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Mugabe threatens expropriation of foreign mining assets in Zimbabwe

Zimbabwe President Robert Mugabe.


Just when Zimbabwe's battered economy seemed to be turning a corner, President Robert Mugabe has fired a new salvo at foreign investors, threatening to expropriate the assets of Canadian gold miners and other companies.

With its gold and platinum mines and vast diamond fields, Zimbabwe has the potential to be one of Africa's fastest-growing economies. But it has been severely damaged by a decade of political turmoil, including the seizure of white-owned farms and a controversial "indigenization" campaign to compel foreign companies to sell majority stakes to Zimbabweans.

Now, the government is reported to be drafting a new amendment, allowing it to take controlling stakes in foreign mining assets without paying any compensation.

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The amendment, if approved, could affect companies such as Toronto-based Caledonia Mining Corp., which operates the Blanket gold mine, one of the more successful mines in the country. It could jeopardize the recent strong recovery in Zimbabwe's gold sector, which increased its revenue by 19 per cent last year.

Caledonia and several other mining companies had spent months negotiating agreements to comply with Zimbabwe's indigenization rules, and their gold production has finally begun to boom. But now those deals are at risk of being torn up, eliminating the compensation that the companies were counting on.

Most foreign investors in Zimbabwe are refraining from any official comment on the proposed amendment, since it has not been formally introduced and its exact status is unclear, although its existence was reported by several media outlets this week.

But the reported draft amendment is a blow to their hopes for a brighter future. While the government remains dominated by the autocratic Mr. Mugabe, the current cabinet is a coalition of Mugabe loyalists and members of his main opposition party, and it has helped to stabilize the country. Last month, the coalition won a referendum to approve a more democratic constitution, allowing some of the international sanctions against Zimbabwe to be lifted.

Yet now, just when the country seems on the verge of recovery, the investors are faced with the potential loss of their ownership stakes. "It's very frustrating," a Caledonia official said, speaking on condition of anonymity. "It undermines the improved shareholder perception. It potentially undoes the last six months of our performance and marketing."

After struggling with power shortages and political uncertainty in 2010, the Blanket mine has become increasingly productive. Its gold production rose 27 per cent last year to a record 45,465 ounces, and it increased by a further 14 per cent in the first quarter of this year, compared with the same period last year. The company is aiming to produce 76,000 ounces a year by 2016. It says its gross profit soared 41 per cent to almost $41-million (U.S.) last year.

Another miner, Toronto-based New Dawn Mining Corp., reported a 5.9-per-cent increase in gold production at its mines in Zimbabwe in the first quarter of this year, compared with the same period last year, with nearly $15-million in sales.

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In an attempt to comply with the indigenization rules, Caledonia agreed last October that it would transfer 51 per cent of the Blanket mine to Zimbabwean investors, company employees and local community members. In exchange, it would receive $30-million in proceeds, as its loans to the new stakeholders are repaid.

With the indigenization deal settled, Caledonia planned to invest $37-million in expanding its gold production. It is unclear if those goals can be achieved if Zimbabwe goes ahead with a new amendment to allow foreign mines to be taken without compensation.

Analysts are skeptical about Mr. Mugabe's populist rhetoric about the benefits of taking over foreign companies. "Indigenization, say its champions, is designed to empower Zimbabweans," Dianna Games, an African business consultant, wrote in a Johannesburg newspaper. "But the grabbing of foreign assets in its name appears to be mostly enriching political elites."

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About the Author
Africa Bureau Chief

Geoffrey York is The Globe and Mail's Africa correspondent.He has been a foreign correspondent for the newspaper since 1994, including seven years as the Moscow Bureau Chief and seven years as the Beijing Bureau Chief.He is a veteran war correspondent who has covered war zones since 1992 in places such as Somalia, Sudan, Chechnya, Iraq and Afghanistan. More


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