Kavango Resources: Zimbabwe Gold Developer Secures £6.5M for Fast-Track Production Plans

• Kavango Resources is a metals exploration and mine development company with copper exploration in Botswana and gold projects in Zimbabwe
• Recently raised £6.5 million to fund mine development, with a focus on generating free cash flow from gold projects in 2025
• Aggressive but staged development approach in Zimbabwe - start small with 2 gold projects and expand self-funded
• Targeting 10 million oz gold resource in virgin greenstone belt of Zimbabwe using modern exploration and mining methods
• Copper exploration project in Botswana provides additional blue-sky potential with majors interested in the area

Kavango Resources (LSE:KAV) is an emerging exploration and development company focused on southern Africa. It offers a unique combination of near-term gold production potential in Zimbabwe and district-scale copper exploration upside in Botswana.

The company recently raised £6.5 million to aggressively advance its assets and transition into a  producer in 2025. CEO Ben Turney elaborated on the company's vision in a recent interview, stating their focus was going to be on building significant cash flow generation within the business.

Zeroing in on Zimbabwe 

Kavango's immediate priority is to fast-track development of two high-potential gold projects in Zimbabwe to production. The company is taking an entrepreneurial, quick-to-market approach while still doing the necessary technical work to derisk the projects.

At Prospect 4, Kavango sees potential for a high-grade underground mine based on initial drilling that hit 2.5m at 29 g/t gold, part of a wider zone of at least 12 gold-bearing reefs. A spiral decline mining method will be used to maximize productivity. The initial target is up to 200 tpd production at 3 g/t to generate $500,000/month of free cash flow a month.

This one project and one point I'd like to make is that we're talking about a 90 hectare block. This is not even a drop in the ocean, this is a tiny block of ground that within three years could be generating between 2.5 to 3 million dollars of free cash flow a month.

In parallel at Prospect 3, the plan is to drill out an initial resource and develop a small open pit heap leach operation. Kavango is targeting 30,000 t/m production for 15 kg (nearly 500 oz) of monthly gold output or $1.2 million monthly revenue by mid-2025. With estimated free cash flow of $200,000/month, this would boost the company's cash generation capacity.

Starting Small, Thinking Big 

While the initial production profiles are modest, they align with Kavango's strategy of quickly getting to first cash flow and then organically expanding. Turney believes this fits the reality of the current difficult market conditions. He explained,

The traditional model until a few years ago was that companies would look to build up a big resource and then try to secure mine finance to take that through to production. Well we've seen this year with some of these larger companies in London that have already failed because having done all of that work and spent tens of millions of dollars along the way when it's come to the actual mine finance they haven't been able to secure it and they've ended up in complete disasters for shareholders.

Instead, Kavango intends to grow production and cash flow in stages to self-fund aggressive expansion. The company sees potential to scale Prospect 4 up to 1,000 tpd production within a few years. Turney also pointed out that the two current projects cover just a tiny 900 hectare footprint of Kavango's total prospective land package.

The bigger picture vision is to prove up a 10 million ounce gold resource in the virginal prospective greenstone belt, with Kavango controlling the last available permits.

In terms of our potential for earnings growth, if we can deliver on our plans and we can become this specialist mining company that specializes in exploring and developing smaller scale underground opportunities, we've got potential here to build a very very big business.

Interview with Chief Executive Officer, Ben Turney

Zimbabwe - Virgin Terrain with Modern Methods

A key part of Kavango's investment thesis is being a first mover in underexplored Zimbabwe. The country's current commercial gold mining is limited but historical data and nearby operations point to considerable potential.

The CEO drew an analogy to the prolific greenstones of Western Australia.

The opportunity in Zimbabwe for us today is like being in Western Australia 50 years ago but with modern technology, modern mining methods. All of the hard lessons of how to explore for and then develop these specific types of ore bodies have already been learned. It's just no one has done this yet in Zimbabwe.

By applying innovative mining methods like mechanized spiral declines vs traditional vertical shafts, Kavango believes it can unlock the value more efficiently and rapidly. The company has brought in an experienced Australian mining engineer to oversee this effort. Modern exploration methods are also an advantage in the virginal greenstone setting.

Risk Management Through Optionality 

While Kavango's development plans are aggressive, management has built in meaningful contingencies. For example, the production plant intended for Prospect 4 has been designed with flexibility in mind.

We'll need to do more work at Prospect 4 to confirm whether the production plant will go to Prospect 4. If it doesn't we're going to take it to Prospect 1 where we're already Mining

The company has already completed metallurgical testing confirming the plant can effectively process ore from both prospects. This optionality reduces execution risk while maintaining the pathway to production. Highlighting the technical validation, Turney noted:

We know that the material that's being pulled up, the ore [from Prospect 1 and Prospect 3], it does actually respond very well to leaching 

With resource drilling underway and multiple development options available, Kavango has positioned itself to advance toward production even if initial results don't meet expectations at any single prospect.

Botswana Blue Sky 

In addition to the potential of its Zimbabwean gold projects, Kavango offers investors a "free option" on a district-scale copper play in Botswana. The company's Kalahari Suture Zone ("KSZ") project covers a chunk of the Kalahari Copper Belt, near operations of major mining companies.

While still grassroots, exploration results to date are encouraging with the drilling vectoring in on several prospective targets that will be followed up. The majors have also taken notice, with Rio Tinto, BHP and Sandfire all taking positions nearby.

If we look at the amount of interest there is in the copper belt, we have a map that's on our website which shows that we have the last large remaining land package in the entire belt.

While the market currently ascribes little value, growing interest and the underlying copper fundamentals mean this project could develop into a major value driver.

The Investment Thesis for Kavango Resources

• Near-term gold production and cash flow from two Zimbabwe projects in an overlooked jurisdiction
• Strategy to start small and expand self-funded to 10M oz target in untapped greenstone belt
• Application of modern mining/exploration methods to move quickly and efficiently vs peers
• Secondary copper exploration exposure in Botswana as free option with majors moving in
• Able to raise capital to fully fund aggressive plans with £6.5M secured despite tough market
• Experienced management team with CEO/geologist aligned as large shareholder
• Potential for rapid re-rating to multiples of current valuation as production milestones hit

Macro Thematic Analysis 

The broader macro set-up for Kavango appears highly favorable based on the fundamentals for both gold and copper. Gold has reasserted its traditional role as a safe haven and portfolio diversifier amid elevated geopolitical risks, high inflation and a looming global recession.

After a decade-long bear market, many analysts believe copper is poised for a major sustained bull market. Constrained supply growth, depletion of major mines and resilient demand are supportive. The accelerating trend towards decarbonization, electrification and the "green economy" is expected to be a game changer in terms of exploding end-use demand over the next decade.

Companies offering exposure to these metals are attracting investment interest, especially those in business-friendly jurisdictions. While Botswana is well established as a top global mining location, Zimbabwe's potential is only starting to be recognized by early movers like Kavango. 

Meanwhile, if the company achieves even a fraction of its ambitious longer-term targets to organically build a multi-million ounce gold resource and district-scale copper potential, there’s a great upside potential.