C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000300

SIPDIS

SIPDIS

AF/S FOR B. NEULING
SENIOR AFRICA DIRECTOR C. COURVILLE
TREASURY FOR J. RALYEA AND B. CUSHMAN
COMMERCE FOR B. ERKUL

E.O. 12958: DECL: 03/07/2015
TAGS: ECON EMIN PGOV PREL ZI
SUBJECT: GOZ EYING CONTROL OF MINING SECTOR

REF: A. A HARARE 232


B. B HARARE 200

C. C HARARE 187

D. D 2005 HARARE 1088

Classified By: Ambassador Christopher Dell for reasons 1.5 b/d

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Summary
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1. (C) Minister of Mines Amos Midzi announced on March 3 that
Cabinet had approved in principle amendments to the Mines and
Minerals Act that would force foreign-owned mining companies
to hand over 51 percent of their shares to the GOZ. The GOZ
is preparing to present the legislation to Parliament,
possibly by the end of the month. Zimplats CEO Greg Sebborn
told us the legislation would effectively turn the
publicly-traded platinum miner into a government parastatal
and vowed to fight the encroachment in the courts. For an
economy in which the mining sector provided more than 40
percent of foreign currency revenue last year, this
legislation ) if passed ) would be yet another crippling
blow and further evidence of the GOZ's blatant disregard for
property rights and sound economic policies. End Summary.

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Legalizing Theft
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2. (U) Minister of Mines Midzi on March 3 announced that the
Cabinet had approved in principle amendments to the Mines and
Minerals Act that would require foreign mining companies to
relinquish 51 percent of their shares (ref C). The GOZ would
take a 51 percent share in energy minerals (coal, natural
gas, methane, uranium), platinum and diamonds. Twenty five
percent would be non-contributory (i.e. without compensation)
and surrendered when the legislation became law, with the
remaining shares being transferred over five years. For
large gold mines and emerald production, 51 percent of
ownership would be split between indigenous companies and the
GOZ. For other minerals, the proposal called for 50 percent

GOZ shareholding over seven years. In the case of Greenfield
projects, 51 percent GOZ participation would be required from
inception.


3. (U) The proposal would also abolish Special Mining leases
and compel the mining sector to add value to a certain
to-be-prescribed proportion of product. Furthermore,
companies would have to relinquish claims not being worked or
developed.


4. (C) Israel Chilimanzi, a legislative advisor for USAID's
parliamentary support project implemented by the State
University of New York (SUNY), told poloff on March 6 that
the Ministry would likely present the bill to Parliament by
the end of March. (N.B. The House of Assembly is currently
adjourned until March 28 and the Senate until April 25.) No
timeline is available for the bill's passage, but given the
legislature's thin agenda it could be relatively swift.

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Platinum Heavyweight Cries Foul
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5. (C) Zimplats CEO Greg Sebborn told econoff on March 3 that
the new legislation would effectively turn Zimplats into a
parastatal and termed it a disaster for the local platinum
industry. Only a few days before the announcement, Sebborn
had speculated to econoff that Midzi ) one of the

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"underperforming" ministers recently criticized publicly by
Mugabe (ref B) ) was under intense pressure to come through
on the issue of local empowerment. Sebborn told us that
Zimplats could accept a 30 percent empowerment ratio but 51
percent with no compensation was a deal-breaker.


6. (C) Sebborn said that Zimplats, traded on the Australian
Stock Exchange but 86 percent owned by Impala Holdings
Limited (Implats) of South Africa, would fight the
legislation. Sebborn contended that any forced compensation
would violate the 1994 agreement signed between the GOZ and
Implats, and would provoke arbitration under Swiss
jurisdiction as provided for in the Parliament-approved
agreement. Chilimanzi, however, speculated that the draft
legislation could contain language saying that it supersedes
past agreements in an attempt to limit Zimplats' legal
recourse. Sebborn said the company would issue on March 7 a
strongly-worded press release condemning the move. (N.B.
Originally scheduled for March 8, Embassy noted the IMF
meeting on that date and recommended that Sebborn issue the
release a day earlier.)

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Industry, Market Reaction
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7. (C) Chamber of Mines President (and senior Zimplats Vice
President) Jack Murehwa on March 7 echoed to econoff the
legislation's likely disastrous impact on Zimbabwe's mining
sector. He noted that the GOZ already had control of one
mining corporation, Zimbabwe Mining Development Corporation,
which was completely moribund. He asserted that Mugabe
himself was behind the legislation and that several key
players in the GOZ, including Vice President Mujuru, Vice
President Msika, Finance Minister Murerwa, Tourism Minister
Nhema, and Mining Minister Midzi himself, were opposed to it.
Murehwa said Mujuru and Msika earlier had promised the
legislation would be watered down; he didn't know whether
they had been overruled or simply had not pushed it. With
the most recent announcement, Murehwa said the industry was
not optimistic the legislation could be scaled back
meaningfully or derailed altogether. He shared with econoff
a copy of the Chamber's official response and comment on the
legislation (faxed to AF/S).


8. (C) Local economic analyst John Robertson informed econoff
on March 7 that, in announcing the decision, Minister Midzi
told representatives of mining companies the proposal would
sweep away all prior international agreements. Robertson
expressed hope that the market reaction would add weight to
the efforts underway by the affected companies to prevent
what amounts to the nationalization of the industry. If the
proposal became law, he predicted that mining would rapidly
decline in importance, thousands would lose their jobs,
foreign earnings from the sector would collapse and, as with
the decline in agriculture, this would cause severe knock-on
losses in the manufacturing and service industries.


9. (U) Reaction in the thinly-traded Zimbabwe Stock Exchange
mining index was negative. Trading was suspended on Monday
and at close of Tuesday the index was 8.9 percent off its
Friday close. Gold miner Falgold was the biggest loser on
Tuesday, down 64 percent in trading, although an analyst
recommendation to take profit might have also contributed to
the slide.

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Comment
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10. (C) Having crippled the agricultural and tourism sectors
with attacks on the private sector and gross disregard for
property rights, the GOZ may be poised to do the same thing
to the economy's remaining third economic pillar ) mining.
However, because the measure will only hasten the evaporation
of what little remains of the GOZ's desperately needed
foreign exchange (not in itself a bad thing as the GOZ digs
its hole a little deeper) Reserve Bank Governor Gono and the
other "moderates" Murehwa mentioned may try to thwart the
plan. That said, ZANU-PF,s widespread venality and its
divorce from the national interest will be hard to overcome.
Coming only days before the IMF vote to restore voting rights
(ref A), the proposed mining amendment further underscores
the GOZ,s lack of commitment to the second condition for IMF
reengagement ) comprehensive policy reform ) and its lack
of fitness to have its IMF voting rights restored.
DELL