MUGABE SIGNALS "FLEXIBILITY" ON MINING LAW

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000349

SIPDIS

SIPDIS

AF/S FOR B. NEULING
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE
STATE PASS TO USAID FOR M. COPSON AND E.LOKEN
TREASURY FOR J. RALYEA AND B. CUSHMAN
COMMERCE FOR BECKY ERKUL

E.O. 12958: DECL: 01/12/2016
TAGS: ECON EFIN EMIN PGOV ZI
SUBJECT: MUGABE SIGNALS "FLEXIBILITY" ON MINING LAW

REF: HARARE 300

Classified By: Charge Eric Schultz under Section 1.4 b/d

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Summary
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1. (C) Zimplats CEO Craig Sebborn told econoff March 16 that
he and the visiting Implats CEO had made their case the day
before directly to President Mugabe that the proposed changes
to the Mines and Mineral Act (reftel) amounted to
nationalization of the industry and would harm the sector's
development. Mugabe had responded that the GOZ was committed
to indigenous empowerment but that the overall percentage of
foreign ownership in local mines and the percentage of shares
subject to forfeiture without compensation were both open to
negotiation. Mugabe also indicated that he had made
commitments to others (i.e. the Chinese) that would have to
be respected. The Minister of Mines subsequently publicly
announced GOZ "flexibility" on the issue. Sebborn said he
had found Mugabe mostly lucid but drawn in appearance and apt
to tire easily. End Summary.

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Foreign Investment At Risk
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2. (C) In a March 16 meeting, Zimplats CEO Sebborn provided
us with a readout of his and Implats (Zimplats' South African
parent company) CEO Rumble's meeting with President Mugabe
the day before. Sebborn said the meeting had lasted two and
a quarter hours and that Vice President Mujuru and Minister
of Mines Midzi had also participated. Sebborn said Vice
President Mujuru, who had been instrumental in arranging the
meeting, had advised him in advance to be blunt with Mugabe.


3. (C) Sebborn had taken this to mean that Mugabe was being
shielded from mining sector realities and the economic
implications of the Cabinet proposal. Still, Sebborn said he
and Rumbles had been struck by how badly informed Mugabe was
about the level of foreign-investment in Zimbabwe's mining
sector, mining operations in general, and the liberal mining
laws in place in the rest of the SADC region. They had
therefore walked Mugabe through Zimplats' already extensive
investment in the country and the immense additional
investment that they had planned, including building a local
processing plant.


4. (C) Sebborn said Rumble had told Mugabe that Implats was
one of only a small number of South African, Canadian and
British companies holding proprietary platinum processing
technology and that it would not invest in the processing
plant if it lost majority control of the company. (N.B.
Other mining companies have told us that foreign investment
negotiations have come to a still stand since Midzi's
announcement.) Sebborn said he and Rumble had also noted
that the company had acquired all its claims
post-independence and at full market value and described the
Cabinet proposal to Mugabe as a grave injustice that amounted
to nationalization.

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Just A "Work In Progress"
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HARARE 00000349 002 OF 003




5. (C) Sebborn said Mugabe had taken exception to the
executives' contention that the GOZ was attempting to
nationalize the industry. Mugabe had asserted that GOZ
policy was driven by three fundamental empowerment
principles: Zimbabwe's mineral resources belonged to the
state; the GOZ was their custodian; and Zimbabweans must
benefit more from their extraction. That said, Midzi had
issued his March 3 statement prematurely. The GOZ's plans
were in fact, "a work in progress" and the state's total
share and the share to be handed over without compensation
were both negotiable.


6. (C) Sebborn said Mugabe told them he did not want to see
an injustice occur and he wanted Zimplats to remain in
Zimbabwe. He had said he planned to review firsthand what
Zimplats had invested in Zimbabwe and to that end had
accepted an invitation from Sebborn to inaugurate a new
Zimplats project in May and for Minister Midzi to tour
Zimplats' Ngezi mine site on March 20. However, Mugabe had
also said that "others" were involved to whom he had made
commitments. Sebborn said Mugabe had not identified who
those others might be but that both he and Rumble believed he
had been referring to the Chinese.


7. (C) Sebborn said Mugabe had also told them that Zimbabwe
and South Africa together controlled 75-76 percent of the
world's platinum resources. Mugabe had then unsettled the
executives by claiming that he and President Mbeki had agreed
to work together on indigenization of the industry. Sebborn
said Rumble would seek clarification from Mbeki upon his
return to South Africa.

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GOZ "Flexibility"
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8. (C) Addressing the Chamber of Mines on March 16, Midzi
backpedaled from his earlier statement and announced GOZ
"flexibility" on the issue of black empowerment. However, he
rattled the already shaken sector further by asserting that
the GOZ would undertake empowerment negotiations on an
individual company basis rather than sector wide. Sebborn
said that given Zimplats' record on social sector
investments, he was "reasonably positive" that his company
could eventually work out a satisfactory empowerment deal
with the GOZ. However, in general he recognized that
privately negotiated solutions were not in the best interests
of the sector. They put control in the hands of a few, which
he called a "messy" solution fraught with opportunities for
opaque deals.

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Impressions of Mugabe
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9. (C) Sebborn said the 82-year-old Mugabe was mostly lucid,
and a good debater but that he had tired often during the
long meeting. He characterized Mugabe's appearance as drawn,
even emaciated, and commented that his voice broke
frequently. He noted that Mugabe,s gray hair was now
colored. Sebborn also noted how cowed Mujuru and Midzi had
been in Mugabe's presence.

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Comment
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10. (C) It is too early to tell whether Sebborn's guarded
confidence that a deal can be reached for Zimplats is well
placed. Regardless, the policy zigzagging among Midzi, the
Cabinet, and Mugabe, has unsettled the sector and could bring
a halt to investment plans. More broadly, it has also
deepened uncertainty over security of property rights, the
sanctity of contracts, and the GOZ's willingness to work with
industries to draft and implement policy in a transparent and
rational manner. Even if mining indigenization is watered
down, we expect it will be implemented non-transparently so
as to favor ruling party elites.

SCHULTZ