Islamabad�Canadian diplomats are lobbying Pakistan Prime Minister Yousaf Gilani and other government officials to honour a Canadian mining giant's controversial claim to a copper and gold find that is located in a rugged swath of hills and desert and potentially worth billions of dollars.

Barrick Gold Corp., the world's largest gold producer, and its Chilean-based partner have spent $300 million (U.S.) since 2006 buying exploration rights, conducting field tests and preparing feasibility and environmental reports on a project in the Reko Diq, or "sandy peak," area of Pakistan's lawless tribal Baluchistan province.

The companies were preparing to negotiate a formal mining lease with the Baluchistan government within weeks, a source said.

Even so, Canadian diplomats say they've worried for months that Barrick's exploration lease is in danger of being scuttled by Pakistani officials under pressure from the Chinese lobby.

China is among Pakistan's largest foreign investors and is financing the construction of a new commercial port in Gwadar, a coastal city near Pakistan's border with Iran. China also operates a small copper mine close to Reko Diq.

"This is the number one trade issue facing our mission in Pakistan," says a Canadian diplomat briefed on the controversy.

Sure enough, events for Barrick took a turn for the worst when Baluchistan's chief minister announced on Christmas Eve that the provincial government was severing ties to Barrick � even as the company was finalizing its feasibility plan.

The debacle, says Canadian International Trade Minister Stockwell Day, will hurt Pakistan's already fragile economy. The country's ongoing battle against Islamic extremists has led to a fast-deteriorating security situation. Pakistan's economy in 2009 grew by just 1.5 per cent, a Karachi-based economist says, down from the relatively robust 6 to 8 per cent annual growth Pakistan has enjoyed in recent years.

"They need investment and we have advised them for their purposes they should be sending all the signals they can it is a stable place to invest," Day told the Star.

"Signals that are not along that line certainly don't help... Ministers up to and including the prime minister have been informed that this is a concern and they are well aware of Canada's position."

Barrick and Chilean partner Antofagasta PLC spent $200 million in 2006 to buy an exploration licence to the Reko Diq project from mining rival BHP. Since then, Barrick and Antofagasta say they have invested a further $200 million on drilling and feasibility and environmental assessment surveys.

They've also spent $1.5 million on goodwill projects such as schools.

"If it does work out that a Chinese or Middle Eastern company comes in and takes this over, you know that they won't be building schools or doing socially responsible projects there," a source close to Barrick says.

Still, some within the Baluchistan government have argued schools and hospitals aren't enough to justify the partnership.

Under Barrick's agreement, the provincial government is scheduled to receive 25 per cent of the mine's potentially massive profits. Reko Diq is believed to contain more than 20 million ounces of gold and nearly 27 billion pounds of copper, making it one of the world's most valuable untapped deposits.

Moreover, provincial leaders in Baluchistan have said they are tired of watching others reap the benefits of their natural resources. When natural gas was first extracted here 30 years ago, it was piped to Pakistani provinces such as Punjab and Sindh, and locals in Baluchistan had to wait years for access.

Sartaj Aziz, a former Pakistani finance minister, says the debate may have less to do with Canadian interests than with a power struggle playing out between Pakistan's central government and Baluchistan, which has sought provincial autonomy.

A sprawling, lawless region in the southwest of Pakistan, Baluchistan makes up close to one-third of Pakistan's area and has been caught up in a violent independence push in recent years led by the Baluchistan Liberation Army.