- Focus Reko Diq as its gold mines could be worth $1 trillion
A conversation with Sardar Shoukat Popalzai — President, Balochistan Economic Forum
[box type=”shadow” align=”” class=”” width=””]Profile:
Sardar Shoukat Popalzai is President of Balochistan Economic Forum. The Balochistan Economic Forum is think tank-cum-business & Economic policy advocacy forum, established in the Year 1992 and presently striving for the economic development & attracting Investment in the province of Balochistan. The Balochistan Economic Forum has been designed to familiarize the national & International economic community with opportunities for Trade and Investment in the province of Balochistan. Since its inception, the Balochistan Economic Forum has played an important role in attracting foreign investments in the province of Balochistan and it continues to be the main powerhouse behind integrating foreign investment and has completed 29 years of its meritorious services this year.[/box]
PAKISTAN & GULF ECONOMIST had an exclusive conversation with Sardar Shoukat Popalzai regarding resources in Balochistan. Following are the excerpts of the conversation:
According to the Geological Survey of Pakistan, Balochistan has more than eighty mineral resources with significant deposits. Some have been discovered, while most remain waiting to be explored. Reko Diq Gold mines of Balochistan valued at $260 billion and could be worth $1 trillion, considered to be one of the world’s biggest copper and gold mineral zone with an estimated 5.9 billion tonnes of ore grading 0.41 per cent copper and 41.5 million oz (ounce) of gold reserves.
In developing countries, mining areas generally have more poverty than other areas, which usually causes conflict and strife in those areas. In developed countries, due to widespread development and a lack of disparities, these problems are almost non-existent. These countries, on the other hand, have developed formulae, structures and mechanisms to deal with those areas which encounter similar problems. Unfortunately, the locals are not compensated adequately through a formal compensation mechanism. Local identities such as tribal ones are real, while provincial and federal boundaries and identities are political.
What happened to Reko Diq may partly be ascribed to confusion and malpractices in awarding the contract, the second issue is having a higher share in income beyond royalties, and the third is the share of the locals/tribes vs provincial interests. The mineral sector could not be developed also due to security and political issues. In the case of Reko Diq, new dissenting voices are emerging against a reported compromise solution with a foreign investors company, asserting autonomy and mineral rights.
Enrichment of local and provincial incomes can facilitate ready access and a receptive population welcoming mineral businesses. In Pakistan, where there are diverse ethnic groups and where several groups reside in one province, this aspect acquires special consideration. Consultations and negotiations among stakeholders should always be initiated in a timely manner before launching a project. Intellectuals and political parties should help develop consensus on the issue.
Balochistan has vast mineral resources, including iron, copper, silver and gold, but remains the poorest province A typical case is that of mineral deposits discovered by the Geological Survey of Pakistan (GSP) in 1969 in Reko Diq, a small locality in Chaghai district in Balochistan, estimated to be one of the largest deposits in the world discovered in the last half-century. The geological literature identifies it to be a part of the mineral-rich arc that stretches from Turkey and Iran into Pakistan.
According to studies, copper occurs in large quantities in different concentrations in the entire Reko Diq mines area of 13,000 square kilometres, and gold occurs alongside the copper uniformly. Total value of the minerals at Reko Diq is estimated at a trillion dollars or more. Unbelievably, not a single ton of copper or an ounce of gold was extracted from Reko Diq in over five decades. GSP carried out intensive drilling and mapping in the Reko Diq area in 1978, identifying major clusters of porphyry copper and gold deposits. It was not until July 1993, however, that the Government of Balochistan through Balochistan Development Authority signed an agreement for prospecting, exploration and exploitation for Reko Diq mines to Broken Hill Proprietary Minerals (BHPM) of Australia, later BHP Billiton and now BHP (as BHP Minerals in USA). It is known as the Chaghai Hills Exploration Joint Venture Agreement. Ten licenses covering an area of about 1,000 sq-km were granted in December 1996 under the joint venture (JV) agreement. For seven long years there was no physical progress at either of the sites of Reko Diq complex.
In 2000, BHP sold 75 per cent of its interest in the license to Mincor Resources NL (Australia), which set up Tethyan Copper Company (Pvt) Ltd (TCC) in Australia as a front company, and later incorporated Tethyan Copper Company Pakistan (Pvt) Ltd as well. In fact, the TCC is a joint venture on a fifty-fifty basis between the Chile-based Antofagasta PLC, UK, and Barrick Gold Corporation, Canada. The TCC Pakistan commenced work in 2007 and delivered feasibility of the initial mine development of Reko Diq project to the Balochistan government on August 29, 2010, proposing an investment of $3.3 billion of which the provincial government was to share 25 per cent as per the joint venture agreement. The exploration study, claimed to have been completed at a cost of $4 million, confirmed deposits with total mineral resource of 5.9 billion tons of ore containing large copper-gold deposits of varying grades. Out of the ore, estimated 200,000 tons of copper (0.53 per cent) and 13 tons of gold (0.30 gram per ton) were to be produced in one year. Open-pit type mining, a surface mining technique, was to be employed. Mineral flotation process was proposed to convert ore into concentrate. Mixed with water, it was to be transformed to slurry that was to be transported through a dedicated 700-kilometer pipeline to Gwadar and onward to a third country for further processing and refining.
There were no plans to establish facilities for processing and refining of precious metals in Pakistan at any stage during the entire 55-year mine-life. Balochistan government was to get two per cent royalty on total value of metals sold in the international market, compared to globally recognised six per cent. There was no transparency in the procedure as to who would determine the value of metals finally produced and sold. Based on the feasibility study, TCC applied to the Balochistan government for the mining lease in February 2011.
However, the Government of Balochistan unilaterally cancelled the contract and rejected the lease application in November 2011, without giving any specific reason. Corresponding facts and records were never made public and accessible. In later developments, the Supreme Court of Pakistan declared, on January 7, 2013, all agreements between the Balochistan government and Tethyan Copper Company as “illegal, void and non-est” (ab initio).
In 1993, BHP Billiton and Government Balochistan signed a mining deal creating Chaghi Hill Exploration Joint Venture (CHEJV) BHP stakes were 75 per cent and Government of Balochistan has 2 per cent only. In brief a situation turned to be as following in 2000, BHP sold its rights to a smaller company Mincor Resources, in 2006, TCC acquired Mincor Resources, while Balochistan High Court declared (CHEJV) illegal, in 2007 TCC secured mining rights, and in 2010 TCC completes bankable feasibility for mining development at Reko Diq. Later in 2012 TCC filed case at ICSID against Pakistan whereas in 2013 Supreme Court scraped mining deal with TCC. In 2017, ICSID ruled against Pakistan and hold it liable to pay damages to TCC, in 2018, Government of Pakistan files for stay. In 2019, the government initiates out of court settlement, while in 2020 ICSID slapped 5.9 billion dollars. Pakistan secured on furnishing bank guarantee in 2020, while a private consortium starts negotiations with TCC to take over the stakes.
A recent report indicated that the ICSID terminated the stay order on $5.97 billion award as Pakistan failed in furnishing the requirements. It signalled to TCC that it might try to collect 50 per cent of the award ($3.47 billion) from Pakistan. The initial engagement with Barrick Gold Corporation of Canada for the takeover of its 50 per cent stake in TCC is progressing. The rest of the 50 per cent stake in the joint venture TCC is controlled by Antofagasta PLC of Chile. Government of Balochistan under the pressure from federal government is at the verge of closing a new deal on the gold and copper mining project. Given the $6 billion penalty for not giving a mining lease to the Tethyan Copper Company, announced by the World Bank’s International Centre for Settlement of Investment Disputes against Pakistan, and the subsequent embarrassment suffered internationally.