Business Plan for Small Scale Mining in Sierra Leone


INITIAL REQUIREMENTS GENERAL For the last 2 years our company has been closely following the Sierra Leanean diamond “Industry” if we can call it that. Sierra Leone is a small country in West Africa mainly known because of the bloody and vicious civill war which ended about 3 years ago. I have visited this country a few times – each time for a period of 1 month or more. During those vistts I tried to familiarize myself with the diamond and gold mining industry.During those visits – I have been in Freetown (the capital of Sierra Leone) in which I successfully dealt with all the necessary licences needed in order to visit the mining sites – and purchase diamonds and/or gold.

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After obtaining the necessary licences, I mostly moved around in the small mining towns and villages. During those visits I tried to purchase gold and diamonds from the miners – but without much success. The quantities of available gold from the miners are very small (gold mining is usually done by one person who digs and washes the gold – and does not have the necessary funds to emply labour or use mechanized equipment).Diamonds can be obtained and purchased easy but in order to buy them – a big invested is required and also a very deep knowledge in rough (both condition I can not fulfill). But those trips and the close knowledge of the country led me to the conclusion that the best investment it this country is the mining.

The local miners do not have the funds for large scale mining and the knowledge to use mechanized equipment. The mining is usually done usually by individuals in a very small scale – and some of those individuals, lucky enough to shoew some profit – reinvest the profit in hiring labour to develop and enlarge their activities.Foreign investor are not very eager to invest in this country. This is a very backward country, no roads, no electricity and running water in most of the small towns and villages. Even in the Capital – electricity is scarce (few hours every second day) and running water is not available everywere. It is very hard for a large company to consider a large investment in this country when even the basic condition of getting to the work site and back – with trucs and heavy equipment, requires the to invest in building or enlarging the roads to the sites.

Furthermore – althought it is a very quite and safe place for the last few years – the civil war took it’s toll by givind the country a very bad reputation. But in the last period of 2004, this situation is starting to change, and more investors are starting to take interest (small investors mostly but also big companies. Following my investigations and visits in this country – I have decided to initiate the Sierra Leone Mining Project. INITIAL REQUIREMENTS My last trip in Sierra leone was used mainly in fulfilling but all the initial requirements needed in order to start the activity . STARTING A COMPANY Our company name (started in November 2004) is CPG Africa trading ompany Limited. This is a general purpose company that can deal in any type of business activity – but the first activity stated is the companie’s memorandum, is the acquisition of gold and diamonds mines.

I am the main shareholder of the company – with and additional local as a secondary share holder (see enclosed copy of company memorandum) 2. DECIDING AN AREA TO START THE ACTIVITYIn order to decide on a starting point for our activity – we have initiated private audiences with the chief Geologist of Sierra Leone Geological Department. During our meetings we have decided on an area in the nord of Sierra Leone called Kamakwie. This is a relatively new and promising mining area. It has not been yet heavily mined (only for the past year or so) but according to the big Lebaneese diamond dealers in Freetown, a lot of diamonds are coming from there – and some of them quite big.

The area is known for it’s clean diamonds althought tha colors are more in the medium range (H, I, J and some fancy greens).The access to this area is quite hard (around 250 miles from the capital of very bad roads) which keeps a lot of investors away, and the center of the area is a remote backward village called Kamakwie. This is a swampy area which proves to be easier and cheaper to mine than river mining. We have ordered a private survey for this area (from the chief Geologist) copy of which can be seen annexed to this document). According to this survey – the average diamond content of Kamakwie mining sites is 0. 5ct/ cubic meter.

3. SMALL SCALE MINING LICENCE FOR THE COMPANYSince we decided to start the activity in Kamakwie – we had to adapt to the special requirements of this area. All lands in Kamakwie area are private lands owned by the local “Paramount Chief” or by the locals (as opposed to government owned land for which a company mining licence is needed). Being so – a mining licence has to be obtained by the land owner – and the investor has to signe a contract with the land owner/licence holder in supporting him. More detiles will follow.

4. IMPORT OF INITIAL MECHANIZED EQUIPMENTSmall mechanized equipment can be a big advatage over the manual labour – but a close knowledge of the equipment and the local terrain is needed prior to spending the money and ordering. We have ordered and imported a small diamond and gold washing plant (capacity of around 3cubic m/hour at a total cost of 7000$) which proved to be unfit for the first place we aqquired due to the high content of clay in this peticular swamp area. For this reason – it is advisable to stat activity in several sites before deciding on the right equipment. 5.

MAKING THE CONNECTION WITH THE LOCALS AND GETTING THE LOCAL LICENCES. pic] We were put in contact by the mines ministry people with the (Paramount Chief) of Kamakwie area. The chief seems to be a faily decent person, more reliable than most locals. He is a relatively educated person and easy to deal with. After the initial meeting in Freetown – we drove the company jeep to Kamakwie to close the deal. We spent in Kamakwie around 3 weeks during which we got an initial tour of the area, decided on the first site, signed the contract and started testing the site.

Anexed is the the contact for the site, signed with the chief (ih handwriting).This contract – together with my local resident Visa/work permit which II have aqquired in Freetown (see annexed), and the company papers is almost enough for us to practice mining in Kamakwie. The single additional document needed, is a local licence from the mining ministry branch nearest to Kamakwie (Makenny). At the time I am writing this Document, the licence is ready and waiting for me upon my return. One very important obstacle we overcame in kamakwie – is the residence place.

As mentioned before – this is a very bacward place with no electricity , running water, communication (no cellphone reception) etc. he only connection whatsoever in the whole village is my satellite phone (purchased specifically for this occasion). Neverteless we found a very large house owned by a Lebaneese diamond dealer (who is preparing to leave for personal reasons) equipped with generator and water tank. We have rented half of the house for 6 months and have the option to rent the rest for 5 years. This is an exceptional base of operations since it is a 6 rooms house located right in the midlle of the area 6. FUTURE STEPS Once we started our activity in Kamakwie – we realized the possibilities are huge.

There are propably hundreds of acres (each mining site is one acre=5dunam) right in the middle of the mining areas, which can be aqquired by contract with the owner. Being there makes it easy for us to study which are the better places with the higher content of diamond (or gold) per cube. The owners are eager to sign a contract with outside investors since they do not have the means to start operations by themselves. This being the case – this is the proper time (before the area becomes crowded) to start massive operation with relatively small investment and get the best sites available.While most of the area is diamond area, there are a few very good gold areas in the remoter villages (5 to 15 miles from our base of operation).

We visited 2 of those places – and the locals are willing and eager to start cooperating with us. Further research on this point is needed. 7. BUSINESS PLAN [pic] TYPICAL LAND STRUCTURE IN KAMAKWIE. YOU CAN SEE THE TOP LAYER (OVERBURDEN) WHICH IS MOSTLY AROUND 0. 5M AND DOES NOT CONTAIN DIAMOND GRAVEL.

NEXT FOLLOWS THE GRAVEL WHICH IS AN AVERAGE OF 1M AND MAY CONTAIN DIAMONDS AND OR GOLDThe standart size for a mining site in Kamakwie is 1 acre (5000 square meter). The digging is done by hand labour and the diamond gravel has to be reached. Once the diamond gravel is reached – it is extracted and piled up. When the diamond gravel from a specific hole is extracted completely – the gravel has to be washed and during the washing – the diamonds are found and extracted. The testing of a site is done by digging a few small holes on the 5000 m area, extracting the 20-30 cubic meters of gravel, washing and testing it.This can be done with a small group of 10 to 20 locals in a few days (salary for local is 2$/day).

Once the results are satisfactory (diamonds or diamond indicators are found) massive work has to be started involving around around 100 locals per acre (or mechanized equipment in the future). The average diamond gravel layer is around 1m which means 5000 cubic meters of gravel per acre (1acre=5000square meters). 100 people can extract and wash this amount in 2-3 moths at a cost of 2$/day/person or 200$ a day in wages. At an average of 0. 5ct/qm this should yeld 2500ct’s.The average value of diamonds exported from Sierra leone in 2002 was around 150$/ct – which brings us to 375000$ for a 3 months period for one average site.

Since the land owner gets around 30% – that leaves us with 260000$/period/site. The whole operating costs for one site are roghly 800$/day (out of which the local labour is 200$/day) X3 months=72000$ which leaves a statistical 188000$ overhead. For operation more than one site in parallel – only the additional labour cost of 200$ a day is needed. All other costs are rougly the same. For example operating 2 sites would cost around 1100$/day