Zimbabwe: Mine Nationalization or Seizure?

Mine nationalization tends to be controversial, but Zimbabwe appears to be vying for an award. The country’s Indigenisation and Economic Empowerment Act requires mining companies to cede 51 percent ownership to local shareholders to empower people who have been disadvantaged by colonization. Impala Platinum (LSE:IPLA,OTC Pink:IMPUY) has become the poster child of compliance after submitting a satisfactory plan. But according to Saviour Kasukuwere, Minister of Youth Development, Indigenisation and Empowerment, miners who haven’t complied have run out of time.

General Notice 114 requires all non-indigeniously owned mining companies in Zimbabwe to submit details as to how they will comply with indigenisation  requirements.

On March 13, the government confirmed that the plan submitted by Implats meets the minimum requirements.

“I think the Indigenisation Minister, Saviour Kasukuwere, will realize he has to get up pretty early in the morning to catch up with David Brown [CEO of Implats]. I think he has been outsmarted here quite considerably, but he will only realize that afterwards,” said Martin Creamer, editor of Mining Weekly, on Second Take.

Though Implats has devised a means to dispose of majority ownership of Zimplats, the plan essentially consists of three different deals involving the community, employees, and the government.

For the community’s ten percent stake, which will be non-contributory, Implats will provide an interest-free loan to the Community Trust. The loan will be repaid from dividends.

Workers’ ten percent stake will be funded in a similar manner, but Implats’ loan to the Employee Trust will be interest bearing. These funds will also be repaid through dividends and will be contributory or dilutive.

The remaining 31 percent will be sold the the National Indigenisation and Economic Empowerment Fund (NIEEF), and will be fully contributory. As such, shareholders will not enjoy passive ownership, but will have to respond to equity calls, like those required for expansion efforts.

It is unclear how the NIEEF will manage the financial requirements of this ownership, and even more of a mystery as to how it will acquire those shares in the first place.

According to the deal, Implats must be paid fair value for all the shares it parts with.

Brown said valuation will take into account the net present value of the company’s billion dollar phase two expansion, planned future investment, and platinum still in the ground.

Moreover, before the NIEEF can get its hands on those shares, the deeply-indebted Zimbabwean government has to fairly compensate Implats for empowerment credits that weren’t received when the company voluntarily turned over ground in 2006.

Though neither the government nor Implats has announced values, it is suggested that Implats could be due to receive between $500 million and $1 billion.

Other platinum miners

Anglo American (OTC Pink:AAUKY,LSE:AAL) reportedly submitted its plan earlier this month, but has not released details as to how it will cede ownership of the majority interest in its Unki mine, which is supposed to go into production in 2013.

As of the last update, the plan proposed by Aquarius Platinum (LSE:AQP,ASX:AQP), which manages the Mimosa mine, has been rejected. On February 22 the company was notified that if an agreement was not reached in 30 days, enforcement measures would be activated.

Announcement of seizure

On April 5, Kasukuwere declared that all mining firms that had not complied with the indigenisation regulations could assume that 51 percent of their shares and proceeds belonged to the government.

Spokesperson Luke Tamborinyoka quickly issued a statement on behalf of Prime Minister Morgan Tsvangirai that instructed businesses to ignore the announcement.

“The Indigenisation and Empowerment Act does not empower the Minister to unilaterally nationalise private entities and there is no reason to create panic among investors by projecting the image of a voracious government keen to grab compulsorily people’s companies without compensation. It is not the policy of this Government to nationalise the mining businesses or any other business,” the statement said.

“The Prime Minister would like to inform mining entities that, should anyone or any institution be it  private or public, attempt to enforce Minister Kasukuwere’s pronouncements, they would be doing so unlawfully and without the mandate of the Inclusive Government,” it continued.

Tsvangirai, leader of the Movement for Democratic Change (MDC) has long been opposed to indigenisation efforts, arguing that they threaten foreign investment.

He also recognized that that Kusukuwere’s action poses the “real risk of creating anarchy in the industry” and could have “far reaching economic consequences.”

However, if President Robert Mugabe has his way, mining companies will soon lose the ally they have in the form of Prime Minister Tsvangirai.

The President is given credit for the Indigenisation and Empowerment Act and is a staunch supporter of nationalization.

At the twelfth annual National People’s Conference, he called the MDC a “puppet organization,” saying it is “enjoying money from [its] masters and  forgetting that true leaders always have people at heart.”

“Let us now start preparing for elections and as we do that, we are digging the grave of this monster (the inclusive government),” the President said. “This grave must not always be the usual six feet: it must be six feet times 10 deeper and deeper and deeper [so it can] never again come out.”

Shedding light on the ruling party’s firm position on indigenisation, President Mugabe said, “it is not full sovereignty to work for a foreigner in Zimbabwe who is using the country’s resources.”

“Foreign partners are needed but they must not come to be our masters in business ownerships,” he added.

Securities Disclosure: I, Michelle Smith, do not hold equity interests in any companies mentioned in this article.