x Abu Dhabi, UAETuesday 16 January 2018

Barrick digs in over Balochi project

The world's biggest gold miner is no stranger to difficult places but together with its partner Antofagasta, trying to develop the huge copper and gold project in the wilds of south-west Pakistan is proving a challenge

Barrick Gold has conquered some of the most inhospitable places on Earth to become the world's biggest gold miner, but in Balochistan it may have bitten off more than it can chew.

Barrick and Antofagasta of Chile share an equal stake in Tethyan Copper Corporation (TCC), which acquired a 75 per cent interest in the Reko Diq copper deposit in a remote area of south-west Pakistan in 2002 from Australia's BHP Billiton. The provincial government of Balochistan retained the other 25 per cent. The company has spent millions developing Reko Diq, but Balochistan is renowned not just for the ferocity of its tribesmen, who are widely considered even more intimidating than the Pashtuns. It is also known for Gwadar, the deepwater port being built by the Chinese.

But the most significant copper-gold discovery in at least 20 years has led to a high-stakes battle between the two partners. Barrick says it continues to work at the huge Reko Diq property and its exploration licence is still valid, despite the chief minister of Balochistan saying in February that the government was cancelling Barrick's licence and planned to develop the site itself. Reko Diq is said to contain at least 10 million ounces of gold and 5 million tonnes of copper, and is expected to become a major world mine for 50 years or more.

"We are having discussions with government officials there," says Vince Borg, the Barrick executive vice president. "[But it's still] not clear what their thinking is as we haven't received any official notice regarding their intentions ? but we remain hopeful that we can reach an agreement to move it along." Relations between TCC and Balochistan's leaders have always been tense. At the time of the 2002 acquisition, many political, business and industrial leaders criticised the change of foreign ownership, says Syed Fazl-e-Haider, the Balochi development analyst in Karachi.

"According to the Balochistan government, TCC sold its 75 per cent interests to Barrack and Antofagasta without its consent," Mr Fazl-e-Haider says. TCC's exploration licence is due to expire in February of next year, and later this year the Reko Diq feasibility study is expected to be released, confirming an enormous resource that will cost at least US$3 billion (Dh11.01bn) to develop. TCC is now anxious to agree terms to secure a mining lease but as these critical milestones approach, distrust and anti-western sentiment is coming to the fore.

"We will not extend any further contracts, either to the existing companies or to anyone else," Nawab Muhammad Aslam Khan Raisani, the chief minister of Balochistan, told the Financial Timesin February. "They only have an exploration licence, which does not cover extraction." Mr Fazl-e-Haider says Balochistan believes TCC has failed to live up to the terms of its exploration licence, which requires the company to build a mining academy and commit to an onsite smelter.

It will be difficult for Balochistan to obtain bank backing to develop Reko Diq without a major industrial partner and there are a limited number of credible alternatives to Barrick and Antofagasta, given Reko Diq's location in this remote and often hostile area of Pakistan. As well as its ferocious tribesmen, Balochistan is famous for a long-standing separatist movement, some resident anti-Iran militia and the Quetta shura, the leaders of the Afghan Taliban.

The area also falls within the Tethyan Magmatic Arc, a geologic structure that is one of the few remaining unexplored areas in the world, says a geologist working at the site who asked not to be identified. "This is a giant porphyry copper-gold deposit that is not really high grade, but the sheer size and scale of it make it remarkable," he says. The only remaining question is who will have the rights to mine it.

A possible alternative is the China Metallurgical Group Corporation (MCC), the state-owned mining giant that is already active in the area, operating the much smaller Saindak copper property. MCC is also developing the super-rich Aynak copper deposit in Afghanistan, 60km south-east of Kabul. MCC secured both sites by paying above the odds and offering major ancillary projects. At Aynak, MCC promised a 400 megawatt power plant, an on-site smelter and a railway to Tajikistan that could open up the north of Afghanistan to central Asian trade routes linked to the transport centre of Kashgar, the western Chinese city.

Some have speculated that Reko Diq offers similar possibilities because it lies along a promising new trade route connecting Gwadar to the Pakistan capital city of Islamabad. Gwadar is only 500km from the Strait of Hormuz and could allow China to transport its Gulf oil supplies overland into its western provinces. This would generate economic development that could help to settle those restive areas, while avoiding the long and increasingly hazardous sea route from the Gulf through the pirate-infested Strait of Malacca and South China Sea up to China's east coast.

But Mr Fazl-e-Haider says MCC has also antagonised the Balochis, who accuse the company of increasing production at Saindak so aggressively that it has halved the life of the mine to 10 years. He says MCC is doing the same thing at Aynak, where mine capacity is being built at 320,000 tonnes of copper concentrate a year compared with an agreed annual level of 200,000 tonnes. MCC was not available for comment.

At the heart of the dispute is Balochistan's determination to participate fully in the economic benefits of any natural resources extracted from its land. Mr Raisani estimates total reserves at Reko Diq at a minimum value of $1 trillion, a number that is rising along with the gold price. "Even if we get $1bn a year out of this project, our economic returns for Baluchistan will improve very rapidly," he told the FT. "But we are looking at much larger returns."

Mr Borg says TCC continues to work on the project and remains "hopeful". "The technical side of the project is progressing along. The partners are reviewing/finalising feasibility study for the next several months," he says. "On the political side, we are having discussions with government officials there ? I suspect, though, that this will take time." business@thenational.ae