GHANA MINING HIGHLIGHTS, NOVEMBER 2008

UNCLAS ACCRA 001522

WHITE HOUSE FOR USTR LAURIE-ANN AGAMA
DEPT EEB FOR USITC BRENDAN LYNCH AND MICHAEL FERRANTINO


SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EMIN EIND EINV KPRV GH
SUBJECT: GHANA MINING HIGHLIGHTS, NOVEMBER 2008


1. SUMMARY:


A. The Government of Ghana announced the privatization of its
troubled state-owned aluminum company, along with accompanying
foreign investments worth USD 4.5 billion. The purported
international buyers announced that no such deals existed.


B. Ghana has benefitted from increased gold prices, while diamond
production has shrunk. Although mining operations have been subject
to increased input costs and perennial social and political
pressures, new investments in Ghana's mining sector continue.

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A. Privatization of VALCO: Chimera Deal, Fiasco Real
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2. (U) Parliament approved the partial privatization (70 percent
sale) of the state-owned Volta Aluminum Company (VALCO) for USD
175.5 million. (NOTE: VALCO was originally established by Kaiser and
ALCOA in the 1960s. Kaiser sold its 90 percent share to the GOG in
2004, and ALCOA sold its 10 percent share in June of 2008. (Rio
Tinto mines bauxite in Ghana, but exports it for processing.) While
VALCO could potentially produce 200,000 tons of aluminum a year, it
has been shuttered since March 2007 due to high power prices
resulting from lower water levels at the Akosombo Dam. Opposition
politicians questioned both the terms of the sale, and the current
government's apparent haste in concluding these deals during its
'lame duck' period.

3. (U) The alleged buyer of the 70 percent share was represented to
parliament as 'International Aluminum Partners,' a consortium of
Brazilian mining firm Companhia Vale do Rio Doce (CVRD, aka 'Vale')
and Norway's Norsk Hydro. Simulataneous with the sale, the
Government announced that the consortium would invest USD 4.7
billion for two new bauxite mines, a 2 million ton alumina refinery
in Tema, upgraded rail links between Tema and Kumasi, and a new 1200
Megawatt thermal generation plant at Tema.

4. (U) Subsequent to the announcement of parliamentary approval for
the sale, Reuters reported that both Vale and Norsk Hydro denied the
existence of any agreement or commitments. Norsk Hydro's spokesman
is quoted denying the deal, saying, 'Norsk Hydro has no plans to
make any investments in Ghana.' Vale confirmed that they had
commissioned a feasibility study from VALCO, but stated that Vale
has no interest in taking part in the reopening process of the
aluminum smelter. The spokesman refused to speculate about the
potential bauxite mine or alumina refinery project pending the
completion of the study.


5. (SBU) Ghana's Minister of Trade, Industry & Private Sector
Development, Papa Owusu-Ankomah, commented to the press that he was
astonished by the firms' denials, and admonished local reporters
that the deal was sensitive and that their reporting could cause the
consortium to back out from the deal. COMMENT: The Minister's
feigned shock is likely a public face-saving gesture. The GOG's
inability to provide guarantees for steady electric power at low
rates makes the sale of VALCO a difficult task, as underlined by the
skittishness of the GOG's annointed saviors of its aluminum
industry. END COMMENT.


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B. Extractive Industries: Diamonds Fall, Gold Rises
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6. (SBU) The relationship between mining companies and their host
communities is often contentious in Ghana. Presently, Newmont Gold
Ghana Limited (Newmont) is facing opposition from community members
from the protected Ajenjua Bepo Forest Reserve at New Abriem in
Ghana's Eastern Region. Newmont's plans include open-pit operations
on 70 hectares of the reserve. Local community groups have
expressed opposition and claim that the project will devastate the
livelihoods of over 7,000 people due to environment degradation,
while displacing 1,000 others. Newmont is awaiting an approval from
the Environmental Protection Agency (EPA) in Ghana. COMMENT:
Embassy contacts at Newmont (PROTECT SOURCE) privately suggest these
are standard pressure tactics to secure additional compensation and
'community benefits' from the company. END COMMENT.


7. (U) On October 20, the GoG brought a motion to Parliament to
develop a new mining lease agreement between the GoG and the 21
mining companies currently operating in Ghana. Since most of the
mining leases were developed between 1994 and 2007 and were never
formally ratified by Parliament, this development sets the stage for
more political pressure and demands on mining companies, to be
formulated by the next government.


8. (U) Gold prices have risen on the world market; Ghana's national
gold holdings as of September 18, 2008 were valued at USD 245.741
million. Ghana's diamond production in the first half of 2008 was
395,236 karats, down 22 percent from the first half of 2007. All
mining operations in Ghana have been challenged by rising costs of
electricity, fuel and other inputs.


9. (U) Chirano Gold Mine, a Canadian mining firm in the Western
Region of Ghana, will invest over USD 80 million to expand its plant
processing capabilities and to commence an underground mining
operation. The project is expected to nearly double the company's
annual production rates from 130,000 to 250,000 ounces per year.

TEITELBAUM