Amid Pakistan’s Political Firestorm, Barrick Gold Fights for its Rights


After the government in Pakistan’s Balochistan province rejected mining rights for Barrick Gold Corporation’s (NYSE:ABX) joint venture – Tethyan Copper at Reko Diq – the company has moved to file for international arbitration in order to safeguard its investments and rights for copper mining in the region. [1] The Reko Diq mine region is closely watched by many industry experts due to the high quality copper ore and the various political issues in the region. Locals have protested that the government is trying to make money by selling the area’s mineral resources and investing the earnings elsewhere in Pakistan. Barrick is the world’s largest gold mining company. Headquartered in Toronto, it competes with other mining companies such as Newmont Mining (NYSE:NEM), AngloGold Ashanti Ltd. (NYSE:AU), Goldcorp Inc. (NYSE:GG) and Freeport McMoran Copper (NYSE:FCX).

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According to Tethyan Copper, the name of Barrick’s JV, by rejecting the company’s application the Balochistan government has violated its 2002 minerals code and has also violated a bilateral investment treaty between Pakistan and Australia. The company has filed two claims against the Balochistan government at the International Center for the Settlement of Investment Disputes in Washington and the International Chamber of Commerce in Paris, along with a separate claim against the federal Pakistan government for the violation of the bilateral investment treaty.

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The joint venture has invested more than $200 million in exploration and feasibility studies in the region since 2006. It was estimated that the joint venture would invest close to $3.3 billion to develop the Reko Diq copper and gold project, which would have an annual capacity of close to 200,000 tons of copper and 250,000 ounces of gold annually. The estimated life of the mine at this rate of production was estimated at 56 years. [2] The rejection of mining rights for the joint venture has come as a huge setback considering the rich deposits it has explored and the soaring prices of gold and copper.

At times miners have trouble securing mining rights in underdeveloped regions where either the governments or the locals take issue with the regions’ resources being exploited by outsiders. This is a prime example of that, one that may eventually end up just delaying the project development. We expect that copper prices will come down over the next five years, when additional production from big miners like Vale (NYSE: VALE) and Rio Tinto (NYSE: RIO) kicks in, offsetting the current undersupply. Therefore Barrick Gold is highly motivated to produce copper as quickly as possible as it likely won’t be nearly as profitable down the road.

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Notes:
  1. Barrick Gold and Antofagasta face mine fight, Financial Times []
  2. Reko Diq Resource, Tethyan Copper website []