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Zimplats was worried about the coming of the Chinese

Zimplats, Zimbabwe’s largest platinum miner, was prepared to invest as much as US$2 billion but it was worried about the coming of Chinese investors as they seemed to be getting better concessions from the government.

Zimplats chief executive Greg Sebborn told United States embassy officials that the company had presented a ten-year, US$2 billion investment proposal to the government but it would require government guarantees to protect the investment from land tenure laws and the level of indigenisation.

Sebborn was, however, more worried about the Chinese as several investors had visited his offices seeking partnerships in new mining projects.

He had also heard that the Chinese were planning to build a platinum processing plant.

He claimed that the Chinese lacked the required expertise to build a plant on par with those in South Africa and other Western countries.

But more importantly he was worried that the government might force Zimplats to send its platinum to the new plant for processing.

This would either result in poorer grade platinum or extend the revenue chain as platinum was sent first to the local plant and then to the South African plant.

It would also reduce Zimplats leverage with the government and lessen its ability to protect its investment.

 

Full cable:

Viewing cable 05HARARE871, ZIMPLATS STILL INVESTING DESPITE UNCERTAINTY

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Reference ID

Created

Released

Classification

Origin

05HARARE871

2005-06-23 13:45

2011-08-30 01:44

CONFIDENTIAL

Embassy Harare

This record is a partial extract of the original cable. The full text of the original cable is not available.

 

231345Z Jun 05

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000871

 

SIPDIS

 

AF/S FOR BNEULING

NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE

USDOC FOR ROBERT TELCHIN

TREASURY FOR OREN WYCHE-SHAW

PASS USTR FOR FLORIZELLE LISER

STATE PASS USAID FOR MARJORIE COPSON

USDOL FOR ROBERT YOUNG

 

E.O. 12958: DECL: 12/31/2009

TAGS: EINV EMIN ECON PGOV ZI

SUBJECT: ZIMPLATS STILL INVESTING DESPITE UNCERTAINTY

 

 

Classified By: Charge d’affaires Eric T. Schultz a.i. for reason 1.4 d

 

——–

Summary

——–

 

1. (C) Zimbabwe Platinum Mines (Pvt.) Ltd. (ZimPlats) CEO G.

Sebborn told PolOff on June 21 that the company was open to

expanding its Zimbabwe operations despite ongoing political

and economic turmoil. However, the additional investment

would be conditioned upon GOZ guarantees regarding land

tenure and the scope of required indigenization. Sebborn

also expressed concern over the effects of new Chinese mining

investments and Operation Restore Order. End Summary.

 

—————————

Investment And Forex Access

—————————

 

2. (C) Sebborn stated that ZimPlats started work on June 21

on a US$50 million expansion of their existing underground

platinum mine. The company also had plans on the table to

build a new US$180 million mine starting in October 2005.

Sebborn added that the company had presented a ten-year, US$2

billion investment proposal to the GOZ. However, any

investment beyond the US$50 million would require GOZ

guarantees to protect the investment especially regarding

land tenure and the level of indigenization (Zimbabwean

ownership) Zimplats would be required to obtain.

 

3. (C) Sebborn noted that at US$900/ounce, platinum

investments should prove profitable even amid Zimbabwe,s

economic and political turmoil. According to Sebborn, South

Africa and Zimbabwe were the two largest potential suppliers

of platinum, with Zimbabwe,s platinum easier to access.

 

4. (C) He said ZimPlats had established a special mechanism

with the Reserve Bank of Zimbabwe (RBZ) to facilitate access

to foreign exchange. Under this arrangement ZimPlats held

its foreign currency reserves offshore but maintained a

mirror account at the RBZ that ensured GOZ-access to the

account,s activity. ZimPlats then sold its foreign exchange

at the auction to pay for local expenses. ZimPlats also paid

royalties and taxes in foreign exchange.

 

————————————-

Economic Turmoil: The Chinese Factor

————————————-

 

5. (C) Sebborn told PolOff that several Chinese investors had

recently visited his offices seeking partnerships in new

mining projects. None of these potential investors had as

yet come back with a concrete proposal. However, Sebborn had

heard through other sources that some Chinese investors

planned to build a platinum processing plant. He expressed

concern that the Chinese lacked the required expertise to

build a plant on par with those in South Africa and other

western countries. Moreover, he said the GOZ would likely

force ZimPlats to send its platinum to the new plant for

processing. This, Sebborn stated, would either result in

poorer grade platinum or extend the revenue chain as platinum

is sent first to the local plant and then to the South

African plant. It would also reduce Zimplats leverage with

the GOZ and lessen its ability to protect its investment

here, since the best processing plants were all in western

countries that could be relied on to react negatively to GOZ

expropriation efforts.

 

6. (C) Sebborn speculated that the recent rash of Chinese

interest in the mining sector resulted from special

concessions from the GOZ. He also opined that the Chinese

could be betting on a pay-off in the long-term, in a

post-Mugabe Zimbabwe. Sebborn noted that starting a new mine

or processing plant involved massive upfront sunk costs and

subsequent adequate activity to be viable- activity that

Zimbabwe,s current platinum production levels could not

support.

 

——————————————-

Political Turmoil: Operation Restore Order

——————————————-

 

7. (C) Sebborn expressed puzzlement at the ongoing Operation

Restore Order. Over 20 percent of his local plant staff had

been affected. At the mine location last week, a drunken

police officer told Sebborn that orders had come down to burn

the huts around the mine. Sebborn contacted the local

Chegutu police office and the officer in charge told the

drunken officer not to go ahead with the plans but the

drunken officer stated that he took orders from a higher

authority. No huts had yet been burned, however, Sebborn

worried that the mine would effectively shut down if the

contractors and employees occupying the huts were suddenly

rendered homeless.

 

——–

Comment

——–

 

8. (C) Amidst Zimbabwe’s continuing economic and political

turmoil, there remain areas of potentially profitable

economic activity, including especially mining. Nonetheless,

the GOZ’s imperative to consolidate and expand its control

over the nation’s economy will continue to hamstring efforts

by even the bravest and strongest players to move forward.

Symptomatic of the GOZ misplaced priorities, the Mining

Minister cannot find time to discuss ZimPlat,s US$2 billion

investment offer – one that offers potentially significant

cash inflows and employment opportunities ) even as hundreds

of thousands are burned out of home and livelihood and

millions face potentially severe food shortages.

SCHULTZ

 

(3 VIEWS)

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