* Record gold prices behind sector growth
* Foreigners in theory banned from small-scale mining
* China says sector must be handled by local laws
By Hereward Holland
DIKOTO, Ghana, March 14 The groan of excavators,
abandoned pits filled with stagnant brown water and the local
chief's expensive off-road car hint at the mine tucked away in a
bamboo forest in Dikoto, western Ghana.
Its gold rush started well before it was given borders and
colonially branded the Gold Coast. But record world bullion
prices are luring a fresh wave of fortune-seekers -- this time
An increasing number of small mines are owned by Ghanaians
on paper but controlled illegally by Chinese entrepreneurs,
according to miners, concession-owners and security forces
interviewed by Reuters during a trip to Ghana's mines belt.
Last year, Dikoto's village chief was brought before the
Minerals Commission and warned about hosting illegal Chinese
miners. In separate police moves, some 25 Chinese nationals have
been arrested this year for illegal mining.
"Once the gold price starts growing, that's the motivation,"
said Daniel Owusu-Koranteng of WACAM, a local advocacy group for
mining communities and the environment.
"People will do anything to extract the gold on the blind
side of the law in very marginalised areas," he said.
Remote rural communities have yet to benefit from economic
growth in Ghana which, thanks to oil finds, is seen hitting 13
percent in 2011.
Over 100,000 Ghanaians engage in small-scale extraction,
known locally as "galamsey", short for "gather and sell," many
without permits. Their work comprises almost 20 percent of gold
output, making Ghana the second largest exporter in Africa.
Foreigners are forbidden from galamsey under the Mining Act
which confines them to large-scale open pit mining and which
initially meant Chinese outfits restricted themselves to
providing ancillary services to the smaller mines.
The now-ubiquitous Chinese-made "Chang Fa" crushers and
grinders started appearing three years ago, as did "Chinese
blankets", mats which rely on an old technique known as "gravity
concentration" to separate minerals and catch gold granules.
But industry experts say the Chinese have gradually pushed
further into the industry, providing capital to cash-strapped
miners and increasingly purchasing land to extract ore
Pinning down the exact role of Chinese in the sector is
difficult given that some 30,000 nationals now live and work in
Ghana, according to immigration data.
A recent WACAM study showed around 120 Chinese were living
and working in Dikoto and three surrounding villages -- just one
of many pockets of activity whose legality is hard to ascertain.
Reuters sought access to the Dikoto mine to verify reports
that Chinese are still working there but were prevented from
doing so by a representative of the local chief.
One concession-owner familiar with the area estimated that
over half of all concessions are now controlled illegally by
"Chinese people have built a network of local people,
including leaders of small scale miners, local chiefs and
sometimes even security agents to provide them with necessary
cover," Owusu-Koranteng told Reuters.
A common arrangement, the concession-owner said, is for the
Chinese operator to pay their local Ghanaian partner an upfront
fee of $20,000. The on-paper concession owner then receives a 10
percent cut of output and the local chief getting a slice.
Gold last week hit a record $1,444.40 per ounce on world
markets as investors see it as a safe haven amid uncertainty for
the global economy, making it a lucrative source of profits.
China, which last year overtook Europe as Africa's largest
trading partner and sees the continent as a vital strategic
partner in its quest for resources, insist the problem is one
for local authorities to deal with.
"There are many Chinese living overseas so I don't think I
will be capable to know what is happening to each and every
Chinese in every corner of the world," Commerce Minister Chen
Deming said during a trip to Ghana this year, arguing that any
illegal mining be punished under Ghanaian laws.
Yet local resentment is building, both because of harsh
working practices in some of the alleged Chinese-run mines, and
because they are seen as less accountable than mining majors who
can face penalties if they do not pass environmental tests.
While local galamsey miners also use cyanide and mercury to
separate the gold from its ore, the health risk from such
methods is seen greater from Chinese mines which tend to operate
on a larger scale.
"What the Chinese are doing is destroying our land as well
as the rivers," said local mine operator Kwamena Aikins.
"The disadvantage of the Chinese people engaging in this
business outweighs the advantages."