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By OWAIS TOHID And ALEX MACDONALD
A massive copper and gold development project in Pakistan faces further delays or possible cancellation after the provincial government of Baluchistan outlined 10 observations and objections that claim the mining lease application was incomplete and not legally compliant with mining laws.
"The [Mines] Committee found that the application submitted by the applicant is not satisfactory. It is also not in the interest of the government and the people of Baluchistan that the lease be granted on documents which [are] incomplete and sketchy," the government said in a letter of objections seen by the Dow Jones Newswires and The Wall Street Journal that was sent to project developer Tethyan Copper Co. Pakistan Ltd. in the past week.
The government has given Tethyan 30 days to respond to the objections.
The objections raised by the government could potentially derail Tethyan's plans to invest $3.4 billion in the project over a three-year period. The investment would be the largest single foreign direct investment in Pakistan to date.
Tethyan is a joint venture equally owned by U.K.-listed Chilean copper producer Antofagasta PLC and Canada-based Barrick Gold Corp. that bought a 75% stake in the Reko Diq project in 2006. The project was initially owned by BHP Billiton Ltd., which in turn secured a project exploration license in 1993 by signing an agreement with the Baluchistan government.
Miners are closely monitoring the mining license application process in order to determine how the government of Baluchistan will negotiate future mining licenses.
Miners are concerned that resource nationalism is leading governments like Baluchistan to push for a greater take in the profits of projects through increased equity stakes, taxes or royalties, at a time when companies are struggling to satisfy the voracious appetite of emerging economies like China as they rapidly industrialize.
As an example, the Mongolian government is currently considering tweaking the terms of an investment agreement that is set to help attract more than $6 billion into the country in order to develop the massive Oyu Tolgoi gold and copper project.
"Resource nationalism is a key issue and a real concern for us," Tom Albanese, chief executive of diversified miner Rio Tinto PLC, indirect shareholder and project operator of Oyu Tolgoi, said last Tuesday without referring specifically to Oyu Tolgoi. The company said Sunday it expects the Oyu Tolgoi investment agreement to be honored.
The Baluchistan government letter highlights that the previous owners of the Reko Diq exploration license weren't registered firms in Pakistan at the time when the initial project agreement was signed. It also noted that Tethyan wasn't able to apply for the mining license on its own without gaining prior consent from the government of Baluchistan, a 25% stakeholder in the project.
Such consent hasn't been granted, a source familiar with the matter said.
From a technical perspective, the government also said Tethyan "utterly failed" to provide a complete feasibility study for the entire exploration area, as previously promised.
While it did provide a feasibility study for two deposits it didn't submit a development plan for the mining of 11 other potential resources in the exploration area, it said. Nor did the company identify all the resources in the exploration area or meet its targets within stipulated time frames.
"On account of non-exploration and failure to explore the area during the last 17 years ," the government of Baluchistan feels that "local inhabitants of the area [have] been deprived of the fruitful results" that such a project should be able to provide.
The government of Baluchistan also went on to say that the feasibility study was "silent" about the processing, smelting and refining of metals and minerals to be extracted from the area, an issue which is likely to be easily resolved since the company is prepared to sign an agreement to sell its ore concentrate to a third party at market prices, according to a person familiar with the matter.
A Tethyan spokesman declined to comment on the details of the letter and referred to Tethyan CEO Tim Livesey's comments last week in which he confirmed receipt of the 10 observations and objections. Mr. Livesey said the company would seek to respond within the designated time frame.
Pakistan Gold-Copper Project Faces More Obstacles - WSJ.com
A massive copper and gold development project in Pakistan faces further delays or possible cancellation after the provincial government of Baluchistan outlined 10 observations and objections that claim the mining lease application was incomplete and not legally compliant with mining laws.
"The [Mines] Committee found that the application submitted by the applicant is not satisfactory. It is also not in the interest of the government and the people of Baluchistan that the lease be granted on documents which [are] incomplete and sketchy," the government said in a letter of objections seen by the Dow Jones Newswires and The Wall Street Journal that was sent to project developer Tethyan Copper Co. Pakistan Ltd. in the past week.
The government has given Tethyan 30 days to respond to the objections.
The objections raised by the government could potentially derail Tethyan's plans to invest $3.4 billion in the project over a three-year period. The investment would be the largest single foreign direct investment in Pakistan to date.
Tethyan is a joint venture equally owned by U.K.-listed Chilean copper producer Antofagasta PLC and Canada-based Barrick Gold Corp. that bought a 75% stake in the Reko Diq project in 2006. The project was initially owned by BHP Billiton Ltd., which in turn secured a project exploration license in 1993 by signing an agreement with the Baluchistan government.
Miners are closely monitoring the mining license application process in order to determine how the government of Baluchistan will negotiate future mining licenses.
Miners are concerned that resource nationalism is leading governments like Baluchistan to push for a greater take in the profits of projects through increased equity stakes, taxes or royalties, at a time when companies are struggling to satisfy the voracious appetite of emerging economies like China as they rapidly industrialize.
As an example, the Mongolian government is currently considering tweaking the terms of an investment agreement that is set to help attract more than $6 billion into the country in order to develop the massive Oyu Tolgoi gold and copper project.
"Resource nationalism is a key issue and a real concern for us," Tom Albanese, chief executive of diversified miner Rio Tinto PLC, indirect shareholder and project operator of Oyu Tolgoi, said last Tuesday without referring specifically to Oyu Tolgoi. The company said Sunday it expects the Oyu Tolgoi investment agreement to be honored.
The Baluchistan government letter highlights that the previous owners of the Reko Diq exploration license weren't registered firms in Pakistan at the time when the initial project agreement was signed. It also noted that Tethyan wasn't able to apply for the mining license on its own without gaining prior consent from the government of Baluchistan, a 25% stakeholder in the project.
Such consent hasn't been granted, a source familiar with the matter said.
From a technical perspective, the government also said Tethyan "utterly failed" to provide a complete feasibility study for the entire exploration area, as previously promised.
While it did provide a feasibility study for two deposits it didn't submit a development plan for the mining of 11 other potential resources in the exploration area, it said. Nor did the company identify all the resources in the exploration area or meet its targets within stipulated time frames.
"On account of non-exploration and failure to explore the area during the last 17 years ," the government of Baluchistan feels that "local inhabitants of the area [have] been deprived of the fruitful results" that such a project should be able to provide.
The government of Baluchistan also went on to say that the feasibility study was "silent" about the processing, smelting and refining of metals and minerals to be extracted from the area, an issue which is likely to be easily resolved since the company is prepared to sign an agreement to sell its ore concentrate to a third party at market prices, according to a person familiar with the matter.
A Tethyan spokesman declined to comment on the details of the letter and referred to Tethyan CEO Tim Livesey's comments last week in which he confirmed receipt of the 10 observations and objections. Mr. Livesey said the company would seek to respond within the designated time frame.
Pakistan Gold-Copper Project Faces More Obstacles - WSJ.com
