UNCLAS SECTION 01 OF 03 HARARE 000696

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: N/A
TAGS: ASEC ECON EFIN EMIN PGOV ZI
SUBJECT: GOZ DIVIDING, CONQUERING PLATINUM INDUSTRY

REF: HARARE 0629

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Summary
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1. (SBU) Post's econoff and Johannesburg FSN resource
specialist held meetings in Johannesburg on May 30 and June 2
with South African-based officials of the three platinum
mining companies active in Zimbabwe. The meetings revealed
that the sector is divided in how to respond to the GOZ's
aggressive moves to seize control over the country's mineral
resources. Zimplats, majority-owned by South African
Implats, announced its "empowerment" agreement with the GOZ
and expansion project (reftel) on June 1. By contrast,
Aquarius, in a partnership with Implats, said it had refused
to negotiate any release of shares to the GOZ. Anglo
Platinum, with about 10 percent of Zimbabwe's platinum
resources, indicated it hoped to convince the GOZ to accept
assets in Zimbabwe controlled by its parent, Anglo-American,
in exchange for an empowerment credit. End Summary.

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Risk Remains in Zimplats Deal
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2. (SBU) Zimplats, 87 percent-owned by South African mining
giant Implats, announced its empowerment agreement with the
GOZ and expansion project (reftel) on June 1, coinciding with
President Mugabe's dedication of a new portal at the Ngezi
mine. Implats Finance Director David Brown reiterated to
econoff on June 2 the company's assessment that the risk of
doing nothing had outweighed the risk of relinquishing ground
to the GOZ. Zimplats' greatest strength had been its
Achilles heel ) owning too many assets in the face of the
GOZ's indigenization priority. Moreover, Brown noted that
the development of the 36 percent of ground it had given up
to the GOZ would be no "slam dunk" for Norilsk or any other
mining company (reftel), as the ground was "difficult,

relatively deep and unexplored."


3. (SBU) Brown said investors recognized that Zimplats had
secured value today for resources that the company could not
have developed for another 100 years or more. President
Mugabe's conciliatory remarks (prepared by Zimplats,
according to Brown, and delivered mostly as drafted) and his
praise for Zimplats' high level of social investment had also
allayed investor fears, at least in the short term.


4. (SBU) According to Brown, Zimplats and the GOZ had also
reached agreement on the methodology for calculating the
empowerment credit: it would be either 19.5 percent or 29.2
percent, depending on whether the GOZ paid cash for some
ground or offered equity back to Zimplats. Zimplats'
greatest risk now lay in the GOZ's adherence to the
agreement. Brown hoped that the deal would "soften the
edges" of the amendment to the Mines and Minerals Act now in
draft, but he also feared that the GOZ was emboldened by the
success of movements in South America to nationalize mineral
assets.


5. (SBU) In that regard, Brown confirmed press reports that

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on the day of the Zimplats dedication GOZ officials had
raided Zimplats' Harare headquarters and removed CEO
Sebborn's computer. Brown said that Reserve Bank of Zimbabwe
Governor Gono had instigated the raid based on suspicion of
illegal foreign account holdings, which Zimplats denied.
Brown believed Gono was miffed that Mining Minister Midzi,
and not Gono, would get "all the glory" for the Zimplats
deal, and that Gono had lost out, for now at least, in the
grab for a piece of Zimplats. Brown added that the police
had already returned the computer and had not exercised a
warrant to search Sebborn's home.

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Aquarius Platinum Rejects Appeasement Route
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6. (SBU) Aquarius Platinum Ltd CEO Stuart Murray heaped scorn
on Zimplat's "appeasement strategy" in a meeting with econoff
on May 30. Australian-owned Aquarius, which jointly owns the
Mimosa Mine and which Aquarius operates in a 50/50 joint
venture with Implats, had decided not to negotiate the
handover of any equity to the GOZ. Murray maintained that
the Zimplats deal set a bad precedent for the industry, and
that any equity relinquished to the GOZ would only end up in
the hands of a ZANU-PF crony. Aquarius planned to wait out
the draft amendment, protest it, suffer expropriation if
necessary, then work to regain property rights after Mugabe
left the scene.


7. (SBU) Murray said Implats had acquiesced and supported
Aquarius' hard line approach, as its joint claim - about five
percent of Zimbabwe's platinum resources - was miniscule in
relation to Implats' huge stake in the Zimplats claim.
Murray said Aquarius and Implats had put all further
expansion of the Mimosa mine, which produced about 70,000 oz
of platinum per year, on hold pending amendment of Zimbabwe's
Mines and Minerals Act. He noted that twenty-six percent of
the equity in Mimosa still remained available to indigenous
Zimbabwean investors, but only on fully compensated terms.

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Anglo Platinum Looking At Asset Swap
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8. (SBU) Anglo Platinum, the world,s largest primary
producer of platinum, maintained it was not economically
viable for the company to give up ground in Zimbabwe, as
Zimplats had done, in exchange for an empowerment credit.
Circumspect with details, Executive Director for Finance and
Corporate Development Roeland van Kerckhoven indicated to
econoff on June 2 that Anglo Platinum parent company Anglo
American might instead offer the GOZ other assets in
Zimbabwe, including non-mineral assets. Anglo Platinum was
"quite certain" it would reach agreement with the GOZ. (N.B.
Anglo Platinum holds about ten percent of Zimbabwe's platinum
resources, but the start of production at its Unki Platinum
Project is still 2-3 years away.)

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Comment
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9. (SBU) However pragmatic the Zimplats deal might appear in
the short term, its long term benefit is questionable and it
marks a worrying trend for the sector, which now faces an
emboldened government. The GOZ's continued use of the new
mining bill to pressure foreign mining companies is yet
another indication of how investor-unfriendly Zimbabwe is and
how desperate the ruling party is to augment its strained
patronage system, even at the cost of undercutting the
economy,s last major source of foreign exchange. The latest
developments may preserve some existing mining investment but
will nonetheless have a chilling effect on new investment.

SCHULTZ