TCC loses battle to mine Reko Diq

Reposted from atimes.com | November 17, 2011 | Original story
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by Syed Fazl-e-Haider

Critics say the rejection of TCC deprives the country of foreign investment worth $3.3 billion and sends a bad signal to prospective foreign investors interested in Balochistan, which has considerable mineral reserves.

KARACHI - The government of Pakistan's Balochistan province has rejected an application by Tethyan Copper Company (TCC) to mine for copper and gold at the multi-billion dollar Reko Diq project after a committee formed to examine the company's feasibility report said it was incomplete. The mine and related works has the potential to be biggest foreign-financed project in the country's history.

TCC, a joint venture between Antofagasta of Chile and Canada's Barrick Gold Corp, submitted its feasibility report in February. The Balochistan Mining Committee (BMC), which rejected the report, is headed by the director general of the Mines and Mineral Department in Balochistan. TCC recently filed a "notice of dispute" with the provincial government, which had refused to meet its executives or extend a deadline for it to respond to objections raised over the lease.

The rejection may clear the way for Chinese companies to secure a lease for Reko Diq, whose gross value could be as high as US$250 billion. Any such involvement could be delayed if TCC follows through on a suggestion that it might take the matter to the International Court of Arbitration.

No third party will be able to start the project while the case remains in the court. The arbitration body could help TCC secure compensation for money it has already invested in the project, but it cannot force Balochistan to award the mining license to the company.

"Tethyan strongly believes that the Reko Diq project can contribute significantly to the development of a modern mining industry in Balochistan and will consider its options for further courses of action," Reuters quoted a statement issued from Antofagasta on Wednesday as saying.

An editorial recently published in The News said TCC "will have a very weak case to claim compensation or damages in any international court". The editorial claimed the company had underreported the reserves "saying the project would yield only $50 billion over its life, minus expenses. Independent figures range from $150 billion to $260 billion."

Critics say the rejection of TCC deprives the country of foreign investment worth $3.3 billion and sends a bad signal to prospective foreign investors interested in Balochistan, which has considerable mineral reserves.

TCC, which has a 75% stake in Reko Diq, was awarded an exploration license in 2006 and spent about $200 million on its feasibility study. It estimated total investment would come to $5 billion over five years. Reko Diq may hold 5.9 billion tonnes of mineral resources, with an average copper grade of 0.41% and an average gold grade of 0.22 grams a tonne.

The Balochistan government on Wednesday submitted the BMC report to the Supreme Court, which had earlier sought an explanation on details of the agreements between the Balochistan government and TCC.

"We have three demands which include a complete feasibility report of the project," The Express Tribune reported Balochistan chief secretary Ahmed Baksh Lehri as telling the media. "We want that refining be done in Balochistan so that metal mining technology can be transferred to Pakistan, and we should at least know what is being extracted and what is being exported. Another key demand is that the agreement must be beneficial for the local people."

The Balochistan government, which has already set up a board of governors for the Reko Diq project with Dr Samar Mubarakmand, a nuclear scientist, as its chairman, wants a financially better deal, otherwise, it says, it will run the project on its own.

Local analysts argue that it would be irrational to close the door to the potential of technology transfer into the country and lose the over $5 billion foreign investment.

Advocates of local direct involvement in Reko Diq say the mine can be indigenously developed without discouraging foreign investors by dividing the 400 square kilometer area into various zones, leasing out land to foreign firms, and keeping the major portion of land for indigenous development. The funds from leasing out land to foreign firms would enable the country to bear the costs for developing a project indigenously.

China's state-owned Metallurgical Corporation of China (MCC), which already operates the Saindak copper-gold project in Chagai district, in the north of Balochistan, has offered the provincial government a larger share of income and royalties than TCC to secure a mining lease for the Reko Diq project. MCC submitted its offer during a visit to Pakistan by Chinese Prime Minister Wen Jibbao in December 2010.

"A Chinese firm has submitted a counter proposal that if the mining contract of the Reko Diq project is handed over to MCC, it would give the Balochistan government a 25% share in the income, besides 5% royalty," Associated Press of Pakistan reported Balochistan government officials as saying.

The MCC also offered to construct roads and set up a power plant at the mine site. The Balochistan government reportedly showed willingness to sign an agreement with the Chinese company if it promised a transfer of technology and gave the provincial government a decision-making member in the project's board of directors.

Critics say that if MCC is awarded the Reko Diq contract, it would mean the authorities have learnt nothing from their experience with the Saindak project, where the Chinese company has been accused of excessive mining - that is, mining more than was agreed, thereby risking shortening the life of the mine.

The Balochistan government first signed a contract for exploration of the Reko Diq area with BHP Minerals in July 1993 and established a joint venture with the respective interests of the province (25%) and BHP Billiton (75%) by virtue of a deed of waiver and consent signed in June 2000.

Antofagasta and Barrick Gold purchased these interests from TCC, a subsidiary of Mincor Resources NL that was in alliance with BHP Billiton, and took control of the project in 2006.

Syed Fazl-e-Haider (http://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.