Mugabe Woos China to Force Impala to Boost Production
2005-06-27 11:20 (New York)
By Antony Sguazzin
June 27 (Bloomberg) -- Robert Mugabe says the key to reviving
Zimbabwe's ravaged economy is platinum, and he's asking China to
help him get it. The loser may be Impala Platinum Holdings Ltd.,
which controls most of Zimbabwe's mines.
Mugabe, 81, turned to China, one of his few remaining
friends, after Johannesburg-based Impala put a $750 million
expansion program on hold in February. Impala, the world's No. 2
platinum producer, is concerned about government proposals that
would force the company to sell an as yet unspecified stake to
black investors and keep foreign-currency earnings in Zimbabwe.
``There is a very real risk that companies operating there
will be forced to relinquish some of their assets at very
unattractive prices,'' says Leon Esterhuizen, an analyst at
Investec Securities in Johannesburg. ``If you look at Zimbabwe's
economy, there is only one place they can get foreign exchange
from and that's mining.''
The government is trying to increase revenue from platinum
after Mugabe seized most white-owned commercial farms at the start
of the decade, slashing production of crops such as tobacco, once
Zimbabwe's top export, by three-quarters. Zimbabwe is in its sixth
year of recession, unemployment is at 70 percent and international
organizations are feeding more than 1.1 million people.
Zimbabwe is soliciting China's help in developing the
economy, particularly platinum deposits valued at $50 billion,
central bank governor Gideon Gono said in the May 25 edition of
the Herald, a state-controlled newspaper published in the capital,
Harare. Gono declined to be interviewed for this story.
Platinum for Development
``To Zimbabwe, platinum is what oil is to Saudi Arabia,''
Gono said at a lunch with bankers last February in Cape Town,
South Africa. ``We are saying to current players, either increase
your throughput or allow others to come in and mine.''
Impala holds 84 percent of Zimbabwe Platinum Mines Ltd.,
which owns one of the country's two operating platinum mines. The
other is a joint venture of Impala and Hamilton, Bermuda-based
Aquarius Platinum Ltd.
Zimbabwe Platinum, based on Guernsey in the Channel Islands,
has had meetings with a number of potential investors, including
Chinese delegates, Chief Executive Officer Greg Sebborn says,
declining to identify the companies they represented. The central
bank last year asked Impala to hold talks with Chinese investors,
Impala Finance Director David Brown said in December.
Chinese investors have also met with representatives of the
Harare-based Zimbabwe Chamber of Mines and government officials,
says chamber President Ian Saunders. He declined to identify the
investors or provide other details of the discussions.
Chinese Investment
``China's government is behind local companies seeking
copper, platinum and other resources overseas,'' says Bian Gang,
director of international cooperation at the China Nonferrous
Metals Industry Association in Beijing. ``Zimbabwe is known for
its rich platinum reserves, and I know that there are some Chinese
companies looking at mines there.'' He declined to name them.
China's direct investments abroad rose 27 percent to $3.62
billion last year, according to a report by CLSA Ltd., the Asian
investment-banking arm of Paris-based Credit Agricole SA. About 53
percent of the money went to mining projects.
Mugabe is trying to boost earnings from mining to counter the
effects of his land-redistribution program. Beginning in 2000, the
government confiscated white-owned farms that produced tobacco and
other export crops and gave them to blacks who were deprived of
land during colonial times. Much of the land is now used for
subsistence farming.
The seizures transformed the country from an exporter of corn
to an importer. Zimbabwe will have to import about two-thirds of
the 1.5 million tons of corn the country needs this year,
according to the Rome-based World Food Program.
Zimbabwe's economy will probably shrink for a sixth straight
year in 2005, according to the Washington-based International
Monetary Fund. Annual inflation accelerated to 144 percent in May,
Zimbabwe's Central Statistical Office said.
Land Redistribution
While the land redistribution won rural votes during the
2000, 2002 and 2005 elections, it ruined relations with the U.K. -
- Zimbabwe's former colonial ruler -- the U.S. and European Union.
All three have said the polls were tainted by vote-rigging and
intimidation of Mugabe's opponents.
During the past five weeks, the government has razed what it
says were illegally built homes and businesses in Harare and other
cities. The drive has left 200,000 people homeless and 30,000
street vendors without work, according to the United Nations.
The government needs Chinese investors to finance ferrochrome
production, irrigation projects, power plants and transportation,
as it seeks to jumpstart the economy, says John Robertson, an
economist at Robertson Economics in Harare. The ultimate reward
may be stakes in the nation's platinum reserves.
``The government wants capital investment from China,''
Robertson says. ``The government doesn't really have the money to
pay for all of this, and that's why they are trying to see if they
would take equity in mining companies.''
`Negative Impact'
Impala is depending on Zimbabwe for growth because the
company's holdings there contain an estimated 187 million ounces
of platinum, three times the resources it has in South Africa.
Zimbabwe's Great Dyke ridge trails only South Africa's Bushveld
Complex as a source of platinum, used in jewelry and pollution-
control devices for cars.
``If Zimbabwe were to be taken away from them, it would have
quite a negative impact,'' says Patrice Rassou, who was a fund
manager at Old Mutual Asset Managers Ltd. until he left the firm
in May. Old Mutual is Impala's biggest shareholder, according to
data compiled by Bloomberg.
At the Ngezi mine near Harare, Zimbabwe Platinum excavates
about 2.2 million metric tons of ore a year. The ore is loaded
into 42-meter (180-foot) tractor-trailer rigs for the 77-kilometer
(48-mile) trip to a processing plant in Selous. The processed ore
is shipped south to South Africa, where it was refined into about
80,000 ounces of platinum last year.
Platinum Rises
Platinum for immediate delivery has gained 12 percent to $888
an ounce during the past 12 months in London. It reached a 13-
month high of $899.50 on June 17 because of rising demand and
slower-than-expected supply growth, according to John Reade, a
London-based analyst at UBS AG.
Impala has proposed a $750 million project to expand
production in Zimbabwe. Anglo Platinum Ltd., a unit of London-
based Anglo American Plc, plans to dig a platinum mine on the Unki
deposit, about 240 kilometers southwest of Harare.
Impala won't expand in Zimbabwe until the government resolves
its concerns about possible forced asset sales and a proposal that
would compel the company to keep its foreign-currency earnings in
the country, says Les Paton, an executive director at Impala. The
government is considering a law requiring mine owners to sell 30
percent of their assets to blacks within 10 years.
``It's a concern, although we are working closely with the
central bank governor,'' Paton says of Zimbabwe's overtures to
China. ``There is a desire from the Zimbabwean side to move ahead
with expansion. They know what our stance is.''
Discounting Zimbabwe
Investors are already discounting Impala's assets in
Zimbabwe.
Impala stock trades for about 15 times estimated earnings,
compared with 25 times for Anglo Platinum, indicating investors
value Anglo Platinum more highly. Impala shares rose 1.7 percent
to 600 rand today in Johannesburg and have gained 25 percent since
Jan. 1. Anglo Platinum's stock advanced 0.3 percent to 292 rand
and is up 41 percent this year.
``I am not putting any value in Zimbabwe,'' says Abri du
Plessis, who helps manage the equivalent of $800 million,
including shares of Impala and Anglo Platinum, at Gryphon Asset
Management in Cape Town. ``The whole economy is dead.''
For China, investment in Zimbabwe may provide access to
minerals the country needs to fuel its growing economy.
Chinese Investment
China's gross domestic product will expand 9 percent this
year, spurring demand for minerals ranging from platinum to iron
ore, the Paris-based Organization for Economic Cooperation and
Development forecasts. Purchases of platinum jewelry rose by a
third last year in China, the biggest consumer of such jewelry,
says GFMS Ltd. in London, a precious metals researcher.
China, India and Pakistan have displaced the U.K., U.S. and
EU as Zimbabwe's biggest sources of investment. Western countries
were the top investors in Zimbabwe from 1994 through 1999, helping
build Africa's second-biggest economy.
China was the biggest source of investment in Zimbabwe last
year, putting 123 billion Zimbabwe dollars into the manufacturing
industry and 3 billion Zimbabwe dollars into tourism and services,
according to the Zimbabwe Investment Centre. India was second at
92.8 billion Zimbabwe dollars.
The state-run center didn't provide totals in U.S. dollars.
The official rate is 845 Zimbabwe dollars per U.S. dollar, while
the central bank's foreign-exchange auction rate is 9,896-to-1.
The black market rate is as much as 25,000-to-1.
Historic Ties
Zimbabwe is also a customer for Chinese products.
Huawei Technologies Co., China's biggest phone-equipment
maker, in November won contracts to sell $328 million of gear to
Zimbabwe's state-owned phone companies, Tel*One Corp. and Net*One
Corp., Huawei says on its Web site. Tel*One and Net*One didn't
return phone calls seeking comment.
The economic ties between Zimbabwe and China build on decades
of friendship between the two countries.
In the 1970s, the military leaders of Mugabe's Zimbabwe
African National Union-Patriotic Front went to China for training
and adopted the tactics of Chinese leader Mao Zedong in its fight
against the white-minority government of Rhodesia.
The liberation army, known as Zanla, adopted the Maoist
principle of guerrillas ``swimming like fish'' among the people,
as they depended on villagers to hide them and provide food.
Chinese tactics helped Zanla defeat Rhodesian forces, Colonel
Herbert Chingono said in a paper he wrote while studying at the
National Defense University in Washington. Zimbabwe gained its
independence in 1980.
On Nov. 21, state-owned Air Zimbabwe began scheduled flights
to Beijing, its only intercontinental destination other than
London. Zimbabwe is trying to woo Chinese tourists to its game
parks and Victoria Falls, the world's biggest waterfall.
``Africa and China have never been closer,'' Air Zimbabwe
said in newspaper ads promoting the flights.
--With reporting by Allen Cheng and Yu Xiao in Beijing, and Brian
Latham in London. Editors: Morris, Henry, Swardson. |
