ZIMPLATS NEARS DEAL TO RELEASE PLATINUM CLAIMS TO

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000563

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: 05/12/2016
TAGS: ECON EFIN EMIN PGOV ZI
SUBJECT: ZIMPLATS NEARS DEAL TO RELEASE PLATINUM CLAIMS TO
RUSSIAN COMPANY

REF: A. REF A: MOSCOW 4374


B. REF B: HARARE 340

C. REF C: HARARE 300

Classified By: Charge d'Affaires, a.i., Eric T. Schultz under Section 1
.4 b/d

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Summary
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1. (C) Zimplats CEO Greg Sebborn told econoff on May 2 that
the company had agreed in principle to release undeveloped
platinum claims to the GOZ. In a 4-way deal that could be
close to conclusion, the claims would go to the Russian
mining firm Norilsk, the GOR would provide Air Zimbabwe with
Ilyushin airplanes, and Zimplats would get cash, or equity in
the claims, plus a credit toward black economic empowerment.
However, Sebborn noted that obstacles remained, including
Zimplats insistence on President Mugabe's signature on the
deal as well as the Russians conditioning the deal on
conclusion of a Bilateral Investment Promotion and Protection
Agreement (BIPPA) with Zimbabwe. Sebborn also noted that
China, piqued at Zimbabwe's failure to pay down bilateral
arrears, had closed the credit door to Zimbabwe and was out
of the running to enter the platinum industry here. End
Summary.

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4-Way Deal with Russia
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2. (SBU) Zimplats CEO Greg Sebborn updated econoff on May 2
on the status of talks with the GOZ on "indigenization" of
the company's platinum mines (ref B). Zimplats accepted the
need - "it's only fair" - to release surplus ground (i.e.
undeveloped claims),but was demanding in return credit from
the GOZ toward looming black economic empowerment
requirements.


3. (SBU) President Mugabe wanted Zimplats to release ground
fast so that the GOZ could conclude a deal with Russia (ref
A) under which Air Zimbabwe would get Iyushin airplanes
("50-yr. old planes," in Sebborn's words) in return for
Norilsk's acquiring surplus ground from Zimplats. The ground
in question was worth US$150 million based on Zimplats'
acquisition price. Zimplats would get US$50 million either
in cash or in equity in the released ground plus an
empowerment credit for the foregone US$100 million.


4. (SBU) The GOZ wanted Zimplats to partner with Norilsk in
developing the ground and in constructing a platinum ore
processing plant in Zimbabwe, an arrangement that Zimplats
would consider only on purely commercial terms. Sebborn said
the GOZ was under the illusion that Norilsk would land in
Zimbabwe and immediately start constructing mines. Mugabe
did not realize there was no "quick win," or that it took
US$100 million and three years to drill/set up one shaft and
build one small concentrator.


HARARE 00000563 002 OF 002


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Still Some Hurdles
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5. (SBU) Sebborn said a draft agreement was with the Minister
of Mines, and prospects were good for closing the deal.
However, Zimplats was demanding President Mugabe's signature,
not that of Mining Minister Midzi and it was not yet clear
the GOZ would acquiesce. Zimplats would also need
shareholder approval. In that regard Sebborn said he had
cautioned the GOZ not to spin the deal to the press as
favoring the GOZ. A further hurdle, according to Sebborn,
was that Russia was insisting that Zimbabwe first conclude a
BIPPA, which the GOZ was resisting.


6. (SBU) Sebborn agreed that the deal under negotiation,
while good for Zimplats, was neither a model for other mining
companies nor good for the industry as a whole, as many
foreign-owned mining companies in Zimbabwe lacked surplus
ground to release in exchange for empowerment credit.

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China's Interest Waning
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7. (C) With respect to Chinese interest in Zimbabwe's
platinum sector, Sebborn said the Chinese had been piqued
that the GOZ had paid down its IMF GRA arrears but had failed
to make any debt payments to China. It had consequently shut
the credit door to Zimbabwe and was showing less interest in
investing in the country's platinum reserves.

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Comment
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8. (SBU) The international outcry over GOZ plans to take over
majority share of foreign-owned mines (ref C),along with
Zimplats' own quick lobbying efforts (ref B),appear to have
put the brakes on yet another economic policy calamity.
However, even though the described deal with Norilsk, if
accurately portrayed and brought to fruition, will probably
keep Zimplats in Zimbabwe and eventually further spur
platinum production, it is a piecemeal solution that fails to
address any of the fundamental investment climate problems in
Zimbabwe. Moreover, the mining industry as a whole will
likely not look favorably on the deal, preferring instead to
see the GOZ's indigenization policy implemented with the
fully compensated transfer of no more than 30 percent of
foreign-owned mining equity to indigenous owners.
SCHULTZ