Government sends wrong signals to investors

Source: Government sends wrong signals to investors | The Financial Gazette July 28, 2016

ZIMBABWE’S President Robert Mugabe has gone to court to force world number two platinum miner Implats’ local unit to give up nearly 28 000 hectares of ground, triggering an inevitable sense of déjà vu after previous release of mineral claims left a trail of controversy and missed opportunities.
Under its “use it or lose it” policy, government has recently moved to expropriate a combined 42 000 hectares from the country’s two largest ferrochrome producers — Zimbabwe Mining and Smelting Company and Zimbabwe Alloys, saying it needs to open the sector up to new players.
Implats subsidiary, Zimbabwe Platinum Mines (Zimplats), the country’s biggest mining business, which gave up ground covering 51 million ounces (36 percent of its total resource) out of a total 141 million ounce resource in 2006, has this time objected to the government’s seizure of more claims, prompting Mugabe to approach the courts for an order authorising the acquisition of the land.
The State’s renewed feverish attempts to acquire the claims, after allowing a legally mandated two-year window during which it could have processed the acquisition lapse, raise questions about its motives, especially as President Mugabe’s government faces increasing financial problems.
Government faces a widening budget deficit and has been struggling to pay its workers, triggering a strike by civil servants early this month.
Public good?
Although in court papers President Mugabe makes the case for the latest seizure plans, saying the acquired claims would “allow the immediate entry of new players into the platinum sector” in partnership with government, the last such claim seizure — a decade ago — is yet to deliver for  the public good.
Platinum claims covering 4 500 hectares, acquired from world number one producer Anglo American Platinum in 2006 and which allowed the government to source a controversial US$100 million loan ahead of Zimbabwe’s bloody 2008 election, remain undeveloped.
The US$100 million loan to government, made when there was an interregnum in Zimbabwe after an inconclusive March 2008 election in which Mugabe and his ZANU-PF lost the first round to Morgan Tsvangirai and his MDC party, has been the subject of a United States government probe.
This is after it emerged that the funds were sourced by Och-Ziff, one of the biggest publicly traded American hedge funds with nearly US$50 billion assets under management, which had invested US$150 million in Billy Rautenbach’s Central African Mining and Exploration Company (CAMEC) days earlier.
The American probe sought to establish whether Och-Ziff knew its funds would end up in President Mugabe government’s hand, in contravention of US sanctions.
President Mugabe’s critics and opposition officials have charged that the funds were used to fund his ZANU-PF’s party’s violent campaign to recover lost ground in a run-off election won by the veteran leader, but widely disputed by the international community after Tsvangirai pulled out of the contest, citing violence which killed over 200 opposition supporters.
The Bokai platinum project, handed to the State-owned Zimbabwe Mining Development Corporation (ZMDC), initially saw CAMEC take out a 60 percent share, with the ZMDC keeping the remainder.
By 2009, the majority shareholding had shifted to the then London-listed Kazakh firm Eurasian Natural Resources Corporation (ENRC), which immediatelyannounced plans to build a world-class platinum mine on the Bokai concession, producing an initial 120 000 ounces of platinum group metals annually, which would rise to 400 000 ounces.
Idle ground
At the time, ENRC officials, who described the Bokai project as “one of the best in the industry” said they would develop the project “as soon as possible.” Seven years on, the project remains a development prospect.
ENRC has since gone private, changing its name to Eurasian Resources Group (ERG).
It took longer for government to find a taker for the ground released by Zimplats on the Hartley Complex, with a Russo-Zimbabwe joint venture only being announced in September 2014 at an event officiated by Mugabe and Russian foreign affairs minister Sergey Lavrov.
The Great Dyke Investments project in Darwendale, a joint venture between Zimbabwe’s Pen East Investments and OJSC Afromet, a Russian consortium comprising Vi Holding, Rostec and financier Vnesheconombank, plans to mine its 45 million ounces resource at a projected rate of 600 000 ounces per year. So far, more than US$50 million has been invested in the project’s exploration activities.
While government might, once again, cash in after hawking the mineral claims to an intrepid punter, its disregard for agreements with the country’s biggest ever investment will provide scant comfort to existing and prospective investors already spooked by the administration’s buccaneering tactics.
The Zimplats case, currently before the Administrative Court, raises questions of government sincerity in upholding investment agreements.
Government filed its papers on June 28, with Zimplats submitting opposing papers on July 6 and the case is yet to be heard.
The company contends that, under the 2006 release of ground agreement, “it was accepted by both the government and Zimplats that the ground that Zimplats remained with was required by Zimplats to achieve its expansion objectives.”
The agreement also stipulated that the Zimbabwe government would pay US$153 million for those resources.  It is yet to do so.
Government has completely ignored this, ominously warning Zimplats about the impending expiry of the miner’s 25-year special mining lease granted to its successor BHP Minerals Zimbabwe in 1994.
“Whether the government of Zimbabwe will extend the Special Mining Lease in 2019 remains to be seen,” President Mugabe deposed in his affidavit.
It is this treatment of a firm that has spent US$4 588 billion (US$533 million of this in taxes and royalties) in the country since 2002 that will spook many investors.
Although the lease is due to expire in 2019, there is an option to renew it for two terms of 10 years each.
Analysts have cited Zimbabwe’s uncertain investment environment, plagued by policy inconsistency, disregard for agreements, a controversial local ownership law and the oft-violent seizure of white-owned farms since 2000, as the reason why the country continues to lag behind its regional peers in terms of drawing foreign direct investment.
In 2015, foreign direct investment declined 23 percent to US$421 million. Last year, Mozambique and Zambia registered US$3,7 billion and US$1,6 billion, respectively.   — The Source