Seismic political shift in Zimbabwe paves way for Interpose Holdings

Last year’s coup and seismic political shift in Zimbabwe from dictatorship to fledgling democracy is beginning to see its first trickle of foreign resources companies.

Interpose Holdings (ASX: IHS) has taken a fairly large risk in announcing a planned buyout of Invictus Energy Resources and its flagship Cabora Bassa project based in Zimbabwe’s far north — but by the same token, the price paid and the potential reward could well be worth it.

Interpose has agreed to pay US$500,000 for an 80% stake in the Cabora Bassa project and plans to conduct a supplementary A$4.5 million capital raising over the coming months to develop what could potentially turn out to be the largest gas-condensate prospect in Africa.

News of Interpose’s likely move into Zimbabwe was received positively by investors, helping its shares gain 96% by mid-afternoon.

Past to present

To spearhead its path into Zimbabwe, Interpose has secured the services of former Woodside Petroleum business advisor Scott Macmillan. Mr Macmillan was also a senior reservoir engineer for AWE Ltd, the company responsible for the Waitsia Gas Field development in Western Australia.

The last major explorer to try to tap Interpose’s project area was Mobil in the 1990s.

At the time, Mobil was searching for big oil targets and spent US$30 million acquiring surface and subsurface data, including gravity surveys and over 1,600 line kilometres of 2D seismic data.

Their studies determined that the Cabora Bassa Basin had all the required ingredients of a working petroleum system, but Mobil was forced to relinquish the acreage when its studies indicated the basin had a higher potential for gas rather than oil, overlaid by a lack of a structured market for gas in the region.

Fast forward to today and Zimbabwe is desperate to develop both oil and gas projects to support its anaemic resources sector and almost complete reliance on foreign imports for all its domestic energy needs including energy.

According to Mr Macmillan, “the timing of the award of the permit and change of political regime in Zimbabwe that occurred last year, has coincided with improving conditions in the oil and gas industry, and exploration is now firmly back on the agenda as companies look for new growth opportunities.”

“This data has never been seen in the public domain and Invictus has secured the most prospective area in the basin ahead of any competition”, said Mr Macmillan.

“We have a low-cost, high-impact work program to progress the prospect to farm-out or drill ready. This consists of re-processing the legacy data acquired by Mobil, utilising the latest seismic processing techniques which have significantly improved since the data was acquired over 25 years ago.

We will then obtain a much clearer picture of the subsurface, the Mzarabani prospect and the greater Cabora Bassa Basin area. We believe that we can apply new and evolved exploration concepts that have been successful in this type of rift basin setting in East Africa and Australia”.

The return of Zimbabwe

Political turmoil in the embattled African nation has scared off the major oilers from several high potential projects, leaving the country’s resources sector woefully short of raw materials to sell on world markets and exceptionally high with spare capacity for future development.

For many years, Zimbabwe was called the breadbasket of Africa, producing a range of commodities and a standout exporter, but now its critics call it Africa’s basket-case.

Years of political isolation led by Robert Mugabe brought the country to its knees with soaring inflation, civil unrest, political violence and economic depression.

The tide has seemingly turned with Mugabe’s quasi-impeachment forcing the dictatorial front-man into resignation last November. Zimbabwe’s new political leader, President Emmerson Mnangagwa has vowed to return Zimbabwe back to prosperity on the back of its resource riches and an “open for business mantra” that regularly accompanies African political coups.

Earlier this month, Zimbabwean officials visited New York to arrange a US$1.8 billion capital line to put its economic malaise back on the path to recovery, in a deal with the World Bank and the African Development Bank.

In a further positive sign of economic recovery is international competition.

Mr Mnangagwa embarked on an official state visit (his first since taking up his Presidency) to China earlier this month indicating the potential for imminent state-sponsored collaboration with the Chinese government and its growing hydrocarbon dominance, typically secured with direct supply agreements avoiding international markets.

If proven true, Interpose’s move could be a well-timed one that nets the company substantial added value when larger majors begin sniffing around Zimbabwe for large projects that can be developed without the expense (or difficulty) of non-conventional exploration.

A substantial gas discovery in Zimbabwe is something its newly-appointed government would potentially crave, and “will be a huge driver for the country’s economy and Zimbabweans through multiple commercialisation options that are available,” says Mr Macmillan.

Transaction details

Interpose has agreed to pay a one-off fee of US$500,000 to One-Gas Resources, a private company which controls the permit (SG 4571) held by Invictus.

The permit was granted in August 2017, for an initial period of three years with a renewal required in 2020, subject to Interpose “satisfying the work programme and regulatory requirements”.

Interpose hopes to complete the transaction by the end of May this year although it must still obtain shareholder approval for both the Invictus acquisition and the accompanying A$4.5 million capital raising to be underwritten by Ashanti Capital, an institutional stockbroking and advisory firm based in Perth and Hong Kong. Notably, Ashanti’s parent company is AngloGold, a South African gold mining major.

Capital allocation

As part of its announcement of moving into Zimbabwe, Interpose said that it has already “secured commitments to raise up to A$4.5 million, by way of a placement of 150,000,000 fully paid shares at A$0.03 per share”.

If successful in its acquisition and subsequent capital raising, Interpose has outlined its next steps with regards to initial exploration and the likely capital expenditure required in the first two years of operating the Cabora Bassa project.

Interpose intends to fund a focussed exploration program, including reprocessing of Mobil’s gravity and aeromagnetic data from the 1990s. It also wants to conduct an environmental impact assessment study, fund a third party independent resource certification and begin preparation for drilling the first exploration well, as soon as conditions allow.

Development costs in the first year are estimated to be A$1.1 million and A$900,000 in year two, with a further A$2.2 million earmarked for working capital purposes.