Planes for platinum deal!

President Robert Mugabe put Zimplats under pressure seven years ago to release some undeveloped platinum claims so that he could conclude a deal with Russia to supply Air Zimbabwe with Ilyushin planes in return for Russian company Norilsk acquiring the platinum claims.

Zimplats chief executive officer Greg Sebborn said the planes were 50 years-old.

The claims were worth US$150 million according to Zimplats’ acquisition price.

Zimplats would get US$50 million either in cash or in equity plus an empowerment credit of US$100 million.

 

Full cable:

 

Viewing cable 06HARARE563, ZIMPLATS NEARS DEAL TO RELEASE PLATINUM CLAIMS TO

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Reference ID	Created	Classification	Origin
06HARARE563	2006-05-12 12:47	CONFIDENTIAL	Embassy Harare

VZCZCXRO2546

PP RUEHMR

DE RUEHSB #0563/01 1321247

ZNY CCCCC ZZH

P 121247Z MAY 06

FM AMEMBASSY HARARE

TO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY PRIORITY

RUEHC/SECSTATE WASHDC PRIORITY 0010

INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

RUEHUJA/AMEMBASSY ABUJA 1207

RUEHAR/AMEMBASSY ACCRA 1043

RUEHDS/AMEMBASSY ADDIS ABABA 1210

RUEHBJ/AMEMBASSY BEIJING 0067

RUEHBY/AMEMBASSY CANBERRA 0471

RUEHDK/AMEMBASSY DAKAR 0837

RUEHKM/AMEMBASSY KAMPALA 1264

RUEHMO/AMEMBASSY MOSCOW 0023

RUEHNR/AMEMBASSY NAIROBI 3627

RUEHFR/AMEMBASSY PARIS 1036

RUEHRO/AMEMBASSY ROME 1670

RUEHBS/USEU BRUSSELS

RUEHGV/USMISSION GENEVA 0565

RHEHNSC/NSC WASHDC

RUCNDT/USMISSION USUN NEW YORK 1422

RUEKJCS/JOINT STAFF WASHDC

RUEHC/DEPT OF LABOR WASHDC

RUEATRS/DEPT OF TREASURY WASHDC

RUEKDIA/DIA WASHDC//DHO-7//

RUCPDOC/DEPT OF COMMERCE WASHDC

RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK//DOOC/ECMO/CC/DAO/DOB/DOI//

RUEPGBA/CDR USEUCOM INTEL VAIHINGEN GE//ECJ23-CH/ECJ5M//

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000563

 

SIPDIS

 

SIPDIS

 

AF/S FOR B. NEULING

NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE

STATE PASS TO USAID FOR M. COPSON AND E.LOKEN

TREASURY FOR J. RALYEA AND B. CUSHMAN

COMMERCE FOR BECKY ERKUL

 

E.O. 12958: DECL: 05/12/2016

TAGS: ECON EFIN EMIN PGOV ZI

SUBJECT: ZIMPLATS NEARS DEAL TO RELEASE PLATINUM CLAIMS TO

RUSSIAN COMPANY

 

REF: A. REF A: MOSCOW 4374

 

¶B. REF B: HARARE 340

¶C. REF C: HARARE 300

 

Classified By: Charge d’Affaires, a.i., Eric T. Schultz under Section 1

.4 b/d

 

——-

Summary

——-

 

¶1. (C) Zimplats CEO Greg Sebborn told econoff on May 2 that

the company had agreed in principle to release undeveloped

platinum claims to the GOZ. In a 4-way deal that could be

close to conclusion, the claims would go to the Russian

mining firm Norilsk, the GOR would provide Air Zimbabwe with

Ilyushin airplanes, and Zimplats would get cash, or equity in

the claims, plus a credit toward black economic empowerment.

However, Sebborn noted that obstacles remained, including

Zimplats insistence on President Mugabe’s signature on the

deal as well as the Russians conditioning the deal on

conclusion of a Bilateral Investment Promotion and Protection

Agreement (BIPPA) with Zimbabwe. Sebborn also noted that

China, piqued at Zimbabwe’s failure to pay down bilateral

arrears, had closed the credit door to Zimbabwe and was out

of the running to enter the platinum industry here. End

Summary.

 

———————-

4-Way Deal with Russia

———————-

 

¶2. (SBU) Zimplats CEO Greg Sebborn updated econoff on May 2

on the status of talks with the GOZ on “indigenization” of

the company’s platinum mines (ref B). Zimplats accepted the

need – “it’s only fair” – to release surplus ground (i.e.

undeveloped claims), but was demanding in return credit from

the GOZ toward looming black economic empowerment

requirements.

 

¶3. (SBU) President Mugabe wanted Zimplats to release ground

fast so that the GOZ could conclude a deal with Russia (ref

A) under which Air Zimbabwe would get Iyushin airplanes

(“50-yr. old planes,” in Sebborn’s words) in return for

Norilsk’s acquiring surplus ground from Zimplats. The ground

in question was worth US$150 million based on Zimplats’

acquisition price. Zimplats would get US$50 million either

in cash or in equity in the released ground plus an

empowerment credit for the foregone US$100 million.

 

¶4. (SBU) The GOZ wanted Zimplats to partner with Norilsk in

developing the ground and in constructing a platinum ore

processing plant in Zimbabwe, an arrangement that Zimplats

would consider only on purely commercial terms. Sebborn said

the GOZ was under the illusion that Norilsk would land in

Zimbabwe and immediately start constructing mines. Mugabe

did not realize there was no “quick win,” or that it took

US$100 million and three years to drill/set up one shaft and

build one small concentrator.

 

 

HARARE 00000563 002 OF 002

 

 

——————

Still Some Hurdles

——————

 

¶5. (SBU) Sebborn said a draft agreement was with the Minister

of Mines, and prospects were good for closing the deal.

However, Zimplats was demanding President Mugabe’s signature,

not that of Mining Minister Midzi and it was not yet clear

the GOZ would acquiesce. Zimplats would also need

shareholder approval. In that regard Sebborn said he had

cautioned the GOZ not to spin the deal to the press as

favoring the GOZ. A further hurdle, according to Sebborn,

was that Russia was insisting that Zimbabwe first conclude a

BIPPA, which the GOZ was resisting.

 

¶6. (SBU) Sebborn agreed that the deal under negotiation,

while good for Zimplats, was neither a model for other mining

companies nor good for the industry as a whole, as many

foreign-owned mining companies in Zimbabwe lacked surplus

ground to release in exchange for empowerment credit.

 

———————–

China’s Interest Waning

———————–

 

¶7. (C) With respect to Chinese interest in Zimbabwe’s

platinum sector, Sebborn said the Chinese had been piqued

that the GOZ had paid down its IMF GRA arrears but had failed

to make any debt payments to China. It had consequently shut

the credit door to Zimbabwe and was showing less interest in

investing in the country’s platinum reserves.

 

——-

Comment

——-

 

¶8. (SBU) The international outcry over GOZ plans to take over

majority share of foreign-owned mines (ref C), along with

Zimplats’ own quick lobbying efforts (ref B), appear to have

put the brakes on yet another economic policy calamity.

However, even though the described deal with Norilsk, if

accurately portrayed and brought to fruition, will probably

keep Zimplats in Zimbabwe and eventually further spur

platinum production, it is a piecemeal solution that fails to

address any of the fundamental investment climate problems in

Zimbabwe. Moreover, the mining industry as a whole will

likely not look favorably on the deal, preferring instead to

see the GOZ’s indigenization policy implemented with the

fully compensated transfer of no more than 30 percent of

foreign-owned mining equity to indigenous owners.

SCHULTZ

(32 VIEWS)