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

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STATE FOR AF/S, EEB/ESC, EEB CBA
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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