Analysts and mining experts feel that the implementation plan is going to be difficult and judging by Zimplats’ market capitalisation and balance sheet, the cash-strapped government has to fork out anything between US$500 million and US$1 billion for the 31% stake.
As a result, analysts believe the government is most likely to shift goalposts and opt for a conversion of mineral rights into equity, something which will not add value to the company although the shareholding structure would have fundamentally changed.
The analysts said through the National Indigenisation and Economic Empowerment Board (NIEEB), government could claim sovereign rights on minerals to facilitate the deal.
If the government could claim sovereign rights on minerals through NIEEB to muscle into Zimplats, the controlling shareholder of Zimplats, Implats, might not get a cent in the process.
But one expert said should Zimbabwe take that route then its mining laws would have to be reviewed. The expert said while all minerals in the ground remained the property of the state even after a claim or special grant has been issued by government, any move to reclaim the mineral resource changed the thrust of the mining laws. As such, the expert said, government should then stop charging royalties after these changes.
NIEEB CEO Wilson Gwatiringa indicated that government, through the bankrupt National Indegenisation and Economic Empowerment Fund (NIEEF), would pay for the shares, saying there was huge appetite to finance such a deal given the platinum mine’s balance sheet.
The NIEEB is broke and cannot afford on its own to pay for its equity. Similarly other new shareholders have no means of funding their shareholdings.
Analysts see fundraising as a challenge given the ongoing global financial crisis. The NIEEF would have to securitise the acquired shares, effectively mortgaging the shareholding again to another foreign player, defeating the purpose of indegenisation, or at the least, government would have to mortgage other reserves not linked to Implats to unlock funding — again undermining its own policy.
Of the platinum companies doing business in Zimbabwe, analysts say Implats would be the most affected. “We view Impala as the most exposed to the Zimbabwean risk: Together, Zimplats and Mimosa account for 17% of Impala’s NAV of operating assets, compared with 16% for Aquarius and 4% for Implats. On our FY12 estimates, Zimbabwe accounts for 13% of Impala’s revenue and 23% of its EBITDA,” another analyst said.
“This is slightly lower than the numbers for Aquarius but with the ramp-up of Zimplats, we estimate that Impala will be the most exposed of the three by 2014. Aquarius will become more reliant on South African production, with the ramp-up of Everest over this period, and Implats continues to have the most optionality in its portfolio with regard to future production growth.”
Others see NIEEB raising the funds in China, Zimbabwe’s new best friend after relations between the troubled Southern African country soured with the West over human rights abuses and electoral violence.
But critics say government buying a stake in Zimplats defeats the whole purpose of indigenisation and instead promotes the notion of expropriation or nationalisation.
Analysts do not see Zimbabwe coming up with even the US$500 million that is required to cover the essentials of the real value —US$153 million for the ground Implats released in exchange for empowerment credits that did not materialise, plus the US$350 million that represented 31% of Zimplats’ market capitalisation.
Experts valued a 31% stake of Zimplats at “a significantly higher figure” than the US$350 million value that 31% of the current market capitalisation amounts to.
In arriving at a fair value, Implats would take into account the net present value of Zimplats’ Phase two expansion which was in the process of ramp-up, as well as planned future investment and the value of the platinum that is still in the ground.
Others feel this is no longer about empowerment but a veiled attempt at nationalisation.
Analysts say the deliberate use of words such as “cede” in a the deal structured by Caledonia that would see indigenous investors taking a controlling stake in the group, points to a new strategy to avoid paying for the shares.
Strangely, the use of the word “cede” in the indigenisation matrix was opposed by industrialists and bodies representing business because of its connotative meaning. “Cede” generally implies handing over or surrendering for no financial or other consideration.
Following the furore over the word “cede”, government changed the word to “dispose”. Now, “cede” has reappeared again much to the chagrin of investors. But Gwatiringa denies government wants to grab shares for free.
With elections looming, analysts fear Zanu PF could be trying to use the policy to win elections likely to be held next year.
Analysts say Indigenisation minister Saviour Kasukuwere could be attempting to curry favour with President Robert Mugabe by mounting pressure on mining companies, especially after the aged leader said negotiations had closed at a recent function to officiate the Zvishavane Community Share Trust at Mimosa Platinum Mine.
Many feel Mugabe’s speech in Zvishavane had largely emboldened Kasukuwere’s tough stance on mines and accelerated government’s move into Zimplats.
“It boggles the mind that while Zimbabwe is well-endowed with natural resources that are of a finite nature, particularly in the mining sector, since the onset of colonialism, Zimbabweans have not benefited from the exploitation of these resources. Instead, they continue to be under threat not to benefit now and in the future, mainly because of the neo-colonial forces currently threatening the African continent,” Mugabe said.
Given all these complexities, the battle for Zimplats might still be far from over.