By Syed Fazl-e-Haider
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 firstname.lastname@example.org.
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