Monday, January 11, 2010

Balochistan cancels $3.5bn copper mine contract

Balochistan cancels $3.5bn copper mine contract.....

Local authorities in Pakistan have canceled an agreement with an Australian company for the exploration of copper and gold in the Reko Diq area in southwestern Balochistan province at a time when a feasibility study for the project was near completion.

Australia's Tethyan Copper Company (TCC), a joint venture between Canada's Barrick Gold and Chile's Antofagasta Plc, had an exploration license for the copper mine at Reko Diq, which has an estimated four billion tonnes of low-grade copper and gold, in the district of Chagai.

Last month, when the Balochistan government passed a motion to terminate the contract with TCC, it called the move a step towards getting control over provincial resources in accordance with the wishes of the people. Critics said the local government's action was politically motivated to appease Baloch nationalists in the desperately poor and insurgency-hit province, who have been demanding the cancelation of the agreement.

The deal was signed under the government of former president Pervez Musharraf. The present central coalition government led by the Pakistan People's Party is trying to end the insurgency and recently presented a "Balochistan Package", which recommends a series of constitutional reforms, economic measures and administrative steps to assuage the feelings of the Baloch people.

Balochistan chief minister Nawab Aslam Raisani said TCC had violated its contract, which had been signed only for exploring for minerals, according to the Dawn newspaper. The federal government had not yet sought any explanation from the Balochistan government over the cancellation of deal, the report cited Raisani as saying. The provincial cabinet decision relates to the termination of the exploration contract after it expired, while the fate of the company's proposal for a mining agreement is yet to be decided, according to the chief minister.

Tethyan, which had a 75% interest in the project, allegedly introduced unnecessary delays and exceeded the limits of the contract, which was awarded only for drilling purposes. The provincial government, which has decided not to lease out the land to TCC for further work, is believed to be looking for other investors and technical expertise to manage the project indigenously.

TCC sees the contract cancelation as a violation of internationally accepted exploration rules, under which the exploration company gets the first rights to mining in the project area, as no mining firm can invest billions of dollars only in exploration.

The United States has urged the central and provincial governments to stand behind their agreements with international companies, as the cancelation of the Reko Diq copper contract, involving two major international mining firms threatens to cost the country a loss of US$3.5 billion in investment for one of its least developed regions.

"Multinational corporations will not invest in a country where deals are canceled," a Business Recorder report last Thursday quoted the US ambassador to Pakistan, Anne Patterson, as saying.

Some analysts believe the Reko Diq mine may now be developed with the help of China, which is engaged in extracting copper from the Saindak mine in the same district. They also warn that the government should learn from its experience at Saindak. Metallurgical Corp of China (MCC), which acquired Saindak on a 10-year lease in September 2002, is overmining in the area at the cost of the mine's estimated life of 19 years, say local experts. They also point out that copper extraction creates various toxic wastes, but there is still no reliable data available on the production and environmental impact at Saindak.

Reko Diq, with an estimated life span of more than 50 years, is four times larger in copper ore tonnage than Saindak.

The provincial government has handed over affairs of the Reko Diq project to the provincial department of mines and mineral development, which has acquired the services of Samar Mubarakmand, an eminent Pakistani nuclear scientist.

TCC has been criticized for selling its interests to Antofagasta and Barrick without the permission of the Balochistan government, which holds the remaining 25% interest. Barrick's share price in New York has declined from a one-year high of just below $48 on December 1 to $41.43 last week, after recovering from about $38 on December 17. Antofagasta is trading at 1,024 pence in London, close to its one-year high and more than double its price of a year ago.

Analysts also question why, if the provincial government had some grievance against TCC's operations, it did not react earlier when the company declared in July that it would invest $3 billion in the project in the current fiscal year, which ends in June.

The cancelation is "a non-routine solution", said Sardar Shaukat Popalzai, president of the Balochistan Economic Forum, according to The Nation daily newspaper. The relevant departments and political leadership should not take unwarranted decisions after projects are considered and then initiated after all clearances are granted on their merits, he said. Popalzai has reportedly suggested that a provincial assembly committee, along with a sub-committee consisting of local stakeholders, including the investors, should be formed to remove all irritants.

TCC itself has "not yet received any cancelation notice for the Reko Diq project from the government", Samia Ali Shah, the company's public relations manager, told Asia Times Online. "We will decide our strategy as soon as we receive notification from the Balochistan government."

She said, "Tethyan is currently undertaking a feasibility study, which is in its final stages, for development of the Reko Diq mine."

Feasibility studies include engineering analysis and studies of infrastructure alternatives involving the likes of rail, road, power, port and water supplies and overall technical and economical viability. "The environmental and social impact assessment [ESIA] of the project is also expected to finish at the end of the first quarter of this calendar year."

The Balochistan government first signed a contract for the Reko Diq exploration area with BHP Minerals in July 1993 and established a joint venture with BHP Billiton in June 2000, with the government keeping a 25% interest against BHP's 75%. TCC, which holds an alliance with BHP Billiton, raised funds for the project by floating its shares on the Australian Stock Exchange and planned to start the project in 2003 with an investment of $130 million.

Samia said her company was responsible for progress made since 2006, when Antofagasta and Barrick Gold took complete control of TCC, which is now a joint-venture company.

She said, "We have so far made significant progress. We had only 50 people as employees of the project in 2006 when Barrick Gold and Antofagasta took over the project. The number of our permanent employees presently exceeds 200.

"We spent $100 million, including expenditures on the feasibility study in 2008. An additional 146,000 meters were drilled last year and showed significantly large resource estimates at Reko Diq. The infrastructure developed at the exploration and feasibility stage of the project includes an airstrip and high-standard camp site facilities."

Samia said a large part of the promised investment of $3 billion would start coming as soon as the project entered the construction phase, after completion of the feasibility report and signing of agreements with the government.

Balochistan, the country's least-developed province but a prospective metaphorical and literal gold mine for companies eyeing its untapped mineral reserves and hydrocarbon resources, direly needs foreign investment to create jobs, develop communities and boost revenues.

The district of Chagai is one of the most backward and least-developed areas in Balochistan. It lacks healthcare facilities and has a poor educational infrastructure. The human development indicators in the district are among the most challenging in the country. With no infrastructure, no proper road network and no industry, the people of the Chagai desert lack almost any employment opportunities.

TCC has spent $1.5 million to date on initiatives such as training local people, local procurement, a school house, a health clinic, teacher training, and humanitarian aid for natural disasters like floods and earthquakes in Balochistan. The company also provides training to the local women in tailoring skills to establish local businesses to supply TCC uniforms.

Samia said, "We plan extensive training and capacity building programs to prepare local people for work within the Reko Diq project. We see our role as a catalyst for economic and social development of the communities we operate in."

The first batch of TCC employees, 80% from the province and about 76% of them from Chagai, has already been sent to the Descon Institute in Lahore for training.

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