gains tax of approximately US$30m (A$42m), plus US$15m across transaction costs (legal, adviser fees, etc) and a damages fee on breaking its existing offtake agreement,” the research firm said in its note.
“The transaction is also expected to complete in late first quarter or early second quarter of 2022, the company still expending on corporate expenses, likely exploration, and new projects development up until then.”
“In summary, we estimate PSC (Prospect) will have approximately A$500m after deducting expenses and tax, and including cash prior to transaction announcement (ca A$23m) and from in-the-money options we expect to be mostly exercised (A$11m).”
Subject to and following completion of the sale, Prospect said it intended to retain a cash balance of up to US$50m (A$70m), with the balance intended to be distributed to shareholders.
Key conditions precedent includes Prospect shareholder approval, Chinese regulatory approvals for Huayou, Zimbabwe government approval, and termination of existing offtake.
Given the extensive due diligence undertaken, the competitive tension, and number of parties that submitted proposals during the partnering process, Prospect expected low risk of the transaction not completing.
“We understand that the Zimbabwean government is supportive of the transaction, especially with Huayou’s demonstrable mining experience in Africa and sizeable balance sheet. The other shareholders of Arcadia, who own 13%, have also agreed to sell their interest to Huayou,” it said.
This means Huayou would pay up to US$422 million to assume full control of the operation.
The broking firm said Huayou had paid a deposit of US$20m to Prospect, which is non-refundable in certain circumstances if the transaction does not complete, including Chinese regulatory approvals not obtained.
A standard no-shop, no-talk US$20m break-fee is payable by Prospect should the sale not be concluded in certain circumstances.