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Government warned against bogus investors

Eurasian Resource Group chief executive Benedikt Sabotka

PRESIDENT Emmerson Mnangagwa’s administration has been warned to exercise caution when dealing with Eurasian Resource Group (ERG), which is planning to acquire ZimAlloys.

This comes as government has over the past year signed questionable mining and energy deals with shady characters and firms such as Boustead Beef, Nkosikhona Holdings and Invictus Energy among others.Mining experts assert that the Kazakhstan-based ERG lacks capacity to embark on meaningful investment in Zimbabwe’s chrome sector.”ERG is using a middleman who was appointed the Honorary Consul in Minsk, Belarus by Mnangagwa when the president visited the East European nation in January, to bribe the government to get a deal from ZimAlloys,” said a Mines ministry official.
People familiar with the matter also noted that ERG chief executive Benedikt Sabotka was spotted in Victoria Falls last week where he attended a chrome conference, as he moves to increase his firm’s footprint in the Zimbabwean mining industry through the acquisition of ZimAlloys. The Gweru based ferrochrome producer, under judicial management last year terminated a $100 million investment deal which it had entered with Indian investor Balasore Alloys Group after the Asian company failed to honour its commitment.ZimAlloys stopped operations in 2008 and was placed under provisional judicial management in 2014, before being put under final judicial management in the November of same year.ERG — formerly known as Eurasian Natural Resources Corporation — was delisted from the London Stock Exchange in 2013 when its shares tumbled significantly following a series of scandals, including allegations of fraud, bribery and corruption relating to the company’s activities in Kazakhstan and Africa.However, ERG — under new chief executive Benedikt Sobotka — claims to have turned the corner and cleaned its act, and recently identified Africa as key in its long-term international growth strategy.People familiar with government operations noted that executives at the controversial resource firm, which has interests in Todal Mining — a joint venture firm between ERG and state owned Zimbabwe Mining Development Corporation (ZMDC) — were spotted in the country in the past few weeks. Todal is expected to mine platinum in Zvishavane on a piece of land that was previously owned by Anglo American. Sobotka has been to Zimbabwe in the past few days and has met with Mines minister Winston Chitando on several occasions.Although ERG has indicated intentions to increase its mining portfolio to include chrome and ferrochrome, but questions have been raised about the company’s history in the Democratic Republic of Congo.ERG became the focus of intense criticism when in 2010 it bought assets in the DRC that the country’s government had seized from First Quantum.  The company later agreed a $1,3 billion settlement with First Quantum.A United Kingdom government watchdog recently criticised ERG for failing to address human rights impacts at mine sites under the control of its subsidiaries in the DRC.According to the findings, ERG — though not directly responsible — had been aware of the contamination of water sources at two mine sites in southern DRC controlled by its subsidiaries, Comide and Africo Resources Limited.Several thousand people living in the remote villages of Lenge and Kisankala, which lie on neighbouring mine sites, were effectively denied access to clean water.

ERG was also aware from its due diligence report that “the population in the vicinity of the Comide and Africo licences is largely poverty stricken”.Industry experts said while ERG has a competitive project pipeline in Africa, with an existing footprint that includes copper and cobalt production assets in DRC and Zambia, and development stage platinum, coal, manganese, bauxite and fluospar assets in Zimbabwe, South Africa, Mozambique and Mali, there was need for Mnangagwa’s administration to scout for credible investors.“While it is true that the new government is open for business, but that should not translate to mean that every foreign firm is an investor. The government should conduct due diligence with all investors so that it doesn’t tarnish its image,” said an official in the Mines ministry.Although ERG did not respond to questions from the businessdaily about its expansion plans on Zimbabwe, the company maintains that it has strong ethical standards in all aspects of its operations.The group also claims to have an active social investment programme spanning education, healthcare and training for local employees and it takes active steps to ensure the integrity of its supply chain.