POREG VIEW: The suspense as to who will be lucky to exploit Baluchistan’s riches at Reko Diq mine will end in the first week of June. The $ 3.3 billion copper and gold project is literally the crown jewel with 22 billion pounds of Copper and 13 million ounces of gold besides traces of uranium. Its estimated gold and copper reserves are worth US $3 trillion. The Reko Diq deposits are believed to be bigger than Sarcheshmeh in Iran and Escondida in Chile. And therefore it became a political football, more so after the Chinese eyed the project.
Reko Diq, which means sandy peak, is a small town in Chagai desert district where Mohammad Zai tribe live and own the mineral wealth. The place is about 70 kms from the border with Iran and Afghanistan.
The controversy has its roots in the Musharraf period when Tethyan Copper Company (TCC) was brought in for exploration and mining ‘for a song, behind closed doors’ as a front page headline in the News International said last November. TCC was allowed a 75 per cent share in the profits of the project, which began to seem excessive after the exit of the Musharraf government. Also contested is the estimate of the deposits — some say Reko Diq is the largest such deposit in the world — and of the process of extraction which the TCC partners plan to carry out abroad.
A joint venture of Canada’s Barrick Gold (ABX.TO), the world’s largest gold producer, and Chile’s Antofagasta (ANTO.L), the fifth largest copper producer, TCC has completed exploration and feasibility study, which confirmed 0.002 percent of uranium along with gold and copper gold reserves. When it was about to seek a mining license, the project landed in the Supreme Court as the most unfavourable deal of the decade.
TCC is of the view that uranium component in gold and copper reserves is low in Rekodiq. These are not according to standards set for exploration, the company says but its opinion is not taken as the last word.
Two Chinese companies, state owned China Minmetals Corporation and the Metallurgical Corporation of China (MCC) have shown interest in Reko Diq in recent months. Minmetals is ready to partner with TCC. It already owns a nearby site for exploration.
MCC, on the other hand, has unveiled big plans. In its counter proposal, the Chinese company said it is ready to give the provincial government a 25 per cent share in the income, besides a five per cent royalty. MCC also offered to construct roads, and set up a power plant at the mine site. The deal would swing its way if it promises transfer of technology and entertains a government nominee on the board of directors.
There is sound business and strategic logic in Chinese interest in Reko Diq. China has invested about $3 billion in gold and copper mining projects in Afghanistan. So, Reko Diq fits in its plans. Moreover, China hopes to take over the management of Gwadar port from the present manager, a Singapore company, which has failed to make the port fully operational. From Chinese perspective, Gwadar will reduce the time and costs for exporting the mineral to global markets. To spice the deal, China is offering to construct 20 more berths from the present five if it takes charge of Gwadar Port.
TCC will not yield to the Dragon without fight. It says it has the right to dig since it discovered the gold under Balochistan’s 2002 Mineral Rules, but the provincial government is on the horns of a dilemma amid growing anger over outsiders exploiting natural resources in Pakistan’s biggest but poorest province.
The issue has become complicated with noted nuclear scientist Dr Samar Mubarakmand telling the Supreme Court that Pakistan has the means to exploit Reko Diq deposits. He was in charge of testing Pakistan’s nuclear device in the same area in 1998. ‘Awarding this contract to foreign country tantamount to compromising the national interests’, he argues.
Former finance minister Shaukat Tareen echoes his views. He was the first to protest the ‘deal’ by the Musharraf government. He sees justification in renegotiating the TCC contract on the basis of national interest. ‘If we are able to export processed metal, we can fetch up to $500 billion instead of $40 billion under the existing agreement’.
The existing deal with TCC makes no provision for local refining since the TCC management claims that it has no expertise in the area. TCC is nevertheless willing to allow a third party to enter refining.
Hearing the case over seven months, the Supreme Court led by activist Chief Justice Iftikhar Muhammad Chaudhry has ‘saved’ the project and hauled up several federal and provincial level officers involved in granting of mining lease. It also stayed this February Balochistan government’s move to award mining license to TCC. However on May 24, the court cleared the decks for granting the license. But the decision would be subject to the outcome of the court case.
In view of the changed circumstances, TCC owners will be “very cautious” in their plans for the Reko Diq, though Balochistan chief secretary said the provincial government would like to renegotiate the deal with them.
Given the lack of transparency in Pakistan, it is difficult to say within what time frame the project would be ready. TCC officials say that it will take about four years after the formal go ahead to build the infrastructure required to make the mine operational.
The element of risk in Balochistan is high. Moody’s rates Pakistan B3 in risk whereas Standard & Poor rates it CCC+ on risk scale. Capital markets weigh the risk factor in matters related to investment. It is not good news.
