Zimbabwe’s US$3bn platinum deal all but collapses in a shambles 

Source: Zimbabwe’s US$3bn platinum deal all but collapses in a shambles – Bulawayo24 News

IT was noisily touted as a game changer for Zimbabwe’s mining sector, and the economy; a centrepiece of government’s ambitious yet unrealistic US$12 billion target for the industry by next year and catalyst to transform Zimbabwe into a knowledge-driven industrialising upper middle income economy by 2030.

In its Vision 2030 document, titled Towards a Prosperous & Empowered Upper Middle Income Society by 2030, government says: “This will be realised through support for local processing of Zimbabwe’s diverse mineral resource endowment, with thresholds for beneficiation and value addition spelt out.

Envisaged investments involve beneficiation of such minerals as platinum, chrome, lithium, nickel, diamond cutting and polishing, copper, gold and coal, with strengthening of linkages along the mineral value chain.

“Investors should, therefore, take advantage of the smelting and refining opportunities this presents, including increased scope for exploration.”

However, the Great Dyke Investments (GDI) project in Darwendale, 65 kilometres west of the capital Harare, which has the potential to become one of the world’s biggest platinum mines with capacity to reboot Zimbabwe’s collapsing economy, has stalled and now faces collapse for myriad reasons.

The Centre for Natural Resource Governance (CNRG), a civil society research and advocacy group, says in its latest report after a protracted investigation it established the project is now stuck.

“The US$3 billion Great Dyke Investments platinum mega project has all but collapsed,” CNRG’s report says.

“Touted as a game changer and an indicator of progress in attracting investors, the project collapsed in 2021 due to a plethora of problems which include corruption, mismanagement, mistrust, and poor planning.”

The report adds: “Mining operations have since stopped as the Russian investor has stopped pumping money into the project.”

GDI is 50% owned by Russian tycoon Vitaliy Machitskiy’s Vi Holdings, through its JSC Afromet subsidiary, and 50% by Landela Mining Venture linked to local tycoon Kudakwashe Tagwirei who is closely associated with President Emmerson Mnangagwa and his family.

After further wheeling and dealing involving Tagwirei – who is under American and British sanctions for shady deals – and his companies, Sotic International and labyrinth of shadowy local and offshore structures, Kuvimba Mining House, 65% owned by government and 35% by ghost shareholders, now controls 50% of GDI.

Initially the project was owned by a consortium of Zimbabwean investors operating under the name Pen East, 30% controlled by the military’s Old Stone Investments and 20% by the state-owned Zimbabwe Mining Development Corporation, before Tagwirei bought that 50% stake, and Russian investors including VI Holdings, Rostec and Vnesheconombank. That was before further shareholder changes which resulted in the current structure.

South Africa’s Impala Platinum, which owns Zimplats, the country’s biggest platinum project, was approached to buy a stake in GDI.

However, the move failed due to GDI’s opaque shareholding structure, especially regarding Kuvimba. Landela paid US$21.5 million for a stake in GDI. There were also further mysterious payments, which included US$220 million and ZW$300 million.

The deal was not transparent. The project was commissioned by the late former president Robert Mugabe in September 2014 in a high-level ceremony also attended visiting Russian Foreign minister Sergei Lavrov.

Located on the unique mineral-rich Great Dyke belt, it is one of the biggest Platinum Group Metals deposits in the world. A bankable feasibility study undertaken in 2017 by African Export-Import Bank showed the project had a potential to contribute Zimbabwe’s economic turnaround.

Peak production of the mine was expected to be 860 000 ounces per annum, translating to almost US$1 billion. The 6 500-hectare mine life expectancy is 40 years. GDI initially said the mine would be developed in three phases, with the first running from 2014 to 2017, entailing exploration, infrastructure development and commissioning of mining facilities.

The second phase from 2018 to 2021 was expected to include establishment of a new mine and expansion of concentration capacity to produce 530 000 oz of platinum per year. The third and full development phase would run from 2022 to 2024, and see the expansion of platinum production to 800 000 oz per year.

 The cost of mining and establishment of a smelter was estimated at US$3 billion, but would rise to US$4.8 billion after the setting up of a refinery between 2022 and 2024. Finance Minister  Mthuli Ncube awarded GDI a special mining lease under which a range of taxes will not have to be paid for five years due to its political connections.

Among tax exemptions until 2025 are income tax and dividends to shareholders.

“Nine years after the commissioning of the platinum project, there has been little progress towards getting the ore out of the ground, which was targeted to start in 2021. The company already spent over US$100 million on geological exploration and construction of two box cuts and surface infrastructure according to Ivanov,” CNRG’s report says.

“Afreximbank was expected to provide about US$500 million to fund the initial mining phase. Investigations by CNRG revealed that Portal 2 was left incomplete while Portal 1, though completed, collapsed at the stage of drilling the decline shafts. The collapse of Portal 1 raised a lot of questions about the competency of the engineers who designed the mine plan.

“The engineers carried out secondary studies on the geology of the area and concluded that the ground condition was poor and unstable hence not suitable for underground mining. “Rather, opencast mining was recommended. With a lot of safety fears, all excavation operations to proceed with making the declines literally hit a wall. According to internal sources, delays in the project scheduling and budget creeps caused fatigue in the Russian investor who had anticipated that mining would have started by 2021.”

The report adds: “No further funds were injected into the project thereafter. In December 2020, there were signs that the momentum at the mine had slackened, and from May 2021, there were virtually no activities at the mine and operations were placed under care and maintenance. Contractors such as JR Goddard, KW Blasting, Dific Mining Contractors, Static Strata, Esor Construction and Intrachem withdrew and workers were retrenched. By the end of 2021, the Russians had started to strategically pull out of the mine site. Conclusively, although lack of funding was the visible cause of the failure of the project, underlying this cause were signs of mismanagement and mistrust between the Russian investors and their local partners.”

The GDI project was expected to create at least 8000 highly skilled jobs at its peak, producing four million tonnes of ore per annum.

According to GDI vice-chair Igor Higer that would turn to 860 000 oz per year, with an average annual revenue above US$350 million starting from next year onwards.

“In January last year, government awarded GDI a five-year tax holiday through SI26/2021. The tax holiday was backdated to January 2020. The tax holiday was expected to incentivise and retain the investor. The decision by government to award the tax incentive was widely challenged by civil society as unconstitutional, unreasonable, and undermining domestic resource mobilisation efforts,” the CNRG report says.

“Despite the tax holiday, GDI was expected to pay royalties to the government based on gross revenue.

In Zimbabwe, the platinum sector pays 10% of gross revenue to the government as royalties.

” However, the contract between Zimbabwean shareholders and GDI has never been available for public scrutiny to determine how the project’s investment outlays and fiscal regime would benefit the country in the long run. The near collapse of the GDI project despite a five-year tax holiday indicates “deep structural challenges in Zimbabwe’s investment climate”, the report says.

“The outlook is even more negative when one considers the fact that Russia, alongside China are considered friendly nations to Zimbabwe, hence their investments are expected to be protected. Nevertheless, the collapse of the deal confirms Zimbabwe as an investment sinkhole that must do more to create a conducive environment in order to lure serious investors.”

The project has a long history. In 2006, retired Colonel Tshinga Dube, who was then head of Zimbabwe Defence Industries, set up a joint venture, Ruschrome Mining, with the help of a Russian cooperation, Russian Centre For Business Cooperation.

The signing of the agreement was witnessed by the Zimbabwe Defence Force’s legal director and the Russian Embassy’s defence adviser. The company would subsequently inherit a Zimplats claim surrendered in 2006 as part of the government’s indigenisation programme, although it is not clear whether the army paid anything for the claims.

After Mnangagwa seized power through a coup in November 2017, the project got renewed attention from his government. In January 2019, Mnangagwa visited Russia to revive the stalled project.

However, his visit to Russia and the return trip by Lavrov in March 2018 did not yield immediate results until the October 2019 Russia-Africa Summit.

Agreements were signed on the side-lines of the summit, but the project has stalled and now faces collapse unless an urgent rescue operation is launched.

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