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Opinions of Friday, 27 August 2010

Columnist: Agyeman, Harold

Saving Ghana’s Diamond Industry: Is Disinvestment The Best Option?

It is a well known fact that Ghana’s diamond industry is facing hard times.
Production volumes have been falling, and employment generation from the industry,
both formal and informal - has declined.

Production statistics do, indeed, indicate that in 2009 diamond production declined
by almost 50 per cent. While this, in part, is due to the diversification of the
portfolio of small-scale miners (or licensed galamsey operators), away from diamond
mining to gold, as a result of the better market prices prevailing for gold, it is
undisputed that the moribund situation of the major diamond mining company in West
Africa – the Ghana Consolidated Diamond (GCD) Limited - is a major contributory
factor. GCD Ltd. has since August 2007 closed down its operations, leading to the
severance of almost 807 workers, who are yet to be paid their severance package, and
who, while in employment, kept the small town of Akwatia alive and functional. The
township of Akwatia is reported to be hanging on critical life support in need of an
urgent new lease of life.

The survival of Ghana’s diamond industry is therefore connected to the survival of
the Akwatia mines.

In looking at the way forward in revamping the industry it is important to recall
that the structural weaknesses that precipitated the decline of GCD are known. When
the Acheampong regime partially nationalised the company in the 1970s and the
Selection Trust of London decided to pull out its 45 per cent shareholding, the
management of the now wholly-owned Ghana Government company became slightly
dysfunctional. With little governmental interest to demand accountability and a
dearth of plant and equipment renewal (the newest plant was commissioned in 1965),
the company began its downward slide, in sharp contrast to Ashanti Goldfields
Corporation where Ghana Government’s keen interest led to sharp improvements in the
fortunes of the Obuasi mines.

In the history of GCD, it appears that its good days were those associated with
foreign partners. This may perhaps be the reason why some, particularly the workers,
tend to be eager to call for foreign investors to take over the operations of the
mine as a way of resolving the difficulties the company has worked itself into.
Indeed, the Divestiture Implementation Committee has for close to a decade and half
now had GCD on its divestiture list. Previous attempts to divest the company were
remarkable failures and a new attempt, which it is hoped would be successful, was
initiated in March 2010 with the opening of tender. In the aftermath of the tender
the traditional leadership of the township where the diamond concessions are located
have petitioned the Ghana Government for its interest to be given to one Great
Consolidated Diamonds Limited (GCD Ltd. also) for reasons that relate, perhaps, to
their belief that the new GCD might be able to better run the mine. If the bidding
process brings out a credible company, that would be good development.

However, for the self-esteem, integrity and selfish interest of Ghanaians, I hold
the view that the Ghana Government should rather than follow the thrice repeated
attempt at selling off the mine, resuscitate the company and allow Ghanaian staff to
turn around its fortunes to show to the world that “after all the black man is
capable of managing his own affairs”.

Results from exploration projections show that the alluvial tailings of the Akwatia
concession of the GCD mine alone contain close to 4 million carats of diamonds (of
0.2 grade) and 2 million grams of gold. Also, initial exploration works on the
middle birim river and lower birim river suggest proven reserves in excess of over
14 million carats of diamonds. This excludes exploratory works on the terraces and
other deposits, where aside diamonds, there are great prospects for other minerals.

A rough financial estimation for the Akwatia concessions alone should therefore be
giving revenues in the region of US$50 million for the gold in the tailings and
depending on clarity, colour etc. close to US$2 billion for the diamonds in the
tailings. When the other concessions are brought on board the revenue projections do
indeed look promising. With this kind of revenue under consideration, the Ghana
Government should be in a position to assist the company access funding from the
public purse itself or provide support for the company to access international
credit at reasonable terms for its working capital and equipment.

It is understood that the company requires, in the short-term, US$15 million for its
liabilities, including arrears owed VRA and the severance package of retrenched
workers (that could, however, be paid in phases based on negotiations with the
concerned taking into account the expected revenue streams when the activities of
the company are reactivated). Also, it is understood that an additional US$20
million is needed for new plant and equipment, making a total US$35 million needed
to re-start operations.

Considering the revenue potentials, however, it would seem reasonable for the Ghana
Government to reconsider its long held view that the mine should be disinvested. It
would also be reasonable to expect that any further involvement by the Ghana
Government in re-capitalising GCD Ltd. would need to proceed along some clear-cut,
no nonsense business lines.

First, there would be need for a complete restructuring of the company, its
organisational structure, corporate governance principles and accountability regime,
conditions of service of staff, mode of operation, etc., aimed at ensuring
effectiveness and efficiency in the mining operations, adopting cost-effective and
competitiveness measures in comparison with global comparators and renewing the
personal and professional integrity of the staff. Audited accounts and some AGM
accountability would need to be in place.

Second, re-equipping decisions should be based on sound business argument. For
instance, new processing plants required should be close to the mine area to reduce
haulage costs which have bedevilled the company in the past just as modern security
tools would be required to reduce pilfering of diamonds. If self-generated
electricity from the water dams of the company could be deployed to augment the VRA
supplies and reduce cost that should also be considered. In other words, a new
business model should be developed as the old ways of doing business has not brought
sustainable result for the company.

Third, the mined diamonds and gold, etc should be enhanced by bringing in service
providers who can cut, polish the diamonds or refine the gold for prime global
markets to ensure that maximum value and returns for the products on the
international market.

Fourth, the Ghana Government must take the decision to offload a significant portion
of its 100 per cent share in the GCD (about 40 per cent) on the Ghana Stock Exchange
for the Ghanaian public. The traditional authorities on whose land the mining
activities take place could also be assigned a 10 per cent interest in trust.

Fifth, the reclamation of the mined out land should be done in such manner as can
provide employment for the youth of the mining area. In this regard, jatropha
cultivation could be carried out for the production of bio-diesel which would then
be processed and given to TOR or any such entity for blending. The benefits to both
the company and community are obvious.

Indeed, there are many more small ideas that can and should be generated to revamp
GCD and other distressed state-owned commercial enterprises, to justify the claim we
all believe and aspire to fulfil: that the Blackman is indeed capable of managing
his own affairs.

H. Agyeman, Antoa, A/R