ZIMPLATS STILL INVESTING DESPITE UNCERTAINTY

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000871

SIPDIS

AF/S FOR BNEULING
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE
USDOC FOR ROBERT TELCHIN
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FOR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON
USDOL FOR ROBERT YOUNG

E.O. 12958: DECL: 12/31/2009
TAGS: EINV EMIN ECON PGOV ZI
SUBJECT: ZIMPLATS STILL INVESTING DESPITE UNCERTAINTY


Classified By: Charge d'affaires Eric T. Schultz a.i. for reason 1.4 d

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Summary
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1. (C) Zimbabwe Platinum Mines (Pvt.) Ltd. (ZimPlats) CEO G.
Sebborn told PolOff on June 21 that the company was open to
expanding its Zimbabwe operations despite ongoing political
and economic turmoil. However, the additional investment
would be conditioned upon GOZ guarantees regarding land
tenure and the scope of required indigenization. Sebborn
also expressed concern over the effects of new Chinese mining
investments and Operation Restore Order. End Summary.

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Investment And Forex Access
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2. (C) Sebborn stated that ZimPlats started work on June 21
on a US$50 million expansion of their existing underground
platinum mine. The company also had plans on the table to
build a new US$180 million mine starting in October 2005.
Sebborn added that the company had presented a ten-year, US$2
billion investment proposal to the GOZ. However, any
investment beyond the US$50 million would require GOZ
guarantees to protect the investment especially regarding
land tenure and the level of indigenization (Zimbabwean
ownership) Zimplats would be required to obtain.


3. (C) Sebborn noted that at US$900/ounce, platinum
investments should prove profitable even amid Zimbabwe,s
economic and political turmoil. According to Sebborn, South
Africa and Zimbabwe were the two largest potential suppliers
of platinum, with Zimbabwe,s platinum easier to access.


4. (C) He said ZimPlats had established a special mechanism
with the Reserve Bank of Zimbabwe (RBZ) to facilitate access
to foreign exchange. Under this arrangement ZimPlats held
its foreign currency reserves offshore but maintained a
mirror account at the RBZ that ensured GOZ-access to the
account,s activity. ZimPlats then sold its foreign exchange
at the auction to pay for local expenses. ZimPlats also paid
royalties and taxes in foreign exchange.

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Economic Turmoil: The Chinese Factor
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5. (C) Sebborn told PolOff that several Chinese investors had
recently visited his offices seeking partnerships in new
mining projects. None of these potential investors had as
yet come back with a concrete proposal. However, Sebborn had
heard through other sources that some Chinese investors
planned to build a platinum processing plant. He expressed
concern that the Chinese lacked the required expertise to
build a plant on par with those in South Africa and other
western countries. Moreover, he said the GOZ would likely
force ZimPlats to send its platinum to the new plant for
processing. This, Sebborn stated, would either result in
poorer grade platinum or extend the revenue chain as platinum
is sent first to the local plant and then to the South
African plant. It would also reduce Zimplats leverage with
the GOZ and lessen its ability to protect its investment
here, since the best processing plants were all in western
countries that could be relied on to react negatively to GOZ
expropriation efforts.


6. (C) Sebborn speculated that the recent rash of Chinese
interest in the mining sector resulted from special
concessions from the GOZ. He also opined that the Chinese
could be betting on a pay-off in the long-term, in a
post-Mugabe Zimbabwe. Sebborn noted that starting a new mine
or processing plant involved massive upfront sunk costs and
subsequent adequate activity to be viable- activity that
Zimbabwe,s current platinum production levels could not
support.

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Political Turmoil: Operation Restore Order
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7. (C) Sebborn expressed puzzlement at the ongoing Operation
Restore Order. Over 20 percent of his local plant staff had
been affected. At the mine location last week, a drunken
police officer told Sebborn that orders had come down to burn
the huts around the mine. Sebborn contacted the local
Chegutu police office and the officer in charge told the
drunken officer not to go ahead with the plans but the
drunken officer stated that he took orders from a higher
authority. No huts had yet been burned, however, Sebborn
worried that the mine would effectively shut down if the
contractors and employees occupying the huts were suddenly
rendered homeless.

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Comment
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8. (C) Amidst Zimbabwe's continuing economic and political
turmoil, there remain areas of potentially profitable
economic activity, including especially mining. Nonetheless,
the GOZ's imperative to consolidate and expand its control
over the nation's economy will continue to hamstring efforts
by even the bravest and strongest players to move forward.
Symptomatic of the GOZ misplaced priorities, the Mining
Minister cannot find time to discuss ZimPlat,s US$2 billion
investment offer - one that offers potentially significant
cash inflows and employment opportunities ) even as hundreds
of thousands are burned out of home and livelihood and
millions face potentially severe food shortages.
SCHULTZ