Zimbabwe 'Indigenization' Plan Burdens Implats' $10 Billion Platinum Expansion

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--With platinum reserves in Zimbabwe worth more than $20 billion at current prices, the world's second-largest producer of the metal, Impala Platinum Holdings Limited (Implats) (PINK:IMPUY) (Johannesburg), is negotiating its way out of an impasse brought on by the Zimbabwean government's corporate "indigenization" stakeholder initiative.

The government is demanding 51% ownership of foreign companies operating in the country. This month, the Zimbabwe government imposed a 14-day deadline for the submission of companies' plans on the transfer of majority stakes to local shareholders. If they appear to be noncompliant, they could risk losing the permits under which they operate.

When Implats CEO David Brown presented the company's sparkling annual results, with earnings increased by 41%, he said that the company would continue to negotiate with the Zimbabwe government through the Implats subsidiary Zimbabwe Platinum Mines (Zimplats) (Harare, Zimbabwe), but would want to retain control of entities. "We believe we can deliver best value for the country and the company by maintaining that control value," he said.

The company's first response to the indigenization policy was turned down as the government said that it did not address the issues regarding ownership of the company. Plans from 14 other foreign-controlled companies, including banks, were also rejected. To date, more than 700 companies, including more than 175 mining companies, have submitted indigenization and empowerment plans to the government.

The Zimplats plan covered an equity ownership of 25%, with a 19.5% credit for indigenization and the 6.5% balance, to make 51%, made up by social infrastructure credits.

Also in the mix is that Impala, which produces 30% of the world's platinum supply, could invest up to $10 billion in a Zimplats expansion, if an equitable agreement can be made. But Brown said that a 51% local equity level was hugely problematic and would result in future growth opportunities in the industry being stalled, along with future investment decisions.

Zimplats is currently implementing Phase II of a $500 million expansion plan, which would see annual production of platinum rise from the current 180,000 ounces to 270,000 ounces in the 2014 financial year.

Some developments can be expected in the coming week, as the 14-day deadline runs out with government threats of fines, imprisonment and revoking of licenses still on the table.

As a group, Implats produced 1.74 million ounces of platinum and 3.69 million ounces of platinum group metals (PGMs) in financial year 2010. The group's operations on the Bushveld complex in South Africa and the Great Dyke in Zimbabwe give it an attributable mineral resource inventory (inclusive of mineral reserves) of 225 million ounces of platinum. Implats employs about 54,000 people (including contractors) across its operations: 49,500 in South Africa and 4,600 in Zimbabwe.

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