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 -------------- Summary -------------- ¶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. -------------- 4-Way Deal with Russia -------------- ¶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 -------------- Still Some Hurdles -------------- ¶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. -------------- China's Interest Waning -------------- ¶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. -------------- Comment -------------- ¶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