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How Pakistan can make billions of dollars annually from this mine, but so far won’t.

 

IKRAM SEHGAL | Monday | 22 November 2010 | The News International
WWW.PAKNATIONALSITS.COM

 

ISLAMABAD, Pakistan—Reko Diq is a remote location in the north-west of Chagai, a sparsely populated district in north-western Balochistan. The weather in the desert there ranges from searing summers of 40-50°C to freezing winters of down to -10°C, with precipitations (winter rain and some snowfall) of less than 40mm. Periods of high wind and dust- and sandstorms have a demobilising impact on local activities and trade. Access to Chagai district is from the Zahidan-Quetta highway.

A large low-grade copper porphyry deposit, Reko Diq has total mineral resources of 5.9 billion tons of ore with an average copper grade of 0.41 per cent and gold grade of 0.22 g/ton. The economically mineable portion of the deposit has been calculated at 2.2 billion tons, with an average copper grade of 0.53 per cent and gold grade of 0.30 g/ton. The annual production is estimated at 200,000 tons of copper and 250,000 ounces of gold contained in 600,000 tons of concentrate. At today’s international prices of copper at $8,600/ton (with cost of production at $1,500/ton) and gold at $1,350/ounce (with cost of production $350/ounce), the profit works out to $1.42 billion for copper and $2.5 billion for gold, $4 billion approximately annually from a revenue of $4.65 billion. This translates to $224 billion’s profit from revenues of $260 billion over the life of the mine.

BHP Billiton initially signed the exploration licence with the government of Balochistan in 1993, while Tethyan Copper Company (TCC) was being formed in Australia, with BHP Billiton having 75 per cent and the Balochistan government 25 per cent. With gold and copper established in substantial quantity, BHP sold its stake 37.5 per cent each to the Chilean Conglomerate Antofagasta Minerals and the Canadian company Barrick Gold. TCC has completed an extensive exploration programme at Reko Diq with more than 300,000 meters’ drilling. Negotiations with the Balochistan government and the government of Pakistan are underway for getting the very crucial mining licence, since the exploration licence expires in February.

As soon as the mining lease is granted, it will be followed by project financing and construction of ancillary infrastructure to make the mine operational. $3 billion’s investment is required over a four-year period of construction to build a world-class copper and gold open-pit mine that will utilise a conventional “truck and shovel” technique. Giant mechanical shovels will be used to dig out the copper ore, which will then be loaded onto 360-ton trucks to haul copper ore on a daily basis from the mine to the processing facility. The rocks (ore) will be crushed in giant crushers, and the crushed ore will be transferred to a fine-grinding stage and converted into a powdered form. Containing small quantities of copper and gold, this powder will pass through a separation process called “flotation,” resulting in 30 per cent concentrated slurry of copper and traces of gold.

The initial processing plant envisages 110,000 tons of ore per day (and another 170,000 tons of waste) processed through the flotation process. A 682-kilometre concentrate pipeline, the world’s largest, will then transport the slurry from the mine site to Gwadar to a dedicated marine terminal facility at the port for storage and subsequent transfer to shipping vessels. 

Commercial mining operations are anticipated to last 56 years at an estimated annual operating expense of about $400 million, approximately half of which will be spent within Pakistan. TCC claims to have already spent over $200 million since 2006 on exploration and technical studies.

Plans include a 189MW dedicated plant which will provide power for the project, ancillaries and the residential colony. Heavy furnace-oil-based combined cycle reciprocating engines will be installed to provide 99.5 per cent availability. The concentrate produced at the processing plant will be further fluidised into a slurry of 53-57 per cent and transported to Gwadar via a pipeline.

The other main features of the pipeline, apart from its being the world’s largest underground pipeline for slurry, are that leak-detection equipment will be installed and the pipeline will be encased in concrete at river crossings and three booster stations will be established along the route.

A number of facilities will be built at Gwadar port in order to handle the concentrate for final shipment. They include dewatering facilities and pressure filters for the removal of concentrate to from the slurry, a covered shed to store dried concentrate, a conveyor belt to transport the concentrate from the storage yard to the shipping berth, and a ship-loader to load the ship with the concentrate cargo.

About the investors, BHP Billiton is the world’s largest supplier of iron ore and sea-traded hard coking coal, largest producer of export thermal coal, lead and zinc and third-largest producer of copper. It is the world’s sixth-largest producer of aluminium and produces three per cent of the world’s diamond supply. It has a significant oil and gas business.

To build and operate a railway from the northern Chilean port of Antofagasta (which gives the name to the company) to the Bolivian capital of La Paz, Antofagasta and the Bolivia Railway Company were incorporated in London in 1888. A majority interest in the company was acquired in 1980 by the Luksic Group, a Chilean industrial family. The patriarch of the Luksic family, the late Andronico Luksic, who died in 2005, was born to a Croatian immigrant and a Bolivian mother. In 1982, Antofagasta Holdings Plc (renamed Antofagasta Plc in 1999) was formed as the new holding company in Chile. Antofagasta diversified into a number of other sectors, including mining. Today it is one of the largest international copper-producing companies in the world.

Canada’s Barrick Gold Corporation, owned by the Munk family, is the gold industry leader, with 25 operating mines and a number of large, long-life projects located across five continents. Its founder-chairman, Peter Munk, is, like Luksic an immigrant, but from Hungary. 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 Dec 31, 2009. In 2009, Barrick produced 7.42 million ounces of gold at the net cash cost of $363 per ounce and 393 million pounds of copper at the net cash cost of 0.85 per pound. It has since reduced costs even further.

Who in the government of Pakistan or the Balochistan government originally gave the waiver to BHP Billiton to palm off its 75 per cent share and at what price, without being privy to the deal? Why are the Chileans and Canadians risking life and limb, as well as their investment in such a dangerous area, except for a huge profit? Why is Tethyan not making the smelting plants in Pakistan, instead of shipping the concentrate abroad? Why don’t we do the mining ourselves, paying for foreign expertise.

Considering that cyanide will be used extensively in the mining, this should go well with the dirt which we will be left with at the end of this scandalous transition.

Who is now trying to sell this gold mine for nothing? Can the Supreme Court please make an example out of someone?

Mr. Sehgal is a defense and political analyst. Reach him at    

 

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