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Reko Diq still in play

by Syed Fazl-e-Haider, development analyst in PakistanAsia Times Online
June 11th, 2010

KARACHI - Tethyan Copper Company (TCC), which is battling to keep control of the multi-billion dollar

Reko Diq copper and gold project in Pakistan's southwestern Balochistan province, says it is still in talks with officials after moves by the provincial government to cancel its US$3.2 billion development deal with the company.

The Balochistan government holds a 25% interest in the project. It recently decided to take over the Reko Diq project after announcing in December that it was scrapping its deal with TCC. The company holds the remaining 75% interest in Reko Diq and since the original exploration contract was signed has become co-owned by Canada's Barrick Gold and Chilean copper miner Antofagasta.

"We are not going on a collision course: we are in talks with Pakistani officials and we hope things will move forward in the right direction," Samia Ali Shah, TCC's public relations manager in Islamabad, told Asia Times Online.

TCC said it has not yet received official notification with regard to cancellation of the contract for Reko Diq, which is in the Chagai district of Balochistan. It says that if it receives such notification, it will then decide its future strategy and consider all options. In the meantime, it expects to complete a feasibility study for the project by the end of this month. It then plans to apply for a mining license.

TCC had allegedly violated its agreement with the provincial government by transferring its share to other interests - Barrick Gold and Antofagasta - at the exploration stage and without the local government's consent.

Denying any violation of the Reko Diq joint venture deal signed with the government of Balochistan (GoB) in 2006, the TCC told Asia Times Online that all transactions were fully compliant with existing laws and regulations and as per the provisions of the Chagai Hills Exploration Joint Venture Agreement (CHEJVA).

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.

Samia said the legality of the transactions was expressly confirmed by the Balochistan High Court in a 2007 ruling. "On April 1, 2006, by means of a Novation Agreement, with approval of the Government of Balochistan (GoB), TCC assumed all rights and obligations of BHP Minerals under the CHEJVA executed between GOB and BHP Billiton on July 29, 1993. Before doing so, in accordance with the terms of the CHEJVA, GoB was offered to acquire BHP�s 75% share in the joint venture, but the GOB declined. In 2006, Barrick Gold and Antofagasta plc acquired 100% shares of TCC."

The local government also argues that TCC has been reluctant to establish a refinery plant and establish a mining academy in the province. Samia said TCC's expertise "does not lie in smelting and refining business" but it did not oppose the provincial government if it "wishes to invest in a smelting/refining facility, directly or through third parties". TCC's two owners are leaders in upstream mining (exploration and production) and are not involved in the downstream smelting-refining business.

TCC has also offered to make arrangements to deliver copper concentrates to such a facility under mutually agreed commercial terms and conditions and subject to the limits allowed by the lenders of the project financing for the Reko Diq project and provided that such a facility meets the stringent environmental and sustainability standards.

Samia said, "In the copper value chain, the most value addition is achieved at the copper concentrate production stage - that's why most mining businesses usually only comprise a mine and a concentrator, and smelter/refinery businesses are non-integrated. Since 1992, approximately 90% of the major mines and [mine] expansions in the world have been developed without a smelting/refining capacity because [these are] capital intensive with a high environmental impact and at best can add less than 10% to the finished copper product value."

On the company's alleged unwillingness to invest in establishing a mining academy in the province, Samia said such initiatives would be taken after approval of the framework for investment of over $3.2 billion in Reko Diq, as the company believes that highly skilled human resources are a fundamental requirement not only for the success of this project but for the overall future of the mining industry in Balochistan.

"Since 2006, TCC has spent 130 million rupees [US$1.5 billion] on its several community development initiatives in education, health, skill development, and so forth,'' Samia said. ''Already, TCC is supporting several skill development initiatives under its community investment program." 

The Balochistan government has claimed that TCC was planning to lay pipelines from Reko-Diq to the southern Balochistan port of Gwadar and send concentrate through this pipeline for transport on to Chile and/or Canada for final refining.

Samia rejected the allegation. "The copper concentrate produced by Reko Diq will go neither to Chile nor to Canada but will be sold on an open, transparent and competitive basis to a number of smelters/refiners around the world - typically China, Japan, South Korea and Europe are the bigger copper concentrates consumers.
�GoB will have the right, and TCC will welcome [it], to monitor the whole process and ascertain the revenues based on the valuable payable metals contained in the concentrate," she said.

Local analysts fear that scrapping the deal with international miners would send a bad signal to prospective foreign investors interested in poverty-stricken but resource-rich Balochistan. Foreign firms in the oil and gas sector have already left the province due to security concerns, as bomb blasts, targeted killings and attacks on public installations and security personnel have become routine in the insurgency-hit province.

Still, while Baloch nationalists have expressed reservations over the Reko Diq project, no attacks on workers or the site have been reported since 2000. The nationalists have argued that they are not against the development of the province, but are merely striving to protect its legitimate interests.

Some analysts argue that scrapping the Reko Diq contract will not help improve the situation in the province, as the nationalists' grievances are against the federal government, not against foreign firms or investors. An agreement with any firm that guarantees the protection of the province's legitimate interests, would be acceptable to the local people.

The United States has urged Islamabad and the provincial government to stand behind their agreements with international companies, pointing out that the cancellation of the Reko Diq contract would cost the country the planned $3.2 billion investment in one of its most backward and least-developed regions. 


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