* 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 (Reuters) - 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 from China.
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 themselves.
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 businessmen.
“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.”