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P 071443Z MAR 07
FM AMEMBASSY HARARE
TO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 1197
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1497
RUEHAR/AMEMBASSY ACCRA 1354
RUEHDS/AMEMBASSY ADDIS ABABA 1501
RUEHBY/AMEMBASSY CANBERRA 0763
RUEHDK/AMEMBASSY DAKAR 1127
RUEHKM/AMEMBASSY KAMPALA 1556
RUEHNR/AMEMBASSY NAIROBI 3954
RUEHFR/AMEMBASSY PARIS 1324
RUEHRO/AMEMBASSY ROME 1980
RUEHBS/USEU BRUSSELS
RUEHGV/USMISSION GENEVA 0654
RHEHAAA/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 1718
RUEKJCS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/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//

UNCLAS SECTION 01 OF 04 HARARE 000172 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR S. HILL 
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN 
STATE PASS TO USAID FOR M. COPSON AND E.LOKEN 
TREASURY FOR J. RALYEA AND T.RAND 
COMMERCE FOR BECKY ERKUL 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
 
E.O. 12958: N/A 
TAGS: EMIN ECON PGOV ZI
SUBJECT: AMBASSADOR VISITS ZIMBABWE'S PREMIER PLATINUM 
OPERATION; DISCUSSES RISK AND REWARD 
 
REF: A. 2006 HARARE 1377 
 
     ¶B. 2006 HARARE 0629 
 
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Summary 
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¶1.  (SBU) On February 6, Zimplats executives guided 
Ambassador Dell on a day-long tour of the company's platinum 
mining and processing operations in the second largest 
platinum deposit in the world.  Having made peace, 
temporarily at least, with the GOZ under pressure of 
expropriation by ceding a third of its claims, the company is 
undertaking a major expansion project and investing heavily 
in infrastructure.  Although the company is in a favorable 
position for now, both business and sovereign risk remain 
extremely high.  Lingering uncertainty over potential 
government expropriation, plus deep distortions in the 
economy and a looming regional electric power shortage keep 
the company's pace of investment cautious at a time when its 
claims, expertise, and high precious metal prices argue for 
maximum investment.  End Summary 
 
--------------------------------------- 
World's Second Largest Platinum Deposit 
--------------------------------------- 
 
¶2.  (SBU) Zimplats CEO Greg Sebborn and COO Jack Murehwa 
guided Ambassador Dell and econoff on a day-long tour of the 
company's mining operations in Ngezi and its processing plant 
in Selous, an hour's drive southwest of Harare.  Zimplats' 
platinum claims lie in the unique mineral-rich geologic 
structure called the Great Dyke, which stretches 515 km 
across Zimbabwe passing just to the West of Harare.  At its 
widest only 12 km across, the Great Dyke contains the world's 
second largest deposit of platinum group metals in four 
locations, and significant chromite, magnetite and other ore 
minerals. 
 
¶3.  (SBU) Owned 86 percent by South Africa's Impala Platinum 
Holdings (Implats) and traded on the Australian Stock 
Exchange, Zimplats is by far the largest of Zimbabwe's three 
platinum mining companies.  Sebborn told the Ambassador that 
the company hoped to list on the Zimbabwe Stock Exchange this 
year with shares traded interchangeably, like Old Mutual 
shares, on both exchanges.  The move would widen the 
company's ownership base and, the executives hoped, further 
relieve the pressure to "indigenize" that led the company to 
release 36 percent of its claim to the government last year. 
It also provides a market-based approach to indigenization 
rather than government mandated changes in ownership ) 
usually imposed by fiat without investment or compensation to 
the foreign owners. 
 
------------------ 
Massive Investment 
------------------ 
 
¶4.  (SBU) Following the agreement with the GOZ last year, the 
 
HARARE 00000172  002 OF 004 
 
 
Zimplats Board approved the first US$258 million phase of its 
long term expansion plan (Ref B).  The investment will shift 
production entirely underground, where costs are lower and 
the recovery rate higher.  Sebborn showed the Ambassador 
first hand the highly mechanized operation in which Zimplats 
mined and processed 2.16 million tonnes of ore per annum in a 
roughly 50:50 split between underground and surface 
excavation.  He told the Ambassador the company currently 
employed 1,900 employees and contractors and was producing 
85,000 oz platinum, 71,000 oz palladium, 1,500 tons of 
nickel, 1,100 tons of copper, and 11,000 oz gold (all 
associated metals) per annum. 
 
¶5.  (SBU) The executives showed the Ambassador Zimplats' 
extensive investment in infrastructure, which in scale and 
scope(if not style)resemble nothing so much as the original 
infrastructure build-up needed to explore and develop the 
early mining activities in South Africa more than one hundred 
years ago: the 77 km highway connecting Ngezi to the Selous 
processing plant, built at a cost of US$19 million to handle 
the 105 ton haulage trucks that the Ambassador observed 
plying the route from mine to plant; a 132kV electric power 
line, and plans for a further US$25 million investment to 
upgrade the national electric power grid so Zimplats can 
import power from Botswana; a fiber optic line and switching 
equipment built for TelOne; water purification plants, and a 
fresh water reservoir. 
 
¶6.  (SBU) The tour included a visit to the town's new 
residential area, where neat one, two and three-bedroom 
employee homes are under construction along freshly bulldozed 
streets in what had recently been wilderness.  Murehwa 
lamented the missed opportunity for local manufacturers to 
profit from the boom, as the gross overvaluation of the 
Zimbabwean dollar compelled Zimplats to import 80 percent of 
the building materials rather than purchase them locally at 
the official exchange rate of Z$250:USD (the parallel 
exchange rate is about Z$10,000:USD).  Sebborn noted that the 
company had made a significant investment in the local 
primary school, which would pay dividends by providing the 
company with well-educated workers in the future. 
 
----------------------------- 
Uniquely Favorable Conditions 
----------------------------- 
 
¶7.  (SBU) Sebborn said that over the next 16 years, Zimplats 
could, under favorable investment conditions, expand annual 
platinum production to one million ounces, and invest a 
further US$3.25 billion (excluding refineries) in an 
integrated production chain of mines, concentrators, 
smelters, and later base metals and precious metals refining. 
 Employment could peak at 12,000 workers including 
contractors.  Counting family members, rural Ngezi could 
swell to a population of 36,000. 
 
¶8.  (SBU) Sebborn noted that Zimbabwe's especially shallow 
platinum reserves allowed the company to expand production 
quickly from a technical point of view.  The new, gently 
 
HARARE 00000172  003 OF 004 
 
 
sloping Ngezi portal, down which the engineers walked the 
Ambassador to the room-and-pillar operation, will reach a 
maximum depth of a mere 70 m compared to South Africa's very 
deep platinum mine shafts.  Sebborn also explained that 
Zimplats' geologists and technicians had learned to identify 
the precious metals in the all-gray rock face, where the 
first mining company to try to exploit the deposit in the 
1990s had failed. 
 
¶9.  (SBU) Also in Zimplats' favor, the company inherited the 
right, negotiated in the first joint venture in which it was 
a minority stakeholder, to hold all of its earnings offshore 
in US dollar accounts, not "subject to the whim of the 
Reserve Bank of Zimbabwe," in Sebborn's words.  This 
arrangement was doubly significant, as Zimplats was financing 
its expansion primarily through re-investment of its own 
capital, aided by buoyant precious metal prices. 
 
--------------------------------------- 
But Risks, Constraints on Growth Abound 
--------------------------------------- 
 
¶10.  (SBU) Sebborn said that the company had lingering 
concerns that the government might once again use 
indigenization as an excuse to try to expropriate more of the 
claim.  He agreed with the Ambassador that the government was 
desperate for hard currency and saw mining as a sector it 
could exploit.  Sebborn said another factor slowing Zimlats' 
expansion was the severe price distortions in the economy, 
which unsettled the sector, discouraged investment, and drove 
the best trained potential employees to emigrate.  (N.B. 
Canada's Fraser Institute has rated Zimbabwe for two years 
running the worst place in the world for the mining business.) 
 
¶11.  (SBU) In addition, according to Sebborn, Zimplats had a 
reliable electric power supply through an agreement with the 
Zimbabwe Electric Supply Authority (ZESA) to pay for power in 
hard currency.  However, its most optimistic expansion plan 
foresaw a rise in the company's power requirement from 
slightly under 50 MW today to about 400 MW in 2018/2019.  It 
was unclear where such a large increase in power could come 
from in light of Zimbabwe,s increasingly severe power 
shortages. 
 
------- 
Comment 
------- 
 
¶12.  (SBU) Zimplats came out of its 2006 wrangle with the GOZ 
over ownership of its massive claim, for the time being, in 
an enviable position.  Its revenue is secure offshore, 
precious metal prices are soaring and its product is 
traceable and can only be processed to the end stage in a 
very few plants around the world - all outside Zimbabwe.  It 
still has a claim on the vast majority of Zimbabwe's known 
platinum resources and it has kept for itself the easiest, 
shallowest part of the deposit to exploit. 
 
¶13.  (SBU) It appears that Zimplats has succeeded, for now at 
 
HARARE 00000172  004 OF 004 
 
 
least, in convincing the GOZ not to kill the golden goose. 
At the same time, however, due to the uncertain investment 
climate, Zimplats is foregoing more substantial investment. 
Moreover, the GOZ's suspect approach to mining policy is 
frightening away other major foreign direct investors at a 
time when precious metal prices have rarely been higher and 
the government has never needed the revenue more. 
DELL