SOUTH AFRICAN PLATINUM COMPANIES' LONG VIEW ON

C O N F I D E N T I A L SECTION 01 OF 02 PRETORIA 001657 SIPDIS STATE PLEASE PASS USAID STATE PLEASE PASS USGS STATE FOR AF/S, EEB/ESC, EEB CBA DOE FOR SPERL, PERSON DOC FOR ITA/DIEMOND E.O. 12958: DECL: 07/28/2018 TAGS: EMIN ENRG EINV ETRD EPET PGOV ZI SF SUBJECT: SOUTH AFRICAN PLATINUM COMPANIES' LONG VIEW ON ZIMBABWE REF: A. PRETORIA 585 ¶B. HARARE 459 Classified By: Acting Economic Counselor Bruce Neuling for reasons 1.5 (b) and (d) ¶1. (C) SUMMARY: South African platinum companies take a long-term view on the ore deposits, investments, politics, and economics of Zimbabwe, which hosts the second largest platinum deposit in the world in the "Great Dyke". They are realistic about the challenges and ambiguities of doing business in Zimbabwe, but seek to maintain the value of their assets, while hoping for the political and economic situation to stabilize. These companies believe potential, broad-based (as opposed to actual, targeted) sanctions would be counter-productive for western interests and Zimbabwe, in light of President Mugabe's reported threats to seize assets from companies whose governments support sanctions. They believe ceded or seized ground would most likely pass to Chinese and Russian interests, as has happened to some extent in indigenization. Minerals/Energy Officer recently met with three South African platinum companies active in Zimbabwe. End Summary. ¶2. (SBU) Recent media pieces describe South African mining companies doing business in Zimbabwe as "helplessly hoping" (Financial Mail July 25) and "Anglo shaken down in Zimbabwe" (Miningmx June 26). Both articles emphasize political and economic uncertainty in Zimbabwe. Both refer to outside criticism of Anglo Platinum's $400 million investment to build Unki platinum mine in Zimbabwe (production is targeted for 2008/9). In a statement issued by the company, "It has been made clear to us that if we cease to develop this project, the government of Zimbabwe will assume control." President Mugabe has rubber-stamped indigenous and economic empowerment laws, aimed to force all foreign companies to hand over 51 percent of their assets to local investors. The law has not been applied, but Mugabe has threatened to seize foreign companies whose governments support sanctions, and distribute their assets to companies from Asia. ¶3. (C) South African companies have taken varying strategies to mitigate the risk of indigenization, even before the latest political crisis. The Miningmx article reported that Anglo Platinum was forced to give up 31 percent of the Unki lease area in exchange for indigenization credits. According to the article, Central African Mining and Exploration (CAMEC),a UK-listed mining junior with South African interests, lent $100 million to the Mugabe government at a crucial election campaign time, in exchange for some of the claims ceded by Anglo Platinum. Anglo Platinum Head of Exploration Gordon Chunnet confirmed to Minerals/Energy Officer and Specialist that the company had ceded ground to the government. ¶4. (C) Impala Platinum Marketing Executive Derek Engelbrecht told Minerals/Energy Officer that their Zimbabwe subsidiary Zimplats similarly ceded 36 percent of their concession two years ago in exchange for indigenization credits. He said Qyears ago in exchange for indigenization credits. He said these concessions had been subsequently given to Chinese and Russian companies. Engelbrecht said that the Chinese and Russian interests had not started active mining, but one Chinese company had approached Zimplats for potential collaboration. Zimplats had not pursued the offer. Zimplats plans to increase current annual production of 90,000 ounces to about 160,000 with construction of new underground mine sections. ¶5. (C) Both companies asserted to Embassy officer that broad sanctions would be counter-productive, referring to hypothetical, broad-based sanctions, instead of actual, targeted sanctions. They stated that they continued to maintain their investments (Zimplats under production and Anglo's under development),providing employment and benefits PRETORIA 00001657 002 OF 002 to Zimbabwe citizens. They admitted that they paid taxes to the government, and moreover they had no oversight authority about how those funds were utilized. They pointed out that if potential sanctions resulted in seizure of mining claims or assets, the potential transfer to Chinese and Russian companies would result in a loss of transparency, western investment, and potential jobs to Zimbabweans. ¶6. (C) South African junior Aquarius, which is a partner to Impala at the Mimosa mine in Zimbabwe, has steadfastly refused to cede ground. In a meeting with Minerals/Energy Officer, Aquarius officials were very critical of Zimplats' decision to cede ground, pointing out there was no certainty that they were assured compliance with indigenization and empowerment requirements. The Mimosa mine is Zimbabwe's oldest platinum mine and produces about 80-90,000 ounces of platinum per annum. ¶7. (C) COMMENT: South African platinum companies active in Zimbabwe are unsurprisingly and self-servingly opposed to broad sanctions that might have a negative impact on their platinum investments. They have been frustrated by ambiguities and uncertainty associated with indigenization requirements and they fear that sanctions could increase that uncertainty and put their investments further at risk. While the magnitude of the political and economic uncertainty in Zimbabwe eclipses that of other countries in Africa, mining companies usually take a long view on interesting ore bodies in a variety of countries on the continent and elsewhere. Given platinum's high price and limited geographical presence, platinum investors in Zimbabwe seek to maintain their investment and bide their time. BOST