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Storm in a tea 'coup'?

Vast Resources is an AIM-quoted resource development company that converted from an exploration company to a mining company in 2015, with two operating mines; the Manaila polymetallic mine in Romania (100%), and the Pickstone-Peerless gold mine (25%) in Zimbabwe.

The military taking control of Zimbabwe last week provided the momentum for a change of leadership, in what some commentators called a coup. Events were not accompanied by violence, and we believe that the seeds of regime change could ultimately be positive for the investment climate and mining sector.

After demonstrations on the streets and the threat of impeachment proceedings initiated by Zanu-PF, the ruling party, Mugabe resigned on November 21st. Mnangagwa subsequently emerged from hiding and was sworn into power on November 24th. Quite how all this plays out for Zimbabwe is hard to quantify, but we view any regime change or power shift undertaken within the framework of the constitution as positive for Zimbabwe.

Vast has also raised £1m at 0.525p/sh via a placing and proposes to raise a further £1.23m at the same price in an Open Offer to shareholders. The funds provide a stop-gap while the company finalises debt finance and other non-dilutionary mechanisms to satisfy its $10m strategic financing requirement. Vast reports that it has started an off-take contract bidding process with metal traders.

We view the end of the Mugabe regime as positive for the mining sector, as it will help to shrug off the heavy risk discount attached to Zimbabwe assets. We value Vast’s Pickstone mine using an onerous 12% discount rate. If we see a tangible decrease in political risk, we would look to reduce our discount rate. Using 8%, our Pickstone NPV increases by 33% to $32m from $24m, based on Vast’s 25% interest.