Pakistan: The Future of a Gold Mine

By Aisha Mohammed

Edited by Chen Lou

Miners working in the Saindak copper mine in Pakistan have little to look forward to. Wages, which are meager to begin with, are siphoned away to pay for substandard housing, food and medical bills, said Zahir Mengal, executive director of Azat Foundation. The foundation works to protect the rights of miners in Balochistan, a province mired in poverty in spite of its resource-rich lands.

Mengal says that a state-owned Chinese company called Metallurgical Corporation of China (MCC), which has operated Saindak since 2003, has over-mined the land but provided few benefits for workers. Miners get USD 5 a month for medical care and injured workers have received pink slips in lieu of medical attention. Development analyst Fazl-E-Haider has also noted that to date, there is no reliable data on the mine’s environmental impact.

In comparison to MCC, Tethyan Copper Company (TCC), enjoys a better reputation among miners. TCC holds an exploration license for the neighboring Reko Diq mine. It is working on a feasibility study and plans to apply for a mining license in the next few weeks. Unlike MCC, TCC has hired an environmental manager and workers at the site earn twice as much as their Saindak counterparts, said Mengal.

Yet, the future of TCC’s Reko Diq agreement is uncertain. Last December, the Government of Balochistan (GoB) terminated the agreement in order to gain greater control of the mine, which may be the fourth largest copper and gold deposit in the world.

According to Fazl-e-Haider, the federal government has indicated that it will re-negotiate the deal only if TCC agrees to form a joint venture with a smelting firm. This would allow the government to reap a greater share of the profits by exporting processed rather than raw copper. Although smelting captures less than 10 percent of the profits of the copper mining process, former U.S. Representative William Zeliff said the amount is “still important to the people there.” Zeliff currently serves as Chairman of Benway Corporation, a mining company which owns 241,000 acres of land next to Reko Diq.

Exploration and development rights for Reko Diq, which is estimated to yield over 11 billion lb of copper and 9 million oz of gold, have passed through the hands of several international companies. In 1993, the GoB awarded exploration rights to Broken Hill Proprietary (BHP), an Australian company. Seven years later, the GoB established a joint venture with BHP, allocating a 25% interest to the government and a 75% interest to BHP.

In 2000, TCC acquired the BHP holdings, but sold them 6 years later for USD 230 million to Barrick Gold Co., a Canadian company and Antofagasta Plc, a Chilean company. According to Shiekh Tanvir, CEO of Benway Corp., the “accounting was not correct,” because the GoB did not receive any portion of the profits.

“Barrick went through the back door. The deal was not done in a transparent manner,” said Ahmar Mustikhan, founder of the American Friends of Balochistan. According to Mustikhan, former TCC Chairman Muslim Lakhani acquired exploration and development rights in a questionable manner. Lakhani, a non-Balochi, established TCC for the sole purpose of operating Reko Diq and then exploited his friendships with members of Musharraf’s administration to get the rights transferred to his company. “He got it [rights for Reko Diq] moved to his company’s name, but he had no experience in gold or copper mining,” Mustikhan said.

Mengal dismissed the allegations against Lakhani as propaganda. He believes that China may have pressured the government to cancel the agreement because Reko Diq has more gold than Saindak. In February, the Pakistani Business Recorder reported that the Pakistani government declined a proposal from the Chinese government that urged them to award the contract to MCC. The Pakistani government declined, anticipating a legal battle with TCC. “We think that TCC has done a very good job, and this is their right to move forward. The Balochi people do not want the Chinese because their past record is not very good,” said Mengal.

Others, like Mustikhan are not so keen on TCC and its partners. According to Fazl-e-Haider, the “rapid change in the ownership of the province’s copper and gold properties [has] further created doubts” among the Balochi people. To the Balochis it seemed as if “foreign firms paid more attention on selling their interests in copper and gold property at Reko Diq to other copper firms than development of the mine,” he said.

Barrick’s 2009 Third Quarter Report noted that three Pakistani citizens had filed a law suit against Lakhani, all the mining companies involved in Reko Diq, the Balochistan Development Authority (BDA), and the governments of Balochistan and Pakistan. The petitioners alleged that the BDA’s entry into an agreement with BHP was illegal, along with the subsequent transfer of its interests and licenses to TCC. After the Balochistan High Court dropped the law suit in June 2007, the petitioners filed an appeal in the Supreme Court of Pakistan in August 2007. The Pakistani Supreme Court has yet to consider the appeal, but Barrick noted, “it intends to defend this action vigorously.”

That is not the only court case pending against Barrick. The Benway Corporation is suing Barrick for encroaching upon its lands. In 2007, Barrick began building an airstrip on 75 acres owned by Benway and appropriated surface rights for an additional 44,000 acres. Barrick needs the land for water and pipelines and is already conducting surveys, said Tanvir. The Board of Revenue granted Barrick the rights, even though it is only authorized to handle transfers that involve 15 acres or less. “To give rights to Tethyan on Benway exploration land for 75 acres and 44,000 acres is, in our reading of the law, a violation of their authority. The surface rights on mining exploration land can only be allocated by Mines and Minerals Department and not without consent of Benway,” he said.

Others are concerned about the Canadian mining giant’s environmental track record. In January, Norway’s Ministry of Finance announced that the country’s pension fund would divest from Barrick for ethical reasons. The Norwegian Council of Ethics concluded in its report that, “the company’s assertions that its operations do not cause long-term and irreversible environmental damage carry little credibility. This is reinforced by the lack of openness and transparency in the company’s environmental reporting.” Mir Mohammed Ali Talpur, an active member of the Baloch nationalist movement, is concerned that Barrick will not keep its word at Reko Diq. “Barrick is saying that it won’t use cyanide. I have my doubts about it,” he said.

Fazl-e-Haider said that Baloch nationalists had reservations about the deal because the provincial administration was under federal control at the time, and the “province’s interests were naturally neglected.” The Reko Diq project is just one of several development projects that the federal government has executed in Balochistan, despite opposition from Baloch nationalist groups. Historically, the Balochis have claimed that the federal government has denied them an equitable share of their natural resources.

The outcome of the negotiations could have a significant impact on Pakistan’s economic future. The mine is estimated to be worth USD 100 billion, and if Pakistan is able to capture even half of that wealth, it could pay off its external debts, which stand at USD 50.1 billion. However, cutting off ties with foreign investors, could also have ramifications. Speaking at the Overseas Investors' Chamber of Commerce and Industry, U.S. Ambassador to Pakistan Anne Paterson warned that, “Multinational corporations will not invest in a country where deals are cancelled in one hour.” After peaking at USD 8.4 billion in 2007, foreign direct investment declined by nearly 50 percent last year.

Sitting on a volatile goldmine, Pakistan has no choice but to engineer a solution that satisfies the demands of its Balochi citizens as well as the balance sheets of foreign investors.

Photos from AP and benwaycorp.com