Pakistan may renegotiate Reko Diq contract

There is new uncertainty surrounding Barrick Gold‘s (ABX-T, ABX-N) and Antofagasta‘s (ANTO-L) Reko Diq copper-gold joint-venture project in Pakistan’s resource-rich but unruly southwest Baluchistan province.

Barrick and Antofagasta each own a half interest in subsidiary Tethyan Copper Co., which ostensibly has a 75% interest in Reko Diq. The Balochistan government owns the remaining 25%.

In the past month, media reports have cited that the provincial government wants to revoke the exploration license for the site to protect local interests. It would still need approval of the national government to complete the revocation.

But, spokespersons for both the Canadian gold company and the Chilean copper miner say the companies have not been notified about the cancellation. They also maintain that they have not directly heard about the Baluchistan provincial government passing a motion to terminate the contract, as reported in Asia Times on Jan. 12.

“We have not determined that they have passed any motion to revoke anything,” says Vincent Borg, Barrick’s senior vice-president of corporate communications. “Because of the media reports, we are seeking clarification on exactly what their intention might be.”

The Toronto Star ‘s Islamabad-based correspondent suggested on Jan. 14 that Pakistani officials might cancel the Reko Diq deal in order to bring in Chinese partners, as China is one of Pakistan’s leading foreign investors and a Chinese group runs a small copper mine near Reko Diq.

As reported in the Financial Times in mid-January, Pakistan’s finance minister, Shaukat Tarin, said the raw copper extracted from the copper-gold site in Baluchistan could garner between $40-$50 billion in the next 25-35 years, and that Pakistan would make “ten times more money if the minerals were processed and sold in a refined form.”

Despite these reports, Antofagasta’s spokesperson Oliver Winters is quick to reassure that the Pakistani government did not officially notify the company about cancelling its license, noting that his company is engaged in “open dialogue” with the provincial and federal governments regarding the mineral agreement.

As the talks continue, Barrick and Antofagasta are carrying out a feasibility study and an environmental and social impact study at Reko Diq. The feasibility study is on track to be finished by June, says Winters.

The study would outline the life of the mine and the annual production rates, says Borg, stressing that this is the partners’ main activity at the moment with respect to Reko Diq.

It’s a medium to long-term project, says Winters, adding that the partners are excited about its potential. The resource estimate for Reko Diq’s main Western Porphyries deposits stands at a remarkable 4.1 billion tonnes grading 0.50% copper and 0.298 gram gold per tonne.

Winters says the partners also hope to work closely with the local government to ensure the project runs smoothly. Tethyan has reportedly spent $1.5 million to date on initiatives such as training the locals and building facilities near the project site. Barrick and Antofagasta have reportedly spent in the neighbourhood of US$300 million on the project since acquiring it in 2006.

Since the media reports surfaced about problems at Reko Diq on Jan. 14, Barrick’s shares have dropped from $41.38 to $38.04 on Jan. 27. Similarly, Antofagasta’s shares have dropped from £10.31 to £9.21.


1 Comment on "Pakistan may renegotiate Reko Diq contract"

  1. Stewart A Jackson | January 29, 2010 at 6:01 pm | Reply

    It is time for the Canadian, American, and Australian governments to be prepared to reassess the international funding being supplied to Pakistan under all forms of aid. If the renegotiation of working agreements is to be done after the funds are expended and the discoveries made and measured, then our tax dollars should be reassessed and aid packages re-examined in light of such manoevering.

    It seems that official notice has not been given, however Mr Harper should be ready to assert the rights of Canadian corporate enterprises should such notice appear. One former Prime Minister Lester Pearson would rise to such an occasion and certainly another former Prime Minister Brian Mulroney has cause to be involved in any current discussions that may arise through his long-term involvement with Barrick.

    The outcome of this scene will be very important to international investment in minerals.

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