PAKISTAN'S ONLY 25% STAKE IN GIANT COPPER PROJECT IN BALOCHISTAN
Jan 28 - Feb 03, 2008
Antofagasta Copper Company of Chile has recently estimated two billion tons of copper deposits at Reko Diq in Chagai district of Balochistan. The company is currently striving for the speedy commissioning of this mega copper project in which it has so far invested $46 million. The officials expect that annual production of 250,000 tons of copper from Reko Diq project would not only bring Pakistan on the world copper map but also help strengthen its economy.
Reko Diq is a giant copper and gold project in Balochistan. The copper-gold deposits at Reko Diq are believed to be even bigger than Sarcheshmeh in Iran and Escondida in Chile. The deposits which are in the neighborhood of Saindak copper project, is four times larger in copper ore tonnage than Saindak. It is a giant porphyry copper and gold complex. A further 14 mineralized porphyry bodies are known to exist, with the potential to place the project among the largest undeveloped copper resources in the world. Chinese, Australians and Chileans have purchased stake in strategic copper and gold assets of Pakistan in Chagai. The Australian Tethyan Copper Company Limited (TCC) controls the Reko Diq project in Chagai having a joint venture with Government of Balochistan. The company planned to start the project in 2003 with an investment of $ 130 million.
A few years back, the Chilean Antofagasta agreed to a $133 million joint venture with an Australian TCC to explore and exploit copper and gold properties in Balochistan. The agreement involved the purchase of a 19.95 percent stake in Australia's TCC for $20.5 million as well as an outlay of $37.5 million for a 50 percent equity stake in company's Pakistan mineral properties. The agreement also involved a commitment to invest up to $75 million in exploration and development. The agreement with TCC provided Antofagasta a strategic investment opportunity in a very prospective mining region.
Controversies: Many political, business and industrial circles had criticized the change of foreign ownership of massive copper and gold reserves at Reko Diq in Balochistan. They raised the question, why the government did not refuse the transfer of the Reko Diq project from the internationally reputed BHP Billiton to the TCC which after acquiring the project raised funds for the project by floating its shares in the Australian Stock Exchange. The vested interests have deprived the country of 75% stake in the world's biggest untapped copper deposits at Reko Diq in district Chagai of Balochistan. Presently, Pakistan has only 25% stake in the project.
The stand of Ministry of Petroleum and Natural Resources on the issue of transfer of ownership of Reko Diq project has been that, the BHP Billiton as a matter of their international policy can transfer their smaller interests to other junior mining companies with a usual provision for a claw back right in case of a major find. As per their joint venture Agreement BHPM first offered their 75% share to the provincial government, which had no resources to take over the property. Balochistan, therefore, agreed to waive off their right of first refusal and allowed BHP Billiton to look for any other company capable to invest in exploration.
Parsimonious Government: It may be contended that if Balochistan government had no resources to buy 75 percent of BHP, then it was the responsibility of the Federal government to arrange resources for taking over the Reko Diq project. The project could be given on lease to Chinese, who already have acquired Saindak copper project on lease for the period of ten years. The project under Australians would not bring such larger benefits for Pakistan and the people of Balochistan, as the Chinese are committed to provide from Saindak.
The provincial government had first signed the contract for Reko Diq exploration area with the BHP Minerals in July 1993 and established a joint venture with the respective interests of the province- 25 per cent and BHP Billiton ñ 75 per cent by virtue of a deed of waiver and consent signed on June 23, 2000. Under the deed, the federal government provided its consent to the grant of rights to TCC and to any transfers to TCC and agreed to waive all of its pre-emptive rights under the agreement in relation to such transfers.
Under the Chagai Hills Exploration Agreement signed between the BHP Minerals and the Government of Balochistan on 29 July 1993, the two parties had established a joint venture with the respective interests of Balochistan - 25% and BHP Billiton ñ 75% in relation to the Reko Diq exploration area. According to the agreement, "A party may elect to withdraw from the joint venture with effect from the end of any work program and budget. Upon withdrawal the interest of the withdrawing party shall be forfeited to the other parties. No party may assign its percentage interest without consent of the other party which consent shall not be unreasonably withheld. BHP Billiton may assign without consent to a related corporation. Further, the parties have a pre-emptive right to acquire any sale interest on the same terms as offered to any third party except in relation to a transfer to an affiliate or in other specified circumstances. No transferee shall be entitled to any right until the transferee has executed a deed of assumption agreeing to follow this Agreement".
Prospects: It is worth to note the provision, which says, "BHP Billiton may assign without consent to a related corporation", which debunks that agreement unilaterally had given the BHP Billiton the right to assign the control of the Reko Diq project to a new company, as it did. Why was the provision "No party may assign its percentage interest without consent of the other party" not applicable to BHP Billiton.
Moreover, by virtue of a Deed of Waiver and Consent between the Balochistan and BHP Billiton, the province acknowledged that BHP Billiton had entered into an agreement under which, "it will seek to transfer its interest in the agreement to Mincor Resources or its related body corporate, TCC". Under this deed, the Balochistan provided its consent to the grant of rights to TCC and to any transfers to TCC and agreed to waive all of its pre-emptive rights under the agreement in relation to such transfers.
The Balochistan government had the basic contract with the BHP. As the BHP had failed to make any significant progress in exploring the copper resources so its failure had provided the provincial government a chance to seek fresh offers for exploitation of Reko Diq reserves in Chagai. The best mining companies of the world would have rushed to Pakistan to make bid for the worldís largest copper reserve at Reko Diq.