Opinion

The Sierra Leone Diamond Sector: My Heart Continues to Bleed

20 April 2009 at 17:37 | 2386 views

By Engineer Pierre Light-foot Boston, USA.

Part 2

It is crystal clear that the Sierra Leone mining Industry is facing numerous problems and challenges. One of the most critical problems that has not been addressed in decades by previous authorities is the non-existence or lack of indigenous large scale mining companies in Sierra Leone. On the other hand previous governments have been so anxious to attract ‘ foreign investment’ in the mining sector, which mostly result in the government losing much needed revenue, which is due to number of factors, which include, but not limited to the following; Government giving huge tax subsidies to the industry, mining companies continuously push for tax breaks in secret mining contracts, amounting to an aggressive tax avoidance strategy and the problem of capital flight---this specifically refers to the fact that all profits generated by foreign mining companies are return to their respective countries in the disguise of making returns to their shareholders or investors.

On the other hand an indigenous company will certainly reinvest his profits within the Sierra Leone economy thereby creating jobs and adding to the government coffers through the process of paying taxes. I would examine the lack of indigenous companies in the mining sector, so we can have a clear and concise understanding of the lack of indigenous involvement. At this point I would like to present an overview of the Sierra Leone Mining Industry, because it is important to note that Sierra Leone Mining Industry does not only entails mining of diamonds. This reminds of a very interesting encounter I had with a Sierra Leonean. Question was ‘ Pierre, as a mining engineer, What other minerals are been explored, extracted and mined in Sierra Leone on a large scale operation? It was a short and simple question, which had to be answered with a long and detailed answer. For all the readers who have followed the previous piece and also reading this piece I will give a comprehensive overview on the Sierra Mining Industry.

The Sierra Leone Mining Industry

The Sierra Leone Mining Industry is made up of three sub-sectors, namely artisanal and small-scale production of precious minerals-mainly diamonds and to a lesser extent gold, large-scale production of precious minerals and large scale production of non-precious minerals-bauxite and rutile.

Artisanal and small-scale production of precious minerals

Artisanal mining refers to the use of simple equipment and tools, e.g shovels and sieves. The process invovles digging and sifting through mud, gravel and sand using shovel, sieves and rarely bare hands. Artisanal mining is sometimes characterized by low productivity, lack of safety measures and high environmental impact.

An artisanal miner is, in effect, a subsistence miner, who often undertakes the activity of mining diamond seasonally - for example crops are planted in the rainy season, and mining is pursued in the dry season. They are not officially employed by a mining company, but rather work independently, mining or mining for diamonds or gold using their own resources.

Small scale miners are often, but not always, legal operators usually working in collectives of about two to 20 or more people. They have greater structure and organization to their workings than perhaps artisanal miners and often make use of rudimentary processing plants.

It is valid for one to describe the Sierra Leone artisanal and small-scale production of precious minerals as a ‘lottery or casino system’ wherein the only element that counts is luck. This is particularly true for diggers and license holders. Most are gambling on finding a large diamond. In fact, both diggers and license holders refer to the money they earn as “winnings” rather than salaries or profits, and the diggers appear to prefer a system of payment in which they receive little or no wages, but share in the value of the diamonds they mine. The individuals who mine diamonds are unskilled laborers working, in most cases, with nothing more than a shovel or a sieve. Diggers normally work six days a week from 8:00 am until 5:00 pm, with a 30 minute lunch break. There are several methods by which diggers are paid, all decided by the license holder who hires them.

Casino System: License holders who prefer this system normally pay diggers between Le1000 and Le1500 (US 39-59 cents) per day and provide them with two cups of rice each day for lunch. The diggers on a given plot will also collectively share 30 per cent of the value of any diamonds mined. If 50 diggers work on a plot, each would receive 1/50th of 30 per cent of the value of the diamonds produced. Or the share may be decided arbitrarily by the gang leader. Diggers working under this system are gamblers. They work for very little money and bet on both a high return and an honest license holder.

Pay Per Win System: In some cases, diggers will negotiate the price of the diamonds they find, although this requires some knowledge of diamond values, which few have in any great detail.

Daily Wage: License holders who employ diggers under this kind of arrangement usually pay a daily wage of approximately Le5000 (US$2) per day, plus some rice for lunch. For a 25-day working month a digger would earn about US$50.00. Diggers receive no share in the diamond proceeds. Under this system, diggers are more likely to steal diamonds, as they have no stake in what they turn in.

Pile System: There are variations, but generally all diamond-bearing earth and gravel is separated into three piles, each “belonging” to one of three groups involved in the operation: diggers, the license holder and their supporter. Any diamonds found belong to the person in whose pile they are found. Although there are variations, and several systems may work at once, even at the same site, historically, most diggers have preferred the casino system, “betting” on a share of the “winnings”. Being a digger, however, is not entirely a gamble. Monitoring the diggers is difficult and many undoubtedly steal diamonds and sell them independently if they can.

It is important to note that the artisanal sector needs to be highly regulated by authorities, since it accounts for 80-90% of diamond exports. A good number of the output of artisanal mining is normally unaccounted for due to widespread smuggling and as a result of the smuggling the government losses enormous revenue in the form of taxes which would have used for development projects.

Large Scale Production of Precious Minerals

Large scale production of minerals usually involves a registered company that employs a substantial amount of employees and utilizes large and sophisticated equipment to mine precious minerals. Large and sophisticated equipment are as follows; earthmovers, wheel loaders, excavators, dump trucks, crawler tractors and motor graders. Government officials have described Koidu Holdings as a large scale production company, however it should be noted that there are no specifications in the Sierra Leone mining code that provides the public with the criteria used to determine whether a company is mid-size or large scale .

Large Scale Production of Non-Precious Minerals

Large scale production of Non-Precious minerals usually involves a registered company that employs a substantial amount of employees and utilizes large and sophisticated equipment to mine precious minerals. Large and sophisticated equipment are as follows; earthmovers, wheel loaders, excavators, dump trucks, crawler tractors and motor graders. Titanium Resources Group is the only company in Sierra Leone involved in large-scale production of non-precious minerals, namely Bauxite and Rutile.

Non-Existence or Lack of Large Scale Indigenous Mining Companies

Large scale indigenous mining companies are non-existence in Sierra Leone, which will be a huge surprise to many considering the fact that Sierra Leone Mining Sector dates back to the 1930’s. The lack of large scale indigenous mining companies can be attributed to a number of factors; lack of an indigenous business class, lack of capital, and lack of love for country.

Lack of Indigenous Business Class

The lack of an indigenous business class is a critical issue, but a very complex one. Many will argue that Sierra Leone had a relatively strong indigenous business class during the colonial era and post-colonial era. It is a well documented fact that by the late 1800s the Creoles had become prosperous mostly through retail and wholesale trade . In the retail business the creoles were able to undersell and compete successfully against the Europeans due to hard work, frugal living and fewer overhead costs. Many of this grade were able to realize considerable sums of money, and some even chartered ships which carried their products to England and brought back English goods for their stores and some even owned the vessels which carried their coastal trade. For example, Shreeve mentioned the purchase of a Schooner by Daniel Coker for 300 pounds and William Faulkner bought a prize ship for a similar amount in 1839. And there was also Peter Newland a Creole merchant, who died in 1846 leaving an estate of houses, merchandise and cash of upward of fifteen thousand pounds. And there were many others---W.H Pratt, John Taylor and Malama- Thomas. These men rose to positions of great power and prestige predominantly on the basis of their success in trade. These successful merchants, in order more fully to validate their social position, endeavored to give their children an upper class education, viz, a sound western education and preferably admittance into one of the learned professions. Thus, their sons, instead of being apprenticed into their several businesses were sent to England to study a profession-principally law and medicine.

For example, Abraham Spencer Hebron, who was sent to Monkton Coobme School in England by his father, Abraham Hebron, a wealthy rum merchant of Kissy Road, and later to the Inner Temple where he was called in 1882, and subsequently became an Honorable member of the Legislative council in Freetown in 1898. By the last quarter of the century these professions had begun to take the place of pre-eminence which trading had occupied. In the late 1890’s Sierra Leonean medical officers, sons of prosperous merchants, whose fathers had borne the expenses of their trading included Dr William Renner, who had studied in London and Brussels; Dr M.L Jarrett, who had also studied in London and was an L.R.C.P of Edinburg; and John Farell Easmon, M.D , and his brother Albert Easmon.

Lawyers trained in England, included Samuel Lewis, Claude Wright, Montagu Thompson, T. J Thompson, J. Shorunkeh Sawyerr-all sons of successful merchants. It is imperative for us to take a retrospective look into the emergence and fall of the first indigenous business class in Sierra Leone, so we can learn, plan and constructively build a new group of indigenous business class in Sierra Leone that will not make mistakes of previous groups. It is also important to point out that the continued rise of a professional class corresponded with the decline of commerce among the Creoles. This decline occurred because of the lack of interest showed by sons who returned after their studies overseas, lack of interest to follow into their parents footsteps as entrepreneurs, but instead showed a great deal of interest and pursued white collar jobs. As Sierra Leoneans abandon their business for white collar jobs, the Syrians-or Lebanese as they are referred to as in present day Sierra Leone----saw an opportunity to close the gap, and they eventually did and dominated retail and wholesale in Sierra Leone, which later gave rise to rampant corruption of politicians by Lebanese and total disregard for our values, traditions, law and Order. This is why it is imperative for the authorities to formulate a plan to create a viable indigenous business class.

Lack Of Capital

One of the critical ingredient to kick start a large scale industrial mining operation is capital, very huge capital. Large-Scale mining operations are normally capital intensive because every stage of the process requires a substantial amount of capital. A large scale mining operation could be divided into six parts; exploration-finding the ore body or mineral, creating access to the ore body or mineral, transporting the broken material from the mining face to the plants for treatment, processing and refining. For instance, let’s assume a group of Sierra Leoneans join together and form a mining company, these are the steps they will need to take that will eventually transform a business idea to a business venture:

Finding the ore body

An exploration program identifies targets and undertakes exploration, on its own or in conjunction with joint venture partners. It should be noted that an international company has to be hired, since there is an absence of a Sierra Leonean company that has the personnel, technology, know-how to undertake an exploration project. This part of the project a substantial amount of money to hire a company to do an overseas operation in a country that lacks basic infrastructure for mining activities, basically an exploration company will want to charge exorbitant fees, making a case that lots of equipment and relatively large personnel have to be flown in.

Creating access to the orebody or mineral

There are two types of mining which take place to access the orebody, these are underground and open-pit.

Underground: A vertical or decline shaft (designed to transport people and/or materials) is first sunk deep into the ground, after which horizontal development takes place at various levels of the main shaft or decline. This allows for further on-reef development of specific mining areas where the ore body or mineral has been identified.

Open-pit: The top layers of topsoil or rock are removed in a process called stripping’ to uncover the reef.

This phase of the operation also require a substantial amount of capital, which is used for the purchase of large mining equipment, such as earthmovers, wheel loaders, excavators, dump trucks, crawler tractors and motor graders

Removing the ore by mining or breaking the ore body or mineral

In underground mining, holes are drilled into the ore body, filled with explosives and then blasted. The blasted ‘stopes’ or ‘faces’ are then cleaned and the ore released is now ready to be transported out of the mine.

In open-pit mining, drilling and blasting may also be necessary to release the mineral bearing rock; excavators then load the material onto the ore transport system.

Transporting the broken material from the mining face to the plants for treatment

Underground ore is transported by means of vertical and/or horizontal transport systems. Once on surface, conveyor belts usually transport the ore to the treatment plants.

Open-pit mines transport ore to the treatment plants in vehicles capable of hauling huge, heavy loads.

Services

Mining activities require extensive services, both on the surface and underground, including:

mine planning, ventilation; provision of consumable resources; engineering services; financial, administration and human resource services; and environmental/permitting services.

At this point, it appears to be crystal clear that the lack of capital has stymie Sierra Leoneans to create large scale mining operations, because the lack of capital make such a venture impossible. On the other hand it should be noted that Capital is the force that raises productivity of labor and creates the wealth of nations. It is the lifeblood of a large scale mining operation. The government should actively work with the commercial banks to make such capitals available. At the present moment, it will be impossible for any commercial bank in Sierra Leone to grant a start up business $10m or more, because there is a tremendous obstacle in our society to transform resources to capital, because individuals usually posses resources in defective forms: houses built on land whose ownership rights are not adequately recorded, lack of title for property(land owners out of Freetown do not have title for properties, since there is a different land law in the interior). Unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them or not familiar with, because the rights to these possessions are not adequately documented, these assets cannot be turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as a collateral for loan, cannot be used as a share against an investment.

On the other hand that’s why Western foreign mining companies have little or no trouble raising capital in their respective countries, because in the West, every parcel of land, every building, every piece of equipment or store of inventories is represented in a property document which is the visible sign of a vast hidden process that connects all these assets to the rest of the economy. Thanks to this representational process, assets can lead to an invisible, parallel life alongside their material existence. They can be used as collateral for credit. Thus, it is imperative to highlight that the single most important source of funds for new businesses in the U.S is a mortgage on the entrepreneur’s house. These assets can also provide a link to the owner’s credit history, an accountable address for the collections of debt and taxes, the basis for the creation of reliable and universal public utilities, and a foundation for the creation of securities( like mortgage-backed bonds) that can then be rediscounted and sold in secondary markets. By this process the West injects life into assets and makes them generate capital.

Most developing countries, for instance Sierra Leone do not have this representational process. As a result, most of them are undercapitalized, in the same way that a firm is undercapitalized when it issues fewer securities than its income and assets would justify. The enterprises of the poor are very much like corporations that cannot issue shares or bonds to obtain new investment and finance.

Without representations, their assets are dead capital.

The poor inhabitants of these nations---for instance Sierra Leone---do have resources/things, but they lack the process to represent their property and create capital. They have houses but not titles; crops but not deeds, business but not statutes of incorporation. It is the unavailability of these essential representations that explains why people who have adapted every other Western invention, from the paper clip to the use of computers for daily functions, have not been able to produce sufficient capital to make their domestic capitalism work.

In Sierra Leone where this system is absent, alternative measures needs to be enacted to provide capital. For instance, the central bank needs to prompt the respective commercial banks to issue out these loans, and the central government should guarantee these loans meaning that it will be a no risk venture for the banks, because if the company defaults in repaying the loan the government will pay the commercial banks, and also have the responsibility of recovering funds from delinquent customers, thereby eliminating the risk to the commercial bank and at the same time making capital available for indigenous mining companies.

Lack of love for Country

In both 2002 and 2003 the GGDO (Government gold and Diamond office, which core function is the valuation of diamonds for exports and the collection of taxes levied on such exports) issues two types of export licenses one for a higher fee to foreign nationals and one with a lower fee for indigenous citizens. However, the GGDO admits what is common knowledge in Sierra Leone, that some Sierra Leoneans have abused the policy by acting as fronts for foreign nationals who in reality held the license. While the GGDO states that, “...this was tantamount to defrauding the state and could rob the genuine citizens of the opportunity of participation...” there have been no prosecutions for this. In 2004, the export

license fee was changed to a flat rate for everyone (US$40,000). Foreign nationals receive a 0.5 per cent tax break on exports of more than $10 million, a rate which applies to exports of more than $1 million by indigenous citizens. Many readers will find it mind boggling that some unscrupulous Sierra Leoneans within our society will collaborate with forign ntionals to not only defraud the country of much needed revenue, but also sabotage a scheme/program that is designed to help Sierra Leoneans reach their full potential with the Sierra Leone Diamond realm.

Article is written by Engineer Pierre Lightfoot-Boston and co-authored by Accountant Amadu Massally

Watch Out for the Final Part/Part 3.

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