SEEKING A BETTER DEAL FOR REKO DIQ
Jan 17 - 23, 2011
International mining giants have offered an interest-free loan of $600 million to Balochistan to exploit the mineral wealth of a world-class copper-gold mine at Reko Diq in Chagai district after China has joined the competition for securing a mining lease for the multi-billion dollar project.
Balochistan is seeking a financially better deal for Reko Diq project in Chagai district. Tethyan Copper Company (TCC), a joint venture between Barrick Gold of Canada and Antofagasta of Chile, has made a revised offer to secure a mining lease and production sharing agreement with the Balochistan government for commercial production at Reko Diq.
On the other hand, the state-owned Metallurgical Corporation of China (MCC), which is already engaged in the production of copper and gold at Saindak in Chagai, offered provincial government larger share in income and royalty from mining at Reko Diq during the recent visit of the Chinese Premier Wen Jiabao to Pakistan. TCC's exploration license for Reko Diq is due to expire next month. Critics say that if MCC is awarded the mining contract for Reko Diq, it would mean the authorities have learnt nothing from Saindak where Chinese have been involved in excessive mining. Production from Saindak started in 2003, but it has had virtually no spillover effect on the local economy to date.
Executive Committee of the National Economic Council (ECNEC) recently decided to hand over the Reko Diq project to Balochistan government, which claims to have adequate resources, manpower and technical expertise to run the project.
Chief Minister Raisani recently told reporters the provincial government would set up a refinery at a cost of one billion rupees and install equipment to run the project. Balochistan envisages creating a facility for processing 15,000 tons per day of copper ore to produce copper metal and other valuables such as gold, silver, molybdenum and sulphuric acid etc. It is estimated that annual income of the project, on completion, would be to the tune of $185.25 million.
Having proven mineral resource of 5.9 billion tons established through a bankable feasibility study, the Reko Diq also attracted Chinese, Russian, and American companies to secure the high-value natural resource.
TCC's revised offer for securing mining lease for Reko Diq came after a recent meeting between Balochistan Chief Minister Nawab Aslam Raisani and chief executive of the TCC, Gerhard Von Borries.
The company has reportedly offered to raise $600 million loans to fund the provincial government's 25 per cent share of the capital contribution for equity participation at no interest to start mine development. About $100-125 million interest cost of the loan would therefore be picked up by the TCC. The company has also offered to give up the Balochistan government's share of the management fee of the project that roughly provides another saving of about $25 million to the province. In another relaxation in loan repayment, the Balochistan government would be entitled to start receiving dividends once net profits commenced and would have to allocate half of its dividends towards the repayment to TCC of the principal amount of the loan, extending the loan repayment period beyond eight years envisaged under the original agreement.
China submitted its offer at a time when Chinese Prime Minister was on a three-day visit to Pakistan, from December 17 to 20 and at a time when the TCC was facing a government threat to scrap the deal because of misgivings about the share of benefits.
"Chinese firm has submitted counter proposal that if mining contract of Reko Diq project is handed over to MCC, it would give Balochistan government 25 percent share in the income, besides 5 per cent royalty," Associated Press of Pakistan (APP) reported Balochistan government officials as saying.
The MCC has also offered that it would construct roads, besides setting up a power plant at the mine site.
Balochistan government is willing to sign an agreement with the Chinese company if it promises transfer of technology, besides giving the provincial government a decision-making member in the project's board of directors, according to APP.
The MCC acquired the Saindak project on lease for the period of ten years in September 2002. The lease agreement is due to expire in September next year. It would be easy and cost effective for MCC to start work at Reko Diq in Chagai, as the company is already present at Saindak site with its technical staff, labor, machinery, and equipments in the same district.
Critics say that the project under Chinese would bring less economic gains and more environmental disaster to the least-developed Balochistan, as the track record of MCC has not been satisfactory in Saindak copper project, which was launched without undertaking environmental impact assessment (EIA). The government could not develop a monitoring and evaluation system for Saindak mine with an estimated life span of 19 years.
It would be a blunder, the critics contend, to handover the control of Reko Diq with an estimated life span of over 50 years to MCC with a poor track record in mining. Reko Diq is likely to meet the same fate under the same Chinese company, which is indulged in over-mining in Saindak at the cost of the mine's estimated life.
Reko Diq is the fifth largest copper-gold resource of world. An initial capital investment of $ 3.3 billion has been proposed to be made in four years. Antofagasta and Barrick have a reputation, experience and market capitalization worth to raise this funding in the international financing community. Some analysts argue that the least developed Balochistan should not lose the huge foreign investment, as Reko Diq will be the biggest foreign financed project in the history of Pakistan.
The project is expected to trigger the development of large-scale high tech mining industry, which is non-existent in the country. The success of the project will encourage other international mining firms to come in to invest in the exploration of Chagai district through which Tethyan magmatic belt runs. An extensive exploration of the area may find other 'Reko Diqs' out in the district.
The project described extensively in the bankable feasibility study considers a large open pit mining operation operating at an extraction rate of 110,000 tons of ore per day, a large state of the art processing plant, power generation facilities, maintenance shops, a water supply system for the process water, a mining town to accommodate up to 11,500 workers during the construction stage and later on 2,500 direct employees during the operating stage, a concentrate pipeline to Gwadar port city, a concentrate filtering plant in Gwadar and shipping facilities of the product.