US embassy cable - 05HARARE871

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, Economic Situation, Mining 
SUBJECT: ZIMPLATS STILL INVESTING DESPITE UNCERTAINTY 
 
 
Classified By: Charge d'affaires Eric T. Schultz a.i. for reason 1.4 d 
 
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Summary 
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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. 
 
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Investment And Forex Access 
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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. 
 
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Economic Turmoil: The Chinese Factor 
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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. 
 
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Political Turmoil: Operation Restore Order 
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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. 
 
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Comment 
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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