Mines Minister Obert Mpofu told Zimplats chief executive Alex Mhembere that central bank governor Gideon Gono’s portfolio had grown too big and he was acting like a “quasi prime minister”.
Mpofu said this during a tour of Ngezi Mine as he and Gono haggled over the reclassification of platinum as a reserve asset.
Mhembere, who told United States embassy officials that Mpofu was close to President Robert Mugabe, said Mpofu was “very weak morally” and was “totally ignorant” about the mining industry.
He feared that as Mpofu admired the Ngezi mine he was probably thinking “I wish it were mine”.
Another mining boss Winston Chitando Of Mimosa Mine was more positive on Mpofu. He was pleased that the new minister was willing to take on Gono and reject the re-classification of platinum.
He was also optimistic that Mpofu would rebuild the Zimbabwe School of Mines.
On Mpofu’s role in the price controls disaster, Chitando was an apologist, saying that Mpofu had no choice but to carry out the cabinet’s directives.
Full cable:
Viewing cable 09HARARE161, ZIMBABWE,S PLATINUM AND DIAMOND COMPANIES BUCK RBZ
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|
Reference ID |
Created |
Released |
Classification |
Origin |
VZCZCXRO3417
PP RUEHBZ RUEHDU RUEHMR RUEHRN
DE RUEHSB #0161/01 0571451
ZNY CCCCC ZZH
P 261451Z FEB 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 4098
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2211
RUEHAR/AMEMBASSY ACCRA 2654
RUEHDS/AMEMBASSY ADDIS ABABA 2775
RUEHBY/AMEMBASSY CANBERRA 2043
RUEHDK/AMEMBASSY DAKAR 2399
RUEHKM/AMEMBASSY KAMPALA 2823
RUEHNR/AMEMBASSY NAIROBI 5251
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 1944
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE
C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000161
SIPDIS
AF/S FOR B. WALCH
AF/EPS FOR ANN BREITER
NSC FOR SENIOR AFRICA DIRECTOR
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
TREASURY FOR D. PETERS
COMMERCE FOR ROBERT TELCHIN
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
E.O. 12958: DECL: 02/26/2019
SUBJECT: ZIMBABWE,S PLATINUM AND DIAMOND COMPANIES BUCK RBZ
DIRECTIVE
REF: A. HARARE 141
¶B. HARARE 096
¶C. 07 HARARE 172
Classified By: Ambassador James D. McGee for reason 1.4 (d)
——-
SUMMARY
——-
¶1. (C) Zimbabwe’s established platinum and diamond mining
companies are resisting the Reserve Bank of Zimbabwe’s (RBZ)
directive to localize their foreign currency accounts and
submit to greater RBZ control. They maintain RBZ Governor
Gono does not have the authority to change mineral policy and
expect Gono,s proposals to be short-lived. The new Minister
of Mines and Mining Development Obert Mpofu is a Mugabe crony
and brings no knowledge of mining to the job, but he is
apparently prepared to butt heads with Gono and wrestle back
authority over minerals from the Governor. We expect the
MDC, which knows that Gono is a lightning rod for donors, to
seek his removal in the coming weeks. END SUMMARY.
——————————————— —-
Gono Overstretches in Attacking Platinum Industry
——————————————— —-
¶2. (C) Alex Mhembere, CEO of Zimbabwe Platinum Mines
(Zimplats), Zimbabwe’s dominant platinum producer and
generator of one third of Zimbabwe,s foreign exchange
earnings (Ref A), told econoff on February 25 that Zimplats
had informed the government it would not comply with RBZ
Governor Gono,s directive (Ref B) to localize its foreign
currency accounts. Mhmbere reiterated the terms of Zimplats
Special Mining Lease that allowed the company to maintain its
earnings offshore (Ref C) and argued Gono did not have the
authority to revoke the agreement or to compel Zimplats to
hold its earnings locally. Mhembere said Zimplats’ Special
Mining Lease superseded the Reserve Bank Act that controls
foreign currency accounts (FCAs). Regarding Gono,s
announced reclassification of platinum as a reserve asset
under RBZ control, he said Gono had once again overstretched
his authority as such a change required an amendment to the
Mines and Minerals Act. Mhembere believed Gono’s proposal
would “die a quiet death.”
¶3. (C) Regarding Gono’s announcement of a 7.5 percent
foreign exchange surrender requirement for exporters,
refundable to the exporter in local currency at the interbank
exchange rate, Mhembere said the GOZ owed Zimplats US$34
million from an earlier US$47 million advance. It had been
agreed that Zimplats would deduct the surrender requirement
from that balance. (COMMENT: We had heard that Zimplats had
advanced the GOZ funds and that there was friction over the
GOZ,s unsatisfactory servicing of the debt, but we had not
been able to establish until now the size of the loan. END
COMMENT.)
¶4. (C) Winston Chitando, Managing Director of platinum
Q4. (C) Winston Chitando, Managing Director of platinum
company Mimosa Mining Co. and Vice President of the Chamber
of Mines, told econoff on February 25 that new Mines and
Minerals Development Minister Obert Mpofu opposed the
reclassification of platinum placing it under RBZ control and
that the GOZ would reverse Gono,s announcement this week.
HARARE 00000161 002 OF 003
Mpofu had told Chitando the previous day that Gono had
drafted a statutory instrument for former Mines Minister
Midzi,s signature to make platinum a reserve asset. Gono,
however, had not moved fast enough; Midzi,s Permanent
Secretary Thabani Ndlovu “sat on” the instrument until Mpofu
replaced Midzi as Minister earlier this month.
¶5. (C) Regarding localization of FCAs, Chitando said that
the RBZ, in Mimosa’s case, did in fact have the authority to
compel the company to hold its FCAs in Zimbabwe, as Mimosa
had less favorable lease terms than Zimplats, but that Mimosa
had reached a compromise. It would hold a mirror FCA account
in Zimbabwe and its local bank would meet the RBZ’s statutory
reserve requirement. Mimosa was also negotiating to reduce
the requirement to less than the current 10 percent. On the
surrender requirement, Chitando said that Mimosa was
negotiating a smaller surrender requirement than 7.5 percent
and expected the RBZ to eliminate the requirement entirely.
Chitando called it an onerous tax on exporters that the RBZ
had imposed without consulting industry. Mhembere told us
Gono planned to lower the surrender requirement to 5 percent
in October, 2009 and eliminate it in January 2010.
¶6. (C) Anglo American Corporate Finance Specialist Colin
Chibafa told econoff on February 11 that the government was
broke, which the platinum producer viewed as the underlying
reason for seeking to localize platinum companies’ FCAs to
gain access to statutory reserves. (COMMENT: The RBZ has
used steep statutory reserve requirements to fund off-budget
spending in the past. END COMMENT.) Chibafa was concerned
about the risk of the RBZ raiding its FCA if it were held in
Zimbabwe. At the moment, low confidence kept Anglo American,
which will only begin platinum production in 2010, from
holding more than the smallest possible balance in its local
FCA. It paid most of its suppliers from its South African
accounts, rather than from Zimbabwe. Chibafa expected the
recent policy shifts on platinum to “blow over” under the new
inclusive government.
——————————-
Murowa Diamonds Bucks Gono Too
——————————-
¶7. (C) Murowa Diamonds CEO Neils Kristensen told econoff on
February 6 that his company, in coordination with powerful
ally Zimplats, would not comply with Gono,s directives. The
dispensation to hold its earnings offshore was the basis of
the company’s initial decision to invest in Zimbabwe and it
underpinned Murowa,s expansion plans and its offshore loans.
He warned that Murowa, 78 percent owned by Rio Tinto, risked
bank foreclosure if it complied. The diamond executive
conceded that Murowa, like Mimosa, was in a weaker legal
Qconceded that Murowa, like Mimosa, was in a weaker legal
position than Zimplats, but it would seek a court injunction
if the GOZ attempted to force it to localize its accounts.
In the meantime, shareholders were nervous but supportive of
management’s “sit tight/buy time” strategy. Murowa, like
Mimosa, anticipated a policy reversal by the new government.
————————-
Mimosa’s Production Plans
————————-
¶8. (C) Chitando said Mimosa planned to increase production
only minimally in 2009. Expansion beyond its present
HARARE 00000161 003 OF 003
220-meter deep shaft was on hold due to the combined
difficulties of raising debt and generating internal funds in
light of the weakened world platinum price. He said Mimosa,
unlike Zimplats and Anglo American, had never come under any
pressure to relinquish ground to the GOZ, primarily because
it owned much less ground than the other two companies. Nor
was the South African/Australian-owned company particularly
concerned about indigenization as it did not intend to
restructure, which would trigger indigenization requirements.
He said Mimosa employed 100 percent Zimbabwean staff, paid a
“good” salary package in U.S. dolars, and therefore did not
have a problem with skills retention.
————————————-
Two Views on New Mines Minister Mpofu
————————————-
¶9. (C) Mhembere said the mining industry had been surprised
by Mpofu’s appointment since, as Minister of Commerce and
Industry responsible for the implementation of price controls
he had wreaked havoc on industry. Mhembere hosted Mpofu on a
tour of Zimplats’ Ngezi mine earlier this month. Mhembere
recounted that during the tour Mpofu had voiced strong,
negative views of RBZ Governor Gono. Mpofu told Mhembere
that Gono,s portfolio had grown too big, and that he had
begun to act as a “quasi prime minister.” Mhembere told us
that Mpofu was very close to President Mugabe. He also said,
and without explanation, that Mpofu was “very weak morally.”
Mhembere had found Mpofu to be “totally ignorant” of the
mining industry but open to learning. The Zimplats executive
feared, however, that as Mpofu admired the Ngezi mine he was
probably thinking “I wish it were mine.”
¶10. (C) Chitando was more positive on Mpofu. He was pleased
that the new minister was willing to take on Gono and reject
the re-classification of platinum. He was also optimistic
that Mpofu would rebuild the Zimbabwe School of Mines.
Regarding Mpofu’s role in the price controls disaster,
Chitando was an apologist, saying that Mpofu had no choice
but to carry out the Cabinet’s directives.
——-
COMMENT
——-
¶11. (C) Gono is increasingly embattled. Finance Minister
Biti is taking him on and asserting finance’s traditional
authority over revenue and expenditure; even ZANU-PF stalwart
and Mugabe crony Obert Mpofu appears to be having some
success in clawing back ground from the Reserve Bank
Governor. We welcome the weakening of Gono’s power but remain
convinced, nevertheless, that “Gono must go.” In a press
conference yesterday, Prime Minister Morgan Tsvangirai
referred to Gono’s reappointment as an outstanding issue to
be resolved. We expect the MDC, which knows that Gono is a
Qbe resolved. We expect the MDC, which knows that Gono is a
lightning rod for donors, to seek his removal in the coming
weeks. END COMMENT.
MCGEE
(34 VIEWS)
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