Pakistan: The Original Story of Reko Diq Gold

If negotiations with Canadian mining company over the terms of extracting Pakistan's largest gold deposits do not succeed and Islamabad has to still pay them, then they should be paid the US$ 5 billion fine in installments over the life of the contract!

Posted on 07/21/19
By Ikram Sehgal | Via ViewsWeek
The massive deposits of gold, copper and other precious metals in Reko Diq have remained unexplored because of Pakistani government’s incompetence.

Historically gold prospects always attracts adventurers, the sites are usually fought over, not only by individual prospectors and/or mining companies but by nations.  Possibly the biggest copper and gold deposit in the world, why should Reko Diq be an exception? In 2010 the Reko Diq Mining Project was calculated to be a US$ 3.3 billion investment project to build and operate a world class copper-gold open-pit mine in the dry desert conditions of northwest area of Balochistan.

The original agreement was signed between GOB in 1993 and BHP Billiton, the Anglo-Australian mining grant.  Under a “deed of waiver and consent”, BHP Billiton sold 75% of its stake, 37.5% to Chile’s Antofagasta and 37.5% to Canadian Barrick Gold Corporation.  Reports indicate that for establishing the Tethyan Copper Company and then selling it to the Chileans and the Canadians, BHP Billiton stands to make over US$ 75 billion over the life of the project.  That is a colossal profit on the meagre investment made! If that is true, BHP Billiton makes a cool US$ 1.125 billion per year for the next 56 years!  Why has the royalty unilaterally reduced from 4% to 2 % and why was the GOB not party to the agreement?  And what was their original investment?  If Tethyan has spent about US$ 300 million as the CEO Tethyan Gerhard von Barriers had that  claimed, it would been appropriate to them take up his offer to appoint international auditors to verify this. An investment of US $ 3.3 billion was projected to be be made over the four-year construction period, however most of it would be in loans, guaranteed by the gold and copper deposit.  Why was the 25% share of the Balochistan government contingent on the sharing 25% expenses? What is the GOB share in the initial investment, including that of providing support services, security roads, communications, etc?  Does it mean the gold and copper mine-to-be was given to investors for free? The CEO Tethyan claim that the smelting and refining operation was based on a doubtful perception of benefits, and the economics thereof was very poor.  Why were the Chileans and Canadians risking life and limb as well as their investment in such a dangerous area, almost in the heart of than  “Al-Qaeda” territory?  For profits off course, and if they can make profits, than we should be able to do so too, after all mining is not nuclear science.    Coincidentally the man who is the father of our first nuclear explosion Samir Mubarakmand was the Pakistani Head of Tethyan.

Originally established in 1988 in Chile as a railway line meant to service the copper mines, the Antofagasta group now has interests in a number of other sectors including mining. Today it is one of the largest international copper producing companies in the world. Canadian Barrick Gold Corporation is the gold industry leader, with 25 operating mines and a pipeline of large, long-life projects located across five continents.  It has the world’s largest reserves of 139.8 million ounces of gold, 6.1 billion pounds of copper reserves and 1.06 billion ounces of contained silver within gold reserves as of December 31, 2009. In 2009, Barrick produced 7.42 million ounces of gold at net cash costs of $363 per ounce and 393 million pounds of copper at net cash costs of 0.85 per pound. BHP Billiton Iron Ore is one of the world’s premier suppliers of iron ore and is the sixth largest producer of primary aluminum, with a network of operations servicing a global customer base. It is the world’s third largest copper producer and a leading producer of lead and zinc.

The annual production of the TCC project is estimated at 200,000 tons of copper and 250,000 ounces of gold from 600,000 tons of concentrate. In order to achieve this production rate, approximately 110,000 tons of ore has to be processed daily. Only high-efficiency mining techniques and cutting-edge technology can achieve economic feasibility for the TCC Reko Diq project. The copper concentrate a year, which will contain 28-31% copper and 7-22 grams/ton gold which translates to about 200,000 tons copper and 250,000 ounces of gold per year. The commercial mining operations are anticipated to last for 56 years with an estimated annual operating expense of about US$ 400 million, of this 45%-50% will be spent within Pakistan.  TCC claim to have already spent over US$ 200 million since 2006 on exploration & technical studies. An initial Heavy furnace oil based combined cycle reciprocating engines was to be installed to provide 99.5% availability. The concentrate produced at the processing plant was to be further fluidized into a 53-57% slurry and transported to Gwadar port via a pipeline. The main features of the pipeline were: (1) World’s largest underground pipeline 682 km for slurry from Reko Diq to Gwadar port. (2) Leak detection equipment installed and the pipeline encased in concrete at river crossings and (3) Three booster stations established along the route.

To quote Mohammad Ali Talpur from his article “Requiem for Reko Diq”, “Reko Diq, an ancient volcano in Chaghi, literally means sandy peak.  This is something of a misnomer.    It should be called Tangav Dik, or gold peak, below the sands lie 12.3 million tons of Copper and 20.9 million ounce of gold”.   The CEO of Tethyan Copper Company said in 2010 that a feasibility study into the site has confirmed 22 billion pounds of Copper and 13 million ounce of gold over the 50-60 year life of the Project.   Taking the Tethyan estimate and given that the international price of copper at that time US$ 8600 per ton and that of gold US$ 1350 per ounce, and with the cost of production estimated at US$ 1500 per ton for copper and that of gold at US$ 350 per ounce, that worked on to a cool profit, at the than international rates, of approximately US$ 80 billion for copper and US$ 156 billion for gold in the 56 years life cycle of the project, a total of US $ 236 billion, or roughly US $ 4.2 billion per year in profit alone.

Some information about the investors, Chile’s Luksic family owns the Antofagasta Holdings and the Canadian Munk family owns Barrick Gold Corporation.  The original Chilean company, Antofagasta and Bolivia Railway Company was incorporated by investors in the London Stock Exchange in 1888 to finance the railway from La Paz in Bolivia to Antofagasta, a Chilean port. Canadian Barrick Gold Corporation is the largest gold mining conglomerate in the world.  Two interesting snippets about the founders of the two firms, both of whom are immigrants from Europe.   The patriarch of the Luksic family, Andrónico Luksic was born of a Croatian immigrant to Chile and a Bolivian mother.   On taking over the Antofagasta Railways he diversified into copper mining, where he became one of the major forces in the world.  His success story started when Japanese investors were looking to purchase his copper mine in Chile, he offered it to them at 500000 pesos, they mistook for US dollars and paid him US $ 500000, ten times the amount. He refrained from clarifying this “honest” mistake.  On taking over his share in Tethyan’s, in exploration cost his investment will be about US $ 100 million (most of his further investment of US $ 1 billion will be in loans).  This will translate into US $ 937 billion profit over 56 years, about a 1000 times the original investment. Andrónico Luksic must have died happy in 2005, having got 10 times more than he should have got from the trusting Japanese, he got a 1000 times from the stupid Pakistanis.

The founder Chairman of Barrick Gold Corporation, Peter Munk CC, was similarly an immigrant from Hungary.  As a teenager he left Hungary in 1944 with his family aboard the “Kastner” train just ahead of the invading German troops.  Consisting of wealthy jews this train was given special permission by SS Col Adolf Eichmann,   The 83 years old Peter Munk has a doctorate, among others, from the prestigious Technion-Israel Institute of Technology, Haifa, Israel.  While the investors are businessmen who saw an opportunity and one cannot subscribe to conspiracy theories, one does question the intention and motives of those Pakistanis during the Musharraf era who virtually gifted away conceivably the world’s largest copper and gold mine and got a pittance in return.

Malik Riaz Hussain, the renowned land developer with incredible connections at the highest levels in all major sectors of Pakistan, claimed in mid-June 2012 that Dr Arsalan Iftikhar, son of the than Chief Justice (CJ) of the Supreme Court, Justice Iftikhar Chaudhry, had blackmailed him out of US$ 3.63 million over a three-year period. Receipts, housing agreements and even passport and flight details were produced by an associate of Malik Riaz (and Arsalan’s friend) about Arsalan’s trips and hotel stays in London (Hilton Park Lane) and Monte Carlo (Hotel de Paris). While Arsalan called the allegations “propaganda”, his father launched a pre-emptive judicial strike, taking suo-moto action to initiate an investigation against his own son, an unprecedented move in Pakistani judicial history.  Shoaib Suddle uncovered a lot of incriminating evidence against both Malik Riaz and Arsalan, recommending their prosecution for massive tax evasion. Both having a lot to lose, a compromise was reached. With the bureaucracy terrified by Justice Chaudhry’s penchant for suo-moto actions and shaming honest upright officials publicly in his courtroom, not surprising that nothing came of it.  Exercising his “Presidential” authority Asif Zardari put aside Shoaib Siddle’s recommendation to persecute both Malik Riaz and Arsalan Iftikhar on a number of counts including tax evasion. This modus operandi is classic Pakistan, one crook pardoning two other crooks.

Arsalan is not new to controversy reflecting negatively on his father. The former CJ was accused of getting him into medical school despite insufficient grades, and then rapid promotion in his first government assignment. Arsalan ultimately abandoned medicine and started his own telecommunication business, reportedly doing extremely well in “the operation management and maintenance of the network of the telecom side.” Arsalan Iftikhar at that time desperately tryied to divert attention from the scam by attempting Imran Khan’s character assassination and subsequent disbarment by ECP.  Bereft of his feared seat of power, can Arsalan’s father rely on colleagues in his former power base to continue to aid and abet his machinations? Having will that reflect on the superior judiciary? Attracting widespread criticism, Arsalan was forced to resign within twelve days into the Reko Diq controversy. Scrupulously honest Dr Abdul Malik, than Balochistan’s Chief Minister, courageously admitted it was a gross mistake. National Party’s Hasil Khan Bizenjo, illustrious son of one of Pakistan’s most honest politicians, Ghaus Bux Bizenjo, illegally removed as Governor Balochistan by President Zulfikar Ali Bhutto in 1973, categorically contradicted Arsalan’s blatantly false assertion that his father knew nothing about it. In fact, defending Arsalan’s appointment PML(N) stalwart Mushahidullah touted this as at that true a “reward” for Iftikhar Chaudhry’s “many services to the nation”.   To the nation or to PML (N)? Arsalan’s Federally-inspired appointment was “Reko Diq-specific.” Who else was in on the attempted scam?

While the grant of an exploration license is understandable, one cannot understand why better terms were not negotiated in 1993?  When the question of first right of refusal arose, who in GOP or GOB give the waiver to BHP Billiton? Particularly when it was clear by than that the supposed copper mine was also quite literally a gold mine?   And why is the concentrate being shipped abroad for smelting purposes, what is stopping Tethyan for making the smelting plants in Pakistan, either at the site and if that is not possible because of security and climate reasons, why not at Gwadar or Pasni before the copper concentrate is shipped out? Why was not GOB (even at 25%) as a third party in Tethyan not privy to the deal that BHP did in giving out 37.5% each of Tethyan Copper Company (75%) to the Chilean and Canadian investors?  And what did BHP receive (or will receive) for this transaction, virtually as a broker for Balochistan’s real gold estate?   Who were the Pakistanis involved at various times in the Federal Govt (GOP) and GOB? Their lifestyle and that of their near and dear ones will tell the story.  And since the exploration license was not to be converted into a mining ore before it expires in February 2011, it would have been interesting for transparency for the public at large to know for themselves who in the GOP and GOB were trying to sell a gold mine for dirt?  After 56 years Balochistan Province will be left with a lot of waste from the mining of ore, laced full of cyanide.

Since the Head of TCC has said they are open to a negotiated settlement, let’s go ahead with this on a fast-track basis, maybe we can do better in the contractual terms for the long term and they refine the slurry in Pakistan instead of shipping it abroad.  If negotiations do not succeed and if we have to still pay them, let’s do US$ 5 billion on the same basis in installments they are to pay US$ 75 billion to BHP Billiton, over the life of the contract!

The writer is a defense and security analyst.

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