RioZim has 250% upside

RioZim Ltd, one of Zimbabwe’s major companies in mineral exploration and development, has an upside potential of more than 250%  in its share price, according to research by local stockbroking firm, Invictus Securities.

Invictus holds RioZim has turned the corner and is well positioned to benefit from management changes made last year. The company has focused on debt restructuring, while expanding production and improving operational efficiency through cost reduction. RioZim is expected to return to profitability in the second half of this year.

Based on that, Invictus has given RioZim a 12-month’s target share price of US$2,1, which is 250% above the current price (Wednesday’s closing price of US65,5 cents).

Over the last six months, RioZim has reduced its debt to around US$40 million from US$60 million. Of that amount, US$28 million has been restructured into longer-term debt. The average cost of the debt has declined to less than 18% from around 30%. Management expects to reduce debt significantly over the next 12-18 months through its operations and RioZim is expected to have eliminated existing debt by the third quarter in 2014.

Management is targeting cash injections expected from Empress Nickel Refinery following the cancellation of a toll refining agreement with Centametall, and from proceeds from the Cam and Motor waste dump toll treatment project.

The group managed to terminate a loss-making agreement with Centametall in July on favourable terms. According to management, the termination of the agreement legally permits RioZim to approach BCL (Botswana) directly and purchase its own matte for conversion and sell to customers at arm’s length.  As a result, Empress Nickel Refinery is able to negotiate commercial terms that support profitable operations.

The cancellation of the Centametall agreement left RioZim with metal at different stages of production. The first batch of the metal has been disposed of at US$5,7 million and PGMs are expected to fetch more than US$2,3 million.

At Renco, production has increased and is expected to close the year at 100kg per month. The mine is expected to double production from 800kg in 2012 to more than 1,700kg in 2014. Improved productivity, combined with operational efficiency, has led to a decline in the average cost of production.

However, the mine requires an injection of capital of US$2 million in the short term to achieve increased production.

At Cam and Motor, RioZim is in the process of finalising contracts with two mining companies in the Kadoma area for a tolling arrangement. Under the arrangements, a total of 25 000 tonnes of material is expected to be treated each month by one mine while the second mine will treat 5000 tonnes per month.

These should generate approximately 400 kg of gold over a period of 8 months.