Military finger in Zim platinum pie scares investors

LONDON — Military and Business. Now those are two words that should not go together. If the business involves the manufacturing of weapons, well it may be a different case. But in Zimbabwe the word Milbus is used to described deals where the military has partnered with mining companies. Under the guise of “protecting the resources” the military in Zimbabwe has profited from diamond mining in the Democratic Republic of Congo, a chrome smelting project in Kwe Kwe and a reported deal with Chinese diamond mining company Anjin for the export of three million carats of diamonds. The involvement of the military in mining in Zimbabwe raises many questions: How do you deal with the military when there is a breach of contract, how much of that money filters into the economy and how much power does the military exert with access to its own funding from resources? In Zimbabwe, history has answered the last question; it is able to bring about regime change as it did when Mugabe was ousted with the help of the military. In the case of the project to build the country’s biggest platinum mine at a cost of $4bn, the involvement of the military is scaring off investors. South Africa’s Public Investment Corporation has also been considering an investment into the new platinum mine. – Linda van Tilburg

Military stake stymies $4bn Zimbabwe platinum project

By Felix Njini, Antony Sguazzin and Loni Prinsloo

(Bloomberg) – A plan to build Zimbabwe’s biggest platinum mine at a cost of about $4bn is floundering because a military stake in the project has deterred potential backers, according to people familiar with the funding discussions.

The African Export-Import Bank has the mandate to raise money for the mine, a joint venture between Russian and Zimbabwean investors. While the bank provided $192m of its own funds, meetings in the past year with investors including South Africa’s Public Investment Corp., the continent’s biggest fund manager, failed to bring additional commitments, one of the people said, asking not to be identified because the talks are private.

Zimbabwe has the world’s third-largest reserves of platinum, palladium and related metals such as rhodium – which typically occur together – after South Africa and Russia. President Emmerson Mnangagwa is trying to lure investment to the country to help rebuild the economy, devastated during the 37-year rule of Robert Mugabe.

Military stake

The sticking point is a Zimbabwe military company that once was subject to US sanctions. Zimbabwe Defence Industries Ltd. and Zimbabwe Mining Development Corp. together hold 30% of the joint venture, known as Great Dyke Investments, through Pen East (Pty) Ltd., a company they control, according to documents seen by Bloomberg.

Vi Holding, led by Russian entrepreneur Vitaliy Machitski, has a 50% stake in Great Dyke, and 20% is held by undisclosed Zimbabwean investors, the documents show. While the documents are dated 2012, the shareholdings are about the same today, two of the people familiar with the discussions said. The $4 billion figure is a government estimate of the cost to develop the mine and associated infrastructure.

“If there is any kind of military shareholding it will make western investors very uncomfortable, especially the banks,” said Peter Major, a mining analyst at Mergence Corporate Solutions Ltd. in Cape Town. “Who is going to risk it? I think they will battle to get funding from traditional and western institutions.”

South Africa’s PIC declined to comment. Zimbabwe’s defense ministry, ZDI and Vi Holding didn’t respond to phone and email requests for comment.

The US Treasury imposed sanctions on Zimbabwe Defence Industries, or ZDI, and several politicians in 2004 because of violence and irregularities in the nation’s 2000 and 2002 elections. Vi Holding groups Russian companies including state-controlled Rostec Corp. and development bank VEB, according to the people. Both companies also have been sanctioned by the US because of Russia’s 2014 annexation of Crimea.

Global Witness has previously tied ZDI to diamond mining in eastern Zimbabwe through an indirect shareholding in a Chinese company. Mugabe said his government lost large sums to theft from that deposit, and Human Rights Watch in 2009 accused the military of shooting and killing 200 miners there.

This wouldn’t be the first time military involvement thwarted a mining project. In 2000, Oryx Diamonds Ltd. scrapped plans to trade in London after its adviser withdrew support under pressure from the UK government. Oryx had planned a diamond mine in Democratic Republic of Congo with investors that included another Zimbabwe military company at a time when Mugabe’s forces were fighting in Congo.

Repossessed land

Mugabe handed the Great Dyke concession to Russian investors in 2006 after the government repossessed land from a unit of South Africa’s Impala Platinum Holdings Ltd., or Implats. The first joint venture to try to tap the deposit was Ruschrome Mining, according to the Zimbabwean government. Vi Holding took over Ruschrome’s shareholding in 2014, the people said.

An offer about eight years ago by a “large international mining house” to buy out Pen East from the project for $30 million was rejected, according to a proposal prepared by CDF Trust & Consulting BV, a Zimbabwean consultancy, that was seen by Bloomberg. CDF Trust Managing Director Caleb Dengu declined to comment.

Agreements signed by Great Dyke, Afreximbank, Vi Holding, the Russian Export Centre and African Finance Corp. to develop the mine were exchanged at a meeting between Russian President Vladimir Putin and Mnangagwa in Moscow in January.

Balanced supply

The project could produce more than 800,000 ounces of platinum-group metals a year, only one-fifth less than Zimbabwe’s total current output from mines owned by Implats and Anglo American Platinum Ltd. Afreximbank is seeking funding at a time when supplies of the metal are balanced and a significant increase in production could depress prices.

Afreximbank, which is based in Egypt, will allow potential backers of the mine at Darwendale, north of the capital, Harare, to use a $1.4bn guarantee it provided to Zimbabwe, one of the people said. Afreximbank is partly owned by African governments. African Finance Corp., whose holders also include African governments, has agreed to invest $75m, said Hesphina Rukato, Great Dyke’s chairwoman. Afreximbank will complete financing details for the project around June, she said.

Afreximbank doesn’t comment on “ongoing transactions,” said Obi Emekekwue, the bank’s spokesman.

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