Money Matters

Mine your gold!

Money Matters
By Hussain Ahmad Siddiqui
Mon, 02, 20

On July 12 last year, the International Centre for Settlement of Investment Disputes (ICSID) awarded $5.84 billion in damages to the arbitration claims in case of Tethyan Copper Company Proprietary Ltd of Australia vs Islamic Republic of Pakistan, ICSID case no. ARB/12/1 dated January 12, 2012. The case relates to the denial of a mining lease for the contentious and controversial Reko Diq Copper-Gold Mine project that never got off the ground.

On July 12 last year, the International Centre for Settlement of Investment Disputes (ICSID) awarded $5.84 billion in damages to the arbitration claims in case of Tethyan Copper Company Proprietary Ltd of Australia vs Islamic Republic of Pakistan, ICSID case no. ARB/12/1 dated January 12, 2012. The case relates to the denial of a mining lease for the contentious and controversial Reko Diq Copper-Gold Mine project that never got off the ground.

The ICSID is a World Bank Group arbitral tribunal responsible for international commercial arbitration, and having jurisdiction over investment disputes under bilateral treaties—in this case the Australia-Pakistan Agreement on the Promotion and Protection of Investments signed in February 1998, and made effective October 14, 1998. The ICSID has allowed the claimant a compensation of $4.087 billion in relation to fair market value of the investment in project, and, additionally, $1.753 billion as interest until date of award.

Balochistan has vast mineral resources, including iron, copper, silver and gold, but remains the poorest province -thanks to abuse of political power, large-scale corruption, and disheveled decisions of the past governments due to which the exploration and exploitation of minerals never materialised in a big way. 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.

According to these studies, copper occurs in large quantities in different concentrations in the entire Reko Diq mines area of 13,000 square kilometers, 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 percent 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.

There were major amendments made in the original Agreement and supplementary agreements were concluded by the provincial government in the years 2000, 2002, and 2006, giving multiple extensions and unprecedented heavy concessions, exemptions, authorisations and favours to the mining company, to the extent of relaxing Balochistan mining rules and regulations. This completely changed the structure of the original document, ignoring the fact that no meaningful progress was achieved on the project during these years.

Prospecting area was also said to be enhanced from original 1,000 sq-km in 1993 to 13,000 sq-km by 2002. Unfortunately, many more relevant details still remain untold –arguably confirming compromises on national interest. Not surprisingly though, no action was ever taken against those responsible for the unauthorised and non-transparent decisions, whether the then rulers or the bureaucrats or those in the background.

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 percent 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.

The economical mine-able portion of the deposit under study is 2.24 billion tons, which corresponds to 11.66 million tons of copper and 660 tons of gold based on over 55-year mine-life. It was proposed to process 110,000 tons of ore daily or 39,600,000 tons yearly. Out of this ore, estimated 200,000 tons of copper (0.53 percent) 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 percent royalty on total value of metals sold in the international market, compared to globally recognised six percent. There was no transparency in the procedure as to who would determine the value of metals finally produced and sold. Reportedly, TCC did not disclose crucial information about discovery to the government. It transpired later that, according to independent geologists the estimates of mine-able ore were understated by TCC in the feasibility report. Current estimates of the deposit by independent sources are around $240 billion to $260 billion over 40 years.

Based on the feasibility study, TCC applied to the Balochistan government for the mining lease in February 2011. However, the then chief minister 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).

Reportedly, the ICSID award cannot be challenged or even reviewed, but settled within the ambit of contract and international best practices. The claimant has already approached, on August 14, a federal court in the United States for enforcement of arbitral award. Meanwhile, there were reports that the global mining company was “willing to engage with Pakistan to explore the potential for a negotiated settlement”. Pakistan has also resorted to, on January 9, a US Federal Court in Washington seeking to stop implementation of the arbitral award, citing ‘devastating consequences for its political and economic stability’ if the award in enforced.

It will indeed be a great challenge for the government to resolve the issue with the international mining company, considering recent ICSID award together with the Supreme Court’s ruling of January 2013. Nonetheless, it is recognised that early mining of copper and gold at Reko Diq complex is of great strategic interest for Pakistan. It shall meet the aspirations of the nation if the 7-member high-level Commission on Reko Diq, appointed by Prime Minister Imran Khan in August last year, looks into all legal, judicial, contractual, commercial, economic and financial aspects encompassing the case, and comes up with its recommendations soonest.


The writer is retired Chairman of State Engineering Corporation