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In May 2024, Zimbabwe¡¯s cabinet approved the proposed Policy Framework for Government Shareholding/Equity in Public-Private Partnerships, which was presented by Vice President Constantino Chiwenga. The policy provides guidelines for projects involving assets such as state-owned land, mineral rights and national parks, stipulating that the Zimbabwean government must hold a 26% stake in greenfield mining projects through joint venture agreements with private investors.

By December 2024, Zimbabwe¡¯s secretary for mines, Pfungwa Kunaka, publicly confirmed the policy, stating the government would claim a 26% free-carry stake in all new mining projects, which is referred to as the free-carry stake policy.

Recent greenfield mining projects handled by the authors¡¯ firm reveal that the Zimbabwean government has established a new state-owned entity, the Mining Promotion Corporation (MPC), to implement its free-carry stake policy. This wholly government-owned mining company will form joint venture entities for mining projects with private investors, who provide funding while the MPC secures mineral rights for designated blocks under the JV¡¯s name.

Although private investors have limited negotiating power over the government¡¯s mandatory 26% free-carry stake and its post-investment financial obligations, strategic concessions can still be sought from the MPC to safeguard target returns and operational control. Key leverage points are as follows.

JV¡¯s business scope. The mining JV project companies inherently hold mineral rights and require capital investments running into hundreds of millions of US dollars for mine development. Under Zimbabwe¡¯s free-carry stake policy, the government maintains an undilutable 26% shareholding in such ventures. The broader the asset base and project scope incorporated into the JV, the greater the capital outlay private investors must effectively advance on behalf of the state.

This dynamic has become particularly significant in lithium investments, where Zimbabwe¡¯s existing ban on raw lithium ore exports has compelled miners to incorporate costly refining facilities into their development plans. To mitigate financial exposure under the free-carry regime, private investors should strategically exclude downstream processing assets ¨C such as smelters ¨C from the JV structure. This ensures the government¡¯s 26% entitlement applies only to a narrowly defined mining operation rather than the full value chain.

Preconditions for capital commitment. In new greenfield mining projects where the MPC holds a 26% minority stake, the state-owned entity typically mandates strict timelines for mine construction and operational commencement in JV agreements. To mitigate risk, private investors should condition substantial capital injections on three critical milestones: (1) the JV securing all requisite mineral rights; (2) the completion of bankable feasibility studies; and (3) the fulfilment of all conditions precedent under project financing arrangements. This safeguards against major capital outlays before securing the mineral rights for a sizeable resource base and meeting other critical project financing conditions.

Capital structuring and return timelines. Zimbabwe¡¯s free-carry stake policy entitles the government to a 26% dividend share without requiring capital contribution. Prudent capital structuring is therefore essential to mitigate the policy¡¯s impact on target investment returns.

For example, private investors, as majority shareholders, may opt to provide funding for JVs through shareholder loans rather than equity injections or a capital reserve, while stipulating in JV agreements that these loans take repayment priority over dividend distributions once the mining project generates positive cash flow. In this way, private investors manage to delay dividend payments to the Zimbabwean government by increasing the JV¡¯s debt ratio, effectively shortening the payback period and boosting the project¡¯s return rate.

Government partnership obligations. As a 26% minority shareholder in mining companies, the Zimbabwean government bears corresponding responsibilities for operational support. Given the material impact of land acquisition and compensation costs on project economics, private investors should negotiate for the governmental assumption of land tenure obligations in JV agreements. This allocation not only reduces direct project expenditures but also mitigates potential conflicts with local communities regarding land use during mine development and operations. Investors may also reasonably expect government partners to facilitate ancillary permitting processes and maintain a constructive community.

JV¡¯s corporate governance. Zimbabwe¡¯s company law mandates that material corporate actions ¨C including capital adjustments, constitutional amendments and business type alterations ¨C require special resolutions approved by more than 75% of shareholders or shareholdings holding at least 75% of voting rights. This statutory threshold clearly informs the design of the 26% free-carry stake policy, granting the government blocking power over such fundamental decisions.

Prudent investors should therefore negotiate strict governance parameters that confine the MPC¡¯s oversight exclusively to these statutory special resolution matters to maximise operational control over the JV¡¯s day-to-day management.

Cheng Jun is an equity partner and Zhao Yufeng is a non-equity partner at Zhong Lun Law Firm.