US embassy cable - 05HARARE1088

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 001088 
 
SIPDIS 
 
SENSITIVE 
 
AF FOR DAS T. WOODS 
AF/S FOR B. NEULING 
NSC FOR DNSA ABRAMS, 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 
 
E.O. 12958: DECL: 12/31/2010 
TAGS: EMIN, EFIN, ETRD, PREL, PGOV, ZI 
SUBJECT: ZIMPLATS CEO ON CHINESE INTEREST IN PLATINUM 
SECTOR, INTERNAL GOZ POLITICS 
 
 
Classified By: Charge d' Affaires a.i. under Section 1.4 b/d 
 
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Summary 
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1. (C) Zimbabwe Platinum Mines (Zimplats) CEO Greg Sebborn 
told CDA on July 29 that his company was not worried about 
China's interest in Zimbabwean platinum in the long-term 
because China lacked the technological know-how to compete. 
However, the Chinese could cause short-term problems by 
leveraging their political influence with Mugabe into control 
of a part of the deposits.  Sebborn speculated that some in 
China might have realized that Zimbabwean platinum deposits 
were severely undervalued and would be worth a great deal 
when the country became more stable.  However, such a move 
would violate Zimplats agreement with the GOZ and lead to 
arbitration.  Sebborn said Zimplats had unsuccessfully sought 
a meeting with Mugabe to clear the air.  In the interval, 
Solomon Mujuru had offered to be the company's indigenous 
partner and protector.  Sebborn said Mujuru had claimed to be 
running the country day-to-day and had promised to prevent 
Chinese involvement in Zimbabwean platinum mining.  Sebborn 
added that the company was still prepared to invest US$ 2 
billion in Zimbabwe but was still waiting for the GOZ to 
agree.  End Summary. 
 
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China,s Interest 
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2. (C) The CDA asked Sebborn about China's reported interest 
in Zimbabwe's platinum sector.  Sebborn responded that China 
was clearly interested in long-term access to Zimbabwe's 
platinum deposits, the fifth largest in the world, and was 
using its political clout with Mugabe to that end.  However, 
China was selling the GOZ a bill of goods.  They had promised 
to build a platinum refinery in return for a share of the 
deposits but in fact lacked sufficient technical expertise to 
do so.  (N.B. There are only five platinum refineries in the 
world, two in South Africa.)  At best, China could build 
another base metal refinery similar to the one that Zimplats 
had already built in Zimbabwe.  These refineries produced a 
semi-processed "conglomerate" that needed to be further 
refined to extract platinum. 
 
3. (C) Sebborn said his company had told the GOZ that they 
were willing to talk to potential Chinese investors but 
feared that the GOZ would instead force Zimplats to give the 
Chinese a portion of the ore-body.  He said the Chinese 
seemed most interested in the northern end of the deposits, 
which ran northeast to southwest for nearly 100 kilometers, 
starting just outside Harare.  The northern portion was 
attractive because it was close to the capital and to water, 
and because the platinum was relatively close to the surface 
and easy to mine.  However, it was a "greenfield" site that 
would still require a massive investment even beyond the base 
metal refinery and Sebborn stated that he had been unable to 
learn anything about the Chinese company rumored to be 
involved, Wan Bad.  It was not clear that the company even 
existed except on paper. 
 
4. (C) Sebborn said any such move would violate the 
agreements signed between the GOZ and his parent company, 
Impala Platinum (Implats) and would provoke arbitration under 
Swiss jurisdiction as provided for in the agreement. 
Moreover, Sebborn questioned China,s motives.  He noted 
China buys the majority of its platinum from Implats and that 
Implats could easily reduce China's access to platinum by the 
exact amount that its Zimbabwe affiliate lost as a result of 
any GOZ deal with China.  Instead, he speculated that someone 
in China might want control of part of Zimbabwe's ore body as 
a cheap asset that could later be sold at a huge profit.  Due 
to Zimbabwe,s astronomical sovereign risk, Sebborn estimated 
that the ore body was undervalued by a factor of 10. 
 
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Relations With GOZ 
------------------ 
 
5. (C) Sebborn said that although Zimplats did not fear 
China's interest in the long-term, they were concerned that 
it could cause delays and confusion in developing the 
platinum deposits.  Zimplats was still prepared to invest 
US$2 billion in Zimbabwe.  Zimbabwe only needed to properly 
enforce already existing mining laws, sign an already 
agreed-to Bilateral Investment Protection Agreement with 
South Africa, and come up with a detailed credible 
indigenization scheme that could be implemented.  The 
investment would include a 10-fold increase in Zimplat,s 
local direct hires, plus an additional 55,000 jobs in support 
industries resulting from the expansion.  It would also dwarf 
the loan package the GOZ was currently negotiating with the 
South African Government and would not require repayment. 
 
6. (C) However, Sebborn said the GOZ was continuing to drag 
its feet.  Given Mugabe's desire to reward the Chinese, no 
one wanted to make the wrong decision and agree to a deeper 
Zimplats investment.  Moreover, Zimbabwean officials were 
deeply distrustful of private enterprise and the mining 
industry in particular.  This was exacerbated because they 
lacked a clear understanding of how the platinum industry 
worked.  The GOZ officials thought they could purchase 
platinum from the mine, as they did with gold, using the 
official exchange rate and then turn the precious metal into 
hard currency abroad at world prices.  In fact, the GOZ had 
posted monitors at the mines to detect platinum smuggling, 
when the platinum itself was still part of the semi-processed 
going to South Africa for further refining. 
 
7. (C) Sebborn said Zimplats had been seeking a meeting with 
Mugabe for some time to clear up misunderstandings but to no 
avail.  However, in the interval, Solomon Mujuru, the 
powerful ex-military commander and husband of Vice President 
Joyce Mujuru, had approached the company offering to be its 
indigenous partner and protector.  Sebborn noted that in so 
doing, Mujuru was going against Mugabe's wishes.  Mugabe had 
personally picked out Zimplats "indigenous" partner, a group 
that had so far been unable to obtain the financing needed to 
buy into the company.  Moreover, according to Sebborn, Mujuru 
had also promised that he would prevent China would from 
entering the platinum industry.  Sebborn said Mujuru had told 
him that Mugabe was "quite unstable" and subject to dramatic 
mood swings and that he, Mujuru, was now running the country 
day-to-day. 
 
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Comment 
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8. (C) Mujuru's claim to be running the government may have 
been exaggerated to magnify the appeal of his "protection" 
offer to Zimplats, but it is consistent with other reports we 
have been hearing that while Mugabe remains firmly in 
control, he is exercising that control only episodically. 
The result is increasing government paralysis and a growing 
power vacuum.  It may be the case that no one is truly 
"running" government operations any more so much as acting in 
his/her narrow personal interest; and the Mujuru's sway and 
energy in that regard are unrivaled save by the aging and 
increasingly distant Mugabe himself. 
9. (C) South African diplomats have stressed to us SAG 
concern about Chinese designs on Zimbabwe's platinum, but 
mining insiders here share Sebborn's dismissive attitude 
about prospects for any Chinese platinum refining plant. 
Mining is the sector perhaps most poised to revive in 
Zimbabwe's gasping economy, but even it remains constricted 
by GOZ incompetence and the narrow avarice of key ruling 
party figures. 
SCHULTZ