Zimplats was prepared to accept 30 percent empowerment

Zimplats, the Impala Platinum-owned mining company, was prepared to accept a 30 percent empowerment ratio but the 51 percent that the government wanted with no compensation was a deal breaker.

This was said six years ago by the company’s chief executive Greg Sebborn after then Mines Minister Amos Midzi had announced that the government was planning to introduce legislation which would require all foreign-owned mining companies to cede 51 percent of their stake to indigenous Zimbabweans.

Sebborn said the new legislation would effectively turn Zimplats into a parastatal and this would be a disaster for the platinum industry.

The United States embassy said the move would effectively cripple Zimbabwe’s third economic pillar as it had already done to the other two, agriculture and tourism.

Full cable:

Viewing cable 06HARARE298, GOZ EYING CONTROL OF MINING SECTOR

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C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000298

SIPDIS

SIPDIS

AF/S FOR B. NEULING

NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE

AFR/SA FOR E. LOKEN

COMMERCE FOR BECKY ERKUL

E.O. 12958: DECL: 12/31/2011

TAGS: PGOV EMIN ECON EFIN PREL PHUM ZI

SUBJECT: GOZ EYING CONTROL OF MINING SECTOR

REF: A. A HARARE 232

¶B. B HARARE 200

¶C. C HARARE 187

¶D. D 2005 HARARE 1088

Classified By: Ambassador Christopher Dell under Section 1.4 b/d

——-

Summary

——-

¶1. (C) Minister of Mines Amos Midzi announced on March 3 that

Cabinet had approved in principle amendments to the Mines and

Minerals Act that would force foreign-owned mining companies

to hand over 51 percent of their shares to the GOZ. The GOZ

is preparing to present the legislation to Parliament,

possibly by the end of the month. Zimplats CEO Greg Sebborn

told us the legislation would effectively turn the

publicly-traded platinum miner into a government parastatal

and vowed to fight the encroachment in the courts. For an

economy in which the mining sector provided more than 40

percent of foreign currency revenue last year, this

legislation ) if passed ) would be yet another crippling

blow and further evidence of the GOZ’s blatant disregard for

property rights and sound economic policies. End Summary.

—————-

Legalizing Theft

—————-

¶2. (U) Minister of Mines Midzi on March 3 announced that the

Cabinet had approved in principle amendments to the Mines and

Minerals Act that would require foreign mining companies to

relinquish 51 percent of their shares (ref C). The GOZ would

take a 51 percent share in energy minerals (coal, natural

gas, methane, uranium), platinum and diamonds. Twenty five

percent would be non-contributory (i.e. without compensation)

and surrendered when the legislation became law, with the

remaining shares being transferred over five years. For

large gold mines and emerald production, 51 percent of

ownership would be split between indigenous companies and the

GOZ. For other minerals, the proposal called for 50 percent

GOZ shareholding over seven years. In the case of Greenfield

projects, 51 percent GOZ participation would be required from

inception.

¶3. (U) The proposal would also abolish Special Mining leases

and compel the mining sector to add value to a certain

to-be-prescribed proportion of product. Furthermore,

companies would have to relinquish claims not being worked or

developed.

¶4. (C) Israel Chilimanzi, a legislative advisor for USAID’s

parliamentary support project implemented by the State

University of New York (SUNY), told poloff on March 6 that

the Ministry would likely present the bill to Parliament by

the end of March. (N.B. The House of Assembly is currently

adjourned until March 28 and the Senate until April 25.) No

timeline is available for the bill’s passage, but given the

legislature’s thin agenda it could be relatively swift.

——————————-

Platinum Heavyweight Cries Foul

——————————-

¶5. (C) Zimplats CEO Greg Sebborn told econoff on March 3 that

the new legislation would effectively turn Zimplats into a

parastatal and termed it a disaster for the local platinum

industry. Only a few days before the announcement, Sebborn

HARARE 00000298 002 OF 003

had speculated to econoff that Midzi ) one of the

“underperforming” ministers recently criticized publicly by

Mugabe (ref B) ) was under intense pressure to come through

on the issue of local empowerment. Sebborn told us that

Zimplats could accept a 30 percent empowerment ratio but 51

percent with no compensation was a deal-breaker.

¶6. (C) Sebborn said that Zimplats, traded on the Australian

Stock Exchange but 86 percent owned by Impala Holdings

Limited (Implats) of South Africa, would fight the

legislation. Sebborn contended that any forced compensation

would violate the 1994 agreement signed between the GOZ and

Implats, and would provoke arbitration under Swiss

jurisdiction as provided for in the Parliament-approved

agreement. Chilimanzi, however, speculated that the draft

legislation could contain language saying that it supersedes

past agreements in an attempt to limit Zimplats’ legal

recourse. Sebborn said the company would issue on March 7 a

strongly-worded press release condemning the move. (N.B.

Originally scheduled for March 8, Embassy noted the IMF

meeting on that date and recommended that Sebborn issue the

release a day earlier.)

————————-

Industry, Market Reaction

————————-

¶7. (C) Chamber of Mines President (and senior Zimplats Vice

President) Jack Murehwa on March 7 echoed to econoff the

legislation’s likely disastrous impact on Zimbabwe’s mining

sector. He noted that the GOZ already had control of one

mining corporation, Zimbabwe Mining Development Corporation,

which was completely moribund. He asserted that Mugabe

himself was behind the legislation and that several key

players in the GOZ, including Vice President Mujuru, Vice

President Msika, Finance Minister Murerwa, Tourism Minister

Nhema, and Mining Minister Midzi himself, were opposed to it.

Murehwa said Mujuru and Msika earlier had promised the

legislation would be watered down; he didn’t know whether

they had been overruled or simply had not pushed it. With

the most recent announcement, Murehwa said the industry was

not optimistic the legislation could be scaled back

meaningfully or derailed altogether. He shared with econoff

a copy of the Chamber’s official response and comment on the

legislation (faxed to AF/S).

¶8. (C) Local economic analyst John Robertson informed econoff

on March 7 that, in announcing the decision, Minister Midzi

told representatives of mining companies the proposal would

sweep away all prior international agreements. Robertson

expressed hope that the market reaction would add weight to

the efforts underway by the affected companies to prevent

what amounts to the nationalization of the industry. If the

proposal became law, he predicted that mining would rapidly

decline in importance, thousands would lose their jobs,

foreign earnings from the sector would collapse and, as with

the decline in agriculture, this would cause severe knock-on

losses in the manufacturing and service industries.

¶9. (U) Reaction in the thinly-traded Zimbabwe Stock Exchange

mining index was negative. Trading was suspended on Monday

and at close of Tuesday the index was 8.9 percent off its

Friday close. Gold miner Falgold was the biggest loser on

Tuesday, down 64 percent in trading, although an analyst

recommendation to take profit might have also contributed to

the slide.

——-

Comment

HARARE 00000298 003 OF 003

——-

¶10. (C) Having crippled the agricultural and tourism sectors

with attacks on the private sector and gross disregard for

property rights, the GOZ may be poised to do the same thing

to the economy’s remaining third economic pillar ) mining.

However, because the measure will only hasten the evaporation

of what little remains of the GOZ’s desperately needed

foreign exchange (not in itself a bad thing as the GOZ digs

its hole a little deeper) Reserve Bank Governor Gono and the

other “moderates” Murehwa mentioned may try to thwart the

plan. That said, ZANU-PF,s widespread venality and its

divorce from the national interest will be hard to overcome.

Coming only days before the IMF vote to restore voting rights

(ref A), the proposed mining amendment further underscores

the GOZ,s lack of commitment to the second condition for IMF

reengagement ) comprehensive policy reform ) and its lack

of fitness to have its IMF voting rights restored.

DELL

(14 VIEWS)