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Zimbabwe asset grab exposed in SA court case
Basildon Peta, The Cape Times (SA)
April 28, 2006

http://www.zwnews.com/issuefull.cfm?ArticleID=14261

Johannesburg - The pitfalls for foreign mining houses of doing business in Zimbabwe are graphically illustrated in a lawsuit against President Robert Mugabe's government that has been brought in a South African court. Mugabe last week maintained that all major foreign mining companies would be obligated to cede at least 50 percent equity to the Zimbabwean government once amendments to mining legislation had been finalised. This would in effect impose partnerships between these companies and the Zimbabwean government. But the involvement of Mugabe's cronies in a business could become the kiss of death, as revealed in papers presented in the Johannesburg high court by Southern African Asbestos Sales (Saas), a South African firm owned by Nathan Mariemuthu.

The problems for Saas began last year when the government unilaterally confiscated Zimbabwe's largest asbestos mining concern, Shabanie Mashaba Mines Zimbabwe Holdings (SMMZ), which is the world's fourth-largest asbestos producer. Saas had been a marketing agent for SMMZ and helped the Zimbabwean mining firm sell its products overseas. The Mugabe government seized all the mines and assets of SMMZ after accusing the firm's owner, prominent mogul Mutumwa Mawere, of illegally externalising foreign currency and charging him with a plethora of economic crimes. Attempts to arrest Mawere, who is a South African citizen, and bring him before a Zimbabwean court collapsed after a South African magistrate dismissed the extradition application. Having failed to extradite Mawere, the government proceeded to specify all the companies deemed to be under his control, followed by the promulgation of a presidential decree paving the way for the nationalisation of Mawere's empire. The named companies employ more than 19 000 people and generate annual revenues of about $400 million (R2.4 billion).

After seizing SMMZ from Mawere, the government successfully applied for the liquidation of Saas, alleging that the South African firm owed SMMZ more than R20 million. Judge Hilton Epstein of the Johannesburg high court granted the liquidation order despite spirited opposition from Mariemuthu and other directors of Saas, who rejected claims that Saas was indebted to SMMZ. In fact, Mariemuthu contended, Saas was actually owed about R12 million in money advanced to SMMZ. The full liquidation of Saas is yet to be completed in line with Epstein's order. But in its latest application, Saas wants the liquidation order set aside because of what the company describes as "fraudulent non-disclosure" by the Zimbabwe government and Alfres Gwaradzimba, who was appointed to run SMMZ on its behalf. Saas contends that if all material information had been disclosed, Epstein would not have granted the order. At issue is an admission by Gwaradzimba, which he made after Epstein's order, that he claimed a certain shareholding in Zimbabwe's largest agricultural services and equipment company, CFI Holdings. The purchase was made using money diverted from Saas that should have been remitted to SMMZ.

Saas contends that the transaction had a material bearing on its alleged indebtedness to SMMZ and should have been disclosed. There was no mention of a reduction in Saas's alleged indebtedness to reflect the offset in which its resources were used to acquire the CFI shares. But it is what happened at CFI after the government's entry via Gwaradzimba that indicates what may be in store for South African mining businesses that enter into forced partnerships with the Zimbabwe government. CFI failed to declare a dividend to other shareholders after it paid Gwaradzimba Z$39 billion (about R2.4 million at the official exchange rate). The payment was explained by CFI chairman Simplicius Chihambakwe in an interview with the Financial Gazette as being for "services rendered" only. This did not please other shareholders who felt they had been given a raw deal by being forced to forgo a dividend in the listed firm despite the fact that the company had performed well. The payment to Gwaradzimba strained the company's resources, meaning that no dividend could be declared for the financial year to September last year because the firm would have been left in the red. It is unclear how the money Gwaradzimba got from CFI was used. Saas has obtained the information about the goings on at CFI to back its application to lift the liquidation order granted by Epstein.

Legal observers said the fact that the Zimbabwean government or its representative could acquire a shareholding in a listed firm and then either demand or walk away with such a hefty payment at the expense of other shareholders was probably a bad omen for South African mining companies that are expected to surrender equity to the state. Local companies with investments in Zimbabwe include Impala Platinum, Aquarius Platinum and the unlisted Metallon. "Imagine the government demanding these huge payments from the joint mining operations, which it plans with the South African mining firms. Won't they go bust?" asked one lawyer who preferred not to be named. The lawyer also harshly criticised the earlier order liquidating Saas. He said the judgment amounted to condoning Mugabe's seizures of private assets in Zimbabwe and it had put the South African courts in a quandary. "If that precedent is followed, it means South African courts would in future be upholding Mugabe's nationalisation of private assets. Do we want to be giving legitimacy to Mugabe's patently illegal seizures?" Zimbabwe's new attorney-general, Sobuza Gula-Ndebele, has since advised that the seizure of Mawere's companies was illegal and declined to represent the government in pending court actions in Zimbabwe regarding the seizures. That has forced the ministry of justice, which issued decrees effecting the seizures, to hire a private law firm to represent it in court actions brought by Mawere. A high court in London has also indicated that the seizures were done illegally and has refused to condone a preliminary application by Gwaradzimba to have SMMZ assets held in the UK forfeited to Zimbabwe's government.

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