Pakistan’s Reko Diq, an untapped copper and gold mine of fabulous potential, was meant to be the biggest foreign investment in the country’s mining sector, but it’s beginning to look more like fool’s gold to the companies involved.
Set in one of the bleakest places on earth, a desert in Balochistan at the foot of an extinct volcano, Reko Diq was expected to yield revenues of at least $60 billion over the 56-year life of the mine.
Tethyan Copper Company (TCC), a joint venture between Chile’s Antofagasta and Canadian-based Barrick Gold, had sunk $220 million over the past five years into exploring the deposit in the ochre sand desert, where temperatures reach 130 degrees Fahrenheit in the summer. It was planning to invest a total of $3.3 billion when the provincial government abruptly refused to grant a mining license last year.
TCC says it never did get an explanation.
“It’s been difficult to define what their actual issues were,” Tim Livesey, CEO of TCC, told Reuters in an exclusive interview. “We went back to them for clarification, as many of their issues are not covered in the Balochistan Mining Regulations.”
A local government official, who requested anonymity, said TCC took too long to complete its feasibility study and that it was “cheating” Balochistan by under-valuing the worth of the copper and gold.
“They are the monopoly,” the official said angrily. “They are the monopolists of the gold! They don’t want to disclose the worth of the gold in Balochistan.”
The case is now before the Pakistan Supreme Court, and TCC has filed for international arbitration. The Balochistan government, meanwhile, has recently handed out exploration permits in the area around Reko Diq to new Pakistani and Chinese companies with no mining experience.
Pakistan is already viewed as a high risk investment due to chronic civil and sectarian conflict, terrorism, corruption, poor regulation and chronic power outages. Legal uncertainty would only add to that list.
Reko Diq was supposed to be a model of public-private partnership and a means to lifting an impoverished area where Baloch insurrectionists have long operated.
The Balochistan government received a 25 percent stake in the venture for no money down. Adding in taxes and royalties, the total share of revenues to the provincial and federal governments would come to just over half.
“From my experience, 25 percent to the government is extremely generous and it’s not normal,” said Vivienne Lloyd, a senior consultant at the US-based Copper Research Group.
According to documents filed with the Supreme Court, TCC projected the mine would produce at least $60 billion worth of ore over its lifespan based on long-term copper and gold prices of $2.2/pound and $925/ounce, respectively.
Higher spot prices would increase that sum significantly. Based on recent copper and gold prices, the mine would be worth almost $120 billion, with Balochistan getting a quarter of that after operating costs.
It is this difference in long-term and spot prices that has led to angry allegations in the media and from Baloch people that outsiders are exploiting their natural wealth.
Despite its remoteness, TCC’s Livesey said the project would add “percentage points” to Pakistan’s gross domestic product, which grew at just 2.4 percent in fiscal 2010-11.