KARACHI, Pakistan - The would-be operator of Pakistan's first world-class
copper and gold mine, at Reko Diq, in the southwestern province of Balochistan,
still hopes to salvage its US$3 billion copper venture despite a government
threat to scrap the deal because of misgivings about the share of benefits.
Tethyan Copper Co (TCC), a joint venture owned by Canada's Barrick Gold and
Chilean copper miner Antofagasta along with the Balochistan provincial
government, is about to conclude a feasibility study into the site and is
expected to apply for a mining license within weeks.
The Balochistan government in December announced the cancellation of the Reko
Diq agreement with TCC on the grounds that the company violated their agreement
and unnecessarily
delayed the project. In January however, the federal government, indicating a
willingness to reinstate an agreement with TCC, conditioned a renegotiation of
the mining deal on the formation of a joint venture with a smelting firm, as it
preferred to sell processed, rather than raw copper, on the international
market.
TCC contends that the authorities' proposal to set up a smelting and refining
operation is based on a doubtful perception of benefits, as smelting captures
less than 10% of the copper chain value. Some analysts claim that Islamabad has
agreed to reinstate the agreement with TCC under pressure from the United
States. Washington strongly opposed the provincial government's decision to
scrap the Reko Diq deal, which threatened to deprive the country's least
developed province of more than $3 billion in investments.
"The problem to a very large extent is not having the basics of understanding
in place," Reuters quoted TCC chief executive Peter Jezek as saying. "There is
a combination of a lack of information and fear of the unknown. Mining and
concentrating actually captures over 90% of the copper chain value, smelting
less than 10%. We have pointed out that the economics of smelting and refining
are very poor."
TCC, which holds a 75% interest in Reko Diq, has until now been silent on the
issue since the Balochistan government, which owns a 25% stake in the project,
announced its decision and handed over the project's affairs to the provincial
department of mines and mineral development. The department plans to establish
a smelting plant in the Reko Diq area for processing 15,000 tonnes of ore.
In January, Islamabad warned that it would bring in new copper firms to perform
both mining and smelting works unless the current players make a joint venture
with a smelting firm. The federal government has estimated that exports from
Reko Diq could be worth $500 billion and regrets the sale of the 75% stake at
what it now considers a throwaway price under the government of former
president Pervez Musharraf.
"I think we have sold our future," then federal finance minister Shaukat Tarin
said, Business Recorder reported on January 20. "Any government, anywhere in
the world, can renegotiate such contracts on the basis of national interests,
and we will do the same. If we are able to export processed metal, we can fetch
up to $500 billion instead of $40 billion under the existing agreement."
The Reko Diq mine is expected to yield 10 billion kilograms of copper and 368
million grams of gold over the 50-60 year lifespan of the project.
Balochistan's chief minister, Nawab Aslam Raisani, said in December the
agreement had been terminated in the interest of the people of the province.
Local demands and needs were not taken into account when the initial agreements
were signed, he said.
The provincial government has acquired the services of Samar Mubarakmand, a
Pakistani nuclear scientist, to head the board of governors overseeing the
project, other members being the secretaries of finance, industries and mines
and mineral development, the president of the Balochistan Mine Owners'
Association, and the project's managing director.
Critics say the provincial department of mines and mineral development has done
nothing significant to develop the mining industry in the mineral-rich
province. With exploitation of precious minerals and energy resources,
including oil, gas, iron, coal, copper and gold, the province could have
sufficient funds to finance its development projects and run its affairs
without relying on the central government. They now question what the role of
the provincial department will be if the project is to be overseen by a nuclear
scientist in Islamabad.
The original contract for Reko Diq exploration was signed in 1993 with BHP
Minerals, which established a joint venture with the local government, leading
to a deed of waiver and consent signed in 2000. TCC, then a subsidiary of
Australian Mincor Resources, had an alliance with BHP. Antofagasta and Barrick
Gold took over 100% of TCC in 2006, and during the past three years, the
project has made more progress than in the previous 13.
Even so, it is still not clear why TCC announced last year that it would invest
more than $3 billion in the project when it had only an exploration license for
Reko Diq. The former provincial authorities were silent when TCC sold its
interests to Antofagasta and Barrick Gold in 2006. Similarly, the present
provincial government did not react when the international miners last year
announced their investment plan.
The provincial government can still protect the province's interests by
negotiating a mining deal with TCC rather than scrapping the relationship
outright. The Balochistan Economic Forum recently suggested that a provincial
assembly committee along with a sub-committee consisting of local stakeholders
and including the investors should be formed to remove all irritants with
mutual consent.
Syed Fazl-e-Haider (www.syedfazlehaider.com) is a development analyst in
Pakistan. He is the author of many books, including The Economic
Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com.
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