Mining Industry of Ghana - History

History

Ghana has produced and exported gold for centuries. In precolonial times, present-day Ghana was one source of the gold that reached Europe via trans-Saharan trade routes. In the fifteenth century, Portuguese sailors tried to locate and to control gold mining from the coast but soon turned to more easily obtained slaves for the Atlantic slave trade. Most gold mining before the mid-nineteenth century was alluvial, miners recovering the gold from streams. Modern gold mining that plumbs the rich ore deposits below the Earth's surface began about 1860, when a Fante man of mixed-race by name Thomas Hughes, imported heavy machinery to begin mining in the western areas of present-day Ghana. His machinery was however sabotaged and could not start. Actual mining began in the late 1870s to early 1880s. The richest deposit, the Obuasi mine, was discovered by two Fante men by name Joseph Ellis and Joseph Biney who were later joined by another Fante man Joseph Brown. They sold the rights to the deposit cheaply to E A Cade because of British government's duplicitous behaviour. E.A. Cade, the founder of Ashanti Goldfields Corporation (AGC). Since the beginning of the twentieth century, modern mining in the Gold Coast has been pursued as a large-scale venture, necessitating significant capital investment from European investors.

Under British colonial rule, the government controlled gold mining to protect the profits of European companies. The colonial government also restricted possession of gold as well as of mercury, essential in recovering gold from the ore in which it is embedded. Following independence, foreign control of the sector was tempered by increasing government involvement under the Nkrumah regime; however, production began to decline in the late 1960s and did not recover for almost twenty years. In the mid-1960s, many mines began to hit poorer gold reefs. Despite the floating of the international gold price in the late 1960s, few investors were willing to invest, and the government failed to provide the capital necessary to expand production into new reefs. Of the two major gold mining enterprises, neither the State Gold Mining Corporation nor AGC (40% controlled by the government) expanded or even maintained production.

Under the ERP, the mining sector was targeted as a potential source of foreign exchange, and since 1984, the government has successfully encouraged the rejuvenation of gold mining. To offer incentives to the mining industry, the Minerals and Mining Law was passed in 1986. Among its provisions were generous capital allowances and reduced income taxes. The corporate tax rate was set at 45%, and mining companies could write off 75% of capital investment against taxes in the first year and 50% of the remainder thereafter. The government permitted companies to use offshore bank accounts for service of loans, dividend payments, and expatriate staff remuneration.

Ghana's mineral sector had started to recover by the early 1990s after its severe decline throughout the 1970s. One indicator of the scale of decline was that by 1987, only four gold mines were operating in Ghana, compared with eighty in 1938. Throughout the 1970s, the output of gold, as well as bauxite, manganese, and diamonds, fell steadily. Foreign exchange shortages inhibited mine maintenance, new exploration, and development investment. The overvalued cedi and spiraling inflation exacerbated mining companies' problems, as did smuggling and the deteriorating infrastructure. Energy supplies failed to meet the industry's growing needs; foreign exchange shortages constrained oil imports, and domestically generated hydroelectricity was unable to make up the shortfall.

After 1983, however, the government implemented a series of measures to enhance the sector's appeal. In 1986 new mining legislation for the gold and diamond sectors replaced the previous complex and obsolete regulations, and a generous incentives system was established that allowed for external foreign exchange retention accounts, capital allowances, and a flexible royalties payment system. Since then the sector has benefited from a wave of fresh investment totaling US$540 million since 1986, and by the early 1990s mining was the country's second highest foreign exchange earner.

Under legislation passed after 1983, the government liberalized and regularized the mining industry. For the first time, the government made small claim-holding feasible, with the result that individual miners sold increasing amounts of gold and diamonds to the state-operated Precious Minerals Marketing Company. In 1990 the company bought 490,000 carats (98 kg) of diamonds and 20,000 ounces of gold and earned a total of US$20.4 million through sales, 70% of it from diamond sales and 30% from gold bought from smallscale operators. Diamond output totaled 688,000 carats (138 kg) in 1991 and 694,000 carats (139 kg) in 1992, while gold production amounted to 843,000 fine ounces in 1991 and 1,004,000 fine ounces in 1992. Furthermore, the government succeeded in attracting significant foreign investment into the sector and, by early 1991, had signed over sixty mining licenses granting prospecting rights to international companies. To forestall domestic criticism of large-scale foreign control of the sector, the government announced in mid-1991 the establishment of a state-controlled holding company to buy shares in mines on behalf of private, that is, foreign, investors.

In the early 1990s, the government announced plans to privatize its diamond-mining operations and to expand production. At Accra's invitation, De Beers of South Africa agreed to undertake an eighteen-month feasibility study to determine the extent of the Birim River Basin diamond reserves. The survey was to cost US$1 million. A De Beers subsidiary will be the operator and manager of GCD, while Lazare Kaplan International, a New York-based diamond polishing and trading company, will produce and market the diamonds.

In 1989 the government established the Precious Minerals Marketing Corporation (PMMC) to purchase minerals from small producers in an effort to stem diamond smuggling. Estimates suggested that as much as 70% of Ghana's diamonds were being smuggled out of the country in the mid-1980s. In its first sixteen months of operation, the PMMC bought 382,423 carats (76.485 kg) of diamonds and 20,365 ounces of gold and sold 230,000 carats (46 kg) of diamonds worth US$8 million. The corporation also earned ¢130 million in 1991 on its jewelry operations, up 48% from the previous year, and it planned to establish joint marketing ventures with foreign firms to boost sales abroad. Nevertheless, because of new complaints over raw gem sales, the government in March 1992 ordered an investigation into the operations of the state agency and suspended its managing director.