Military stake stymies R57bn Zim platinum project

A plan to build Zimbabwe's biggest platinum mine at a cost of about $4bn (about R57bn) 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 Corporation, 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.

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

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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 $4bn figure is a government estimate of the cost to develop the mine and associated infrastructure.

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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 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.

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

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.

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.