Miners bank $3bn on Baloch project
By Syed Fazl-e-Haider
QUETTA, Pakistan - Canada's Barrick Gold and Chile's Antofagasta plan to invest
up to US$3 billion in a copper and gold mine at Reko Diq in Pakistan's
southwestern province of Balochistan. This will be the single-largest foreign
investment in Pakistan in the fiscal year that started on July 1 and is larger
than the $3.32 billion of total foreign direct investment for the first 11
months of the 2008-09 fiscal year.
Security concerns are deterring foreign investors from putting their cash into
Pakistan. Poor and sparsely populated Balochistan, already home to native
insurgent groups seeking a greater say in local affairs, has also recently
become a new focus of the US "war on terror" as it spills over from neighboring
Afghanistan.
The financial benefits that might accrue from the Reko Diq site are
overcoming these concerns. Rights to the nearby Saindak copper project, in the
same district of Chagai, have already been sold to the Chinese on a 10-year
lease.
Critics say that the government in Islamabad blundered by selling what may be
the world's biggest untapped copper and gold deposits, worth over $100 billion,
to foreign mining firms at a throwaway price, to the disservice of the people
of the country's most backward province and economy.
Tethyan Copper, a joint venture between Barrick Gold and Antofagasta, one of
the world's largest copper miners, has been granted an exploration license for
the Reko Diq site. Tethyan, formerly a subsidiary of Australia's Mincor
Resources, has a 75% interest, and the Balochistan government holds 25%.
"We think the investment is probably going to be between $2.5 billion and $3
billion," Reuters quoted Cassie Boggs, chief executive of Tethyan Copper, as
saying on Tuesday when the investment was announced. "Here in Pakistan, all the
current events make security a concern but we actually believe security is
manageable."
Boggs said the company would continue to weigh the benefits against the risks
but felt the project had a lot of potential for its investors and for Pakistan.
Ore reserves at the site are estimated at 4 billion tonnes, of which 0.5% is
expected to be copper, with 0.29 gram of gold per tonne of ore, according to
Boggs.
Antofagasta, listed on the London Stock Exchange (LSE) and a constituent of the
FTSE 100 Index, is active in mineral exploration in Chile and Peru. It has
estimated there are two billion tonnes of copper deposits at Reko Diq. Barrick
is the world's pre-eminent gold producer, with 27 operating mines in various
countries. The company's shares are traded on the Toronto and New York stock
exchanges. Its share of measured and indicated and inferred copper at Reko Diq
are 4.3 and 13.4 billion pounds respectively.
Though the actual size of Reko Diq deposits is yet to be confirmed, experts
believe they are bigger than at Sarcheshmeh in Iran's Kerman province and at
Escondida in Chile. With1.2 billion tonnes of resources, Sarcheshmeh is a large
open-cast copper mine and is considered to be the world's second-largest copper
deposit. Escondida, with 57.6 million tonnes of resources, is the world's
highest producing copper mine.
Like Escondida, Reko Diq could become an important part of the national as well
as provincial economy. In 2007, Escondida produced 1.48 million tonnes of
copper, mainly as copper concentrate, worth $10.12 billion. As a result of
extensive drilling in the Reko Diq area, about 167 million tonnes of copper ore
reserves have been proved.
In the international market, each stage of copper production is tradable from
copper concentrate, smelted copper and blister copper to refined copper or pure
copper. Copper is currently being sold at an average price of US$4,000 a tonne
in the world metal market.
With the exploitation of Reko Diq, Pakistan is poised to appear for the first
time on the world's copper-producing map. The government will launch the
project with an investment of $1 billion by 2010, the Daily Times reported,
citing an official document. The project is expected to create up to 9,000 jobs
in the construction phase, which will last for about three years, then employ
up to 3,000 people once the mine is operational. Tethyan initially plans to
bring in mining experts from the outside while training and developing the
local workforce.
The Chinese engaged in the Saindak copper project are committed to transferring
technology in copper mining and to training Pakistani engineers and workers.
The wealth from Reko Diq could enable Pakistan to retire its external debt and
liabilities, which have surged to $50.9 billion. Economically backward
Balochistan province could also attain enough fiscal space and financial health
to finance its social-sector development projects and run its financial affairs
without relying on the central government.
The provincial government first signed a contract for Reko Diq exploration with
the BHP Minerals in July 1993 and established a joint venture with the province
holding a 25% interests and BHP Billiton 75% by virtue of a deed of waiver and
consent signed in June 2000. Tethyan Copper Co, then a subsidiary of Australian
Mincor Resources, held an alliance with BHP.
In 2000, Mincor Resources estimated that the Reko Diq region held 5 million
tonnes of copper metal deposits and 32 million ounces of gold. Tethyan planned
to start the Reko-Diq copper project in 2003 with an investment of $130
million. Antofagasta and Barrick Gold have since taken over 100% of Tethyan,
which has reported total, indicated and inferred mineral resource estimates at
its properties of 1.2 billion tonnes with a copper grade of 0.58% and a gold
grade of 0.28 grams per tonne.
Critics have questioned why the authorities did not refuse the transfer of the
Reko Diq project from the internationally reputed BHP Billiton to the Tethyan,
which raised funds for the project by floating its shares in the Australian
Stock Exchange after acquiring the project. They say that failure has deprived
the country of a 75% stake in the vast untapped deposits.
BHP's failure to make significant progress in exploring the copper resources
had provided the government a chance to seek fresh offers for exploiting Reko
Diq, the critics claim.
Syed Fazl-e-Haider, sfazlehaider05@yahoo.com, is a Quetta-based
development analyst in Pakistan. He is the author of six books, including
The Economic Development of Balochistan (2004).
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