Akwatia diamonds spark fresh investor interest
Ghana Consolidated Diamonds is looking forward to a brighter future
The Eastern Regional town of Akwatia, home of once world-famous Ghana Consolidated Diamonds Limited (GCD) and West Africa’s biggest industrial diamonds mining concern, could spring back with renewed life and vigour if the government’s Divestiture Implementation Committee (DIC) is successful in identifying a technically and financially capable investor to take over the GCD’s operations.
The DIC is in the final stages of reviewing proposals from a number of interested parties and an announcement about a new owner could be made in early 2011, according to information received from reliable sources. If in addition to its recent oil finds, together with traditional gold and cocoa production, Ghana could once again become a major diamond producer, it could burnish even more the country’s growing reputation as an el dorado of investment opportunities in Africa.
After producing more than 100 million carats of diamonds over some 80 years, Akwatia’s prospects have declined in recent decades, as a result of a combination of under-investment and weak management.
Today, the once-bustling town has almost become a ghost town but for its hospital, which still provides medical care to its inhabitants, even under difficult circumstances, including unreliable power supply.
Gone are the speeding heavy duty trucks that transported tons of diamond-laden gravel from the mine pits to the plants. Today, GCD cuts a sorry picture. The plants with their conveyors linking the giant scrubbers to the gigantic storage silos all look like relics of a long distant past. GCD management and staff are unanimous in their view that what is left of their factory is only good for scrap, although the same management and staff nevertheless believe they can resuscitate the operations if given the opportunity. What used to be a giant mining machine hobbled to a final halt in August 2007, mainly due to decades of underinvestment; and also due to the depletion of its prolific Akwatia alluvial diamond field; as well as generally, to poor management since 1980 when GCD became a Government of Ghana wholly-owned company.
Now the company maintains a mere skeleton staff comprising top management, security personnel and a few technicians to keep the electrical and other systems running on the mining complex. Over 90% of the 810 workers at the time of closure of the plant are still awaiting their severance packages.
Against this backdrop of despondency, sources at the Ministry of Lands, Forestry and Natural Resources are confident of clinching a deal with foreign investors who have shown interest in GCD. “We’re very close to finding a credible investor to revive GCD,” a source at the ministry confirmed to GB&F.
“Of the 10 companies that bid to take over GCD, the Divestiture Implementation Committee (DIC) has done some pruning and in a matter of weeks we should be
entering into a contract that will get GCD back to its feet,” said a highly-placed source.
This should come as welcome news to the management of GCD, but they could be excused for their sceptisism on the basis that they have heard such promises in the past which never materialised.
“We’re cautiously hopeful,” says Mr. D. K. Kabe, Production and Managing Director of GCD, adding that there is unanimity among workers that GCD requires a foreign investor to revive it.
Kabe disclosed that Akwatia may be depleted, but it still holds 20 million cubic meters of alluvial tailings from previous operations, estimated at an average grade of 0.20 carats per cubic meter and thus holds some 4 million carats of diamonds. And with a
0.1 grammes per cubic meter grade of gold as a by-product, the tailings are also estimated to hold a total of 2 million grammes of gold.
A strong, well capitalised investor, with the latest technology, could extract the maximum output from this large resource.
Even better is the fact that the depleted Akwatia field, with an area of 111.6 sq. km, is only one of three major concessions held by the company totalling 474.5 sq. km. One is a gold concession near Akim Techiman, to the east of Akwatia, with an area of 122.7 sq. km.
“Not much exploration work has been done on the gold concession,” Kabe says, however initial estimates have gold grade ranging between 0.5 grammes and 1.0 gramme per cubic meter.
The other concession, prolific with industrial diamonds, is Middle and Lower Birim, which has an area of 240.2 sq. km. The management may be excited that DIC is to rope in an investor to revamp GCD imminently. Not so the junior staff, who think management is to blame for the present predicament of the mining company.
As is often the case, the junior staff, with their more limited understanding of the significant capital, technical and skills requirements for world-class mining, think that given the opportunity and financial support from government, they could run the company profitably.
However, they also fail to appreciate that since the 1980s era of divestitures, government is no longer interested in investing public funds in commercial enterprises where the private sector is ready to assume most of the risks.
Another senior official of the company, Mavis Yamoah, nevertheless holds the view that if given the opportunity to run the company, they would be more pragmatic and supportive of the agenda of reforming the mining sector of the country to benefit the people, more than any other mining company. One of the first challenges that the new investor may face is how to motivate a labour pool demotivated by years of mismanagement.
In many such operations, the investor will prefer to keep only such a lean and capable staff as is necessary to run operations profitably, and a certain percentage of staff must be readied psychologically to go through some retraining and find other sources of employment, including as independent suppliers of various services to their former employer.
Other costs to the investor would be the debt overhang, part of which is owed to utility providers such as the Electricity Company of Ghana.
Ghana’s diamond industry is facing hard times and requires significant investments to stay afloat
Probably, one of the challenges that the new investor may have to contend with early, would be how to motivate a pool of ready labour that had been demotivated by years of mismanagement.
“Our indebtedness runs up to about US$15 million,” says Kabe adding that an additional investment of approximately US$20 million would be required for plant and other equipment to get the company running.
Galamsey and Chinese Operators
Yet another challenge confronting the investor would be how to manage the small-scale miners, who presently have been given permission by GCD management to operate on their concessions and pay
up in lieu of license fees, with some of their diamond winnings. Perhaps, more difficult to manage would be those who mine the concession illegally, commonly called galamsey (gather them and sell).
It is now common to see excavators and water pumping machines dotting the Eastern Region, right through to the fringes of the Lower Birim, all the way into the Central Region, with a number of them on GCD concessions.
Even more worrying is the operations of Chinese nationals who are said to be creeping into Ghana’s small-scale mining sector with greater sophistication and in certain instances even overwhelming the local galamsey operators.
“The Chinese are now everywhere. We fear they will take over our business completely considering the amount of resources they have at their disposal. They are doing the galamsey more than us,” one local galamsey operator complained.
Perhaps these are early indications that without a serious effort at attracting a foreign investor soon, to throw a lifeline to GCD, encroachment on their concessions could pose a serious challenge. The question doing the rounds is that if foreigners, like the Chinese, for instance, are finding it more lucrative to engage in illegal and small-scale mining, why would they want to invest so much in a formal arrangement for resuscitating GCD.
The answer, of course, is that there are different levels and sizes of Chinese companies, with large state-owned or sponsored companies being the ones that usually acquire major assets in developing countries, while individual Chinese citizens freelance as best as they can and often with Ghanaian frontmen stretch Ghana’s laws and hospitality as far as they can go.
According to Kabe, however, most of the Ghanaian and Chinese small-scale miners on GCD concessions are operators licensed by the company to operate muddy and inaccessible
areas, as well as areas that had already been mined.
The Chinese are now everywhere. We fear they will take over our business completely considering the amount of resources they have at their disposal.
Both residents and staff of Akwatia diamond industry no longer care enough to turn the premises of the diamond company into a washing bay since the company shut down four years ago
The moribund situation of the major diamond mining
company is a reflection of the state of the jewellery
He says the revenue from their operations comes in handy since the company uses that to pay the Police Service as well as its own skeleton security staff to protect the reserve.
“But, of course, there are those who also operate illegally, but they are not really a big challenge to us, as compared to other sectors of the mining industry in the country where such activities take place,” he added, pointing out that illegal operations on the GCD concession as a whole is insignificant, and that compared to only the proven reserves, the operations of illegal miners would constitute about three percent of GCD’s total worth.
According to the Minerals Commission, proven reserves in the Middle and Lower Birim stand at 10.55 million carats, in addition to other areas, where partial exploration work has been done and is estimated to hold 3.49 million carats bringing the grand total to over 14 million carats of diamonds. The total excludes diamonds of less than 1mm diameter.
“We did exploration work on only deposits along the river banks, we haven’t worked the terraces and other deposits and therefore further work will improve the reserves significantly,” Kabe said. Again, numerous new technologies could help an investor in GCD expand its proven reserves significantly.
GCD’s mouthwatering concessions are every investor’s dream and coupled with the company’s pool of experienced labour to draw from, the baggage of a debt overhang should not be an insurmountable challenge to any investor.
GCD’s history has been both inspirational and unenviable. The prolific Akwatia alluvial diamond field had been worked since 1924, in the colonial times, by Consolidated Africa Selection Trust, until 1972, 15 years after the country’s independence, when its operations were taken over by the GCD, a company in which the Ghanaian Government held 55% shares, the remainder being held by the Selection Trust of London.
In 1980, Selection Trust, which had by then been absorbed by BP Minerals, relinquished its shareholding and the company became fully owned by the Ghanaian Government.
Clearly, by then, Akwatia was on a steep decline. More than 100 million carats of diamonds have been recovered over the years, but production has declined steadily from a peak of 2.5 million carats annually in 1972, when Government acquired majority shares, to a paltry 75,737 carats in 2006.
GCD has been on the divestiture list since 2000, among 15 other state-owned enterprises, following the sale of more than 200 other companies between the late 1980s and the 1990s. In 2003, the DIC opened tenders for foreign investors to participate in the mining company’s operations.
The winner of the bid, Sapper and Associates, failed to pay by the stipulated deadline the amount of US$3.2 million, constituting 10% of the total bid of approximate US$34 million.
In the words of Deputy Regional Minister Baba Jamal, “We are not going to award the bid to an investor who cannot operate the company, but one who is more serious and dedicated to the developmental agenda of the country.”
Hopefully, that would happen sooner than later as it would go a long way to meet the job aspirations of the teeming unemployed youths in the region and bring back the brisk, sparkling hive of economic activities
Akwatia was once known for.
Map of concession areas showing viable areas where investors can expect maximum returns