Mpofu said Gono had grown too big

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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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

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RUEAIIA/CIA WASHDC

RUEHGV/USMISSION GENEVA 1944

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RUEATRS/DEPT OF TREASURY WASHDC

RHEFDIA/DIA WASHDC

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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

TAGS: EMIN ECON EFIN PGOV ZI

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)