Investors ditch RioZim's US$3bn power project
A FINANCIAL crisis at RioZim Limited has wrecked the planned construction of a multi-billion dollar power plant after the beleaguered mining concern's bid to avoid potential receivership faltered when shareholders voted against a management proposed bailout plan.
RioZim has a licence to operate the Gokwe North Power Project, which it intended to build with foreign investors at a staggering cost of over US$3 billion. This figure is up from a cost of US$1,68 billion when the project was conceived over a decade ago.
In an investors' update prior to the latest cash-raising debacle, RioZim indicated that the project had been actively reviewed after lengthy delays, with the intention now of placing a larger power station with an output of 2?000 megawatts (MW) on the Sengwa coal resource than the original concept of a 1?400MW thermal power plant.
Sources said a consortium of South African power sector investors, who had been skulking on the sidelines awaiting resolution of the company's financial predicament, had turned their backs on the Zimbabwe Stock Exchange (ZSE)-listed company after a shareholder vote against a planned cash call as well as a share agreement that would have given banks owed in excess of US$20 million equity in the mining concern.
The banks have reportedly indicated that they will seek judicial management of the mining company, once seen as a beacon of indigenisation.
It is unlikely shareholders will avoid judicial intervention after turning down the management rescue plan which they feared could result in significant
shareholder dilution without significantly increasing shareholder value.
RioZim has been on the market for cash for close to four years now, with a proposed rights issue, which was initially pegged at US$40 million, but had been trimmed down to US$30 million under the rejected proposals, as well as a private placement under which a foreign technical partner had been courted to inject close to US$10 million.
But, as reported by The Financial Gazette Companies & Markets (C&M) in February last year, the technical investor, who had been within the cusp of sealing an agreement for stock purchase, had ditched RioZim over concerns around mining legislation, particularly the controversial economic empowerment and indigenisation laws, as well as uncertainty around the country's politics.
A source had indicated the investor had considered it not worthwhile investing when there was no clarity on those issues.
It turns out the financial situation within RioZim could also have been another key issue.
Although there had been speculation RioZim's power project had attracted interest from several offshore investors, C&M can report that a group of South African investors had shown commitment towards implementing the project jointly with RioZim.
RioZim managing director, Josephat Sachikonye, had confirmed this in evidence to the Parliamentary Portfolio Committee on Mines and Energy in May last year that "a consortium of South African companies is keen to partner us to operationalise the project".
He indicated that they had agreed with the consortium "a time chart which starts with a feasibility study to be completed next year (2012)".
"We have to look at community issues. We will build a new township for the affected people," Sachikonye said, pleading with government to ensure "the rules are favourable to guarantee investment security to our partners".
But impeccable sources now indicate that no deal was concluded between RioZim and its South African partners.
Consequently, no feasibility study took place, they indicated.
However, in an announcement to shareholders accompanying results for the half-year to June 30, 2010, RioZim had reported significant progress towards establishment of the independent power project (IPP) at Sengwa Colliery.
"This vast resource of over 1,3 million tonnes of low sulphur coal remains earmarked as a fuel feed to a thermal power station. Work on the Sengwa Power Station and the coal mine is progressing at a pleasing pace," said RioZim.
Under the current controversial indigenisation and empowerment legislation, RioZim would have to fork out at least US$1,53 billion for part of its investment to retain a 51 percent stake in the project.
Even if its investment in Sengwa as well as other investments related to the proposed power plant and the colliery were taken into account, RioZim would still be left with a staggering bill to pick for its investment in the project.
RioZim has experienced delays in the implementation of its obligations in the expansion of Murowa Diamond Mine which has handicapped the attainment of the full potential of its own investment in the diamond mining operation.
Originally, a joint venture between Rio Tinto Zimbabwe and Rio Tinto Plc, the Murowa ownership structure was changed in 2004 when Rio Tinto increased its interest in Murowa Diamond to 78 percent after a swap of its 56 percent interest in Rio Tinto Zimbabwe for a proportionate share of Murowa Diamond. Rio Tinto Zimbabwe became independent from Rio Tinto Plc, but retained a 22 percent interest in the Murowa Mine, and subsequently changed its name to RioZim Limited, the struggling entity that is listed on the ZSE.
RioZim has also had limited exploration work on a number of its Exclusive Prospecting Orders and has a lot of work requiring significant cash support, according to a report by directors.
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