Canadian-based Barrick Gold’s Reko Diq mine in Pakistan: an overview

by Natasha FERNANDO

Barrick Gold Corporation, founded by Peter Munk in 1983, is one of the largest gold producers in the world. The company, headquartered in Toronto,  is listed on  both the Toronto and New York Stock Exchanges and operates mines in four continents and 18 countries including in conflict prone areas. Its mining operations in Reko Diq, in federally administered Balochistan province, came under international scrutiny with the 2019 decision of the World Bank  arbitration court to force Pakistan to pay damages of USD 5.84 billion for suspending foreign mining activities there. The economic, security and political climate in the country has made it difficult for investing nations to conduct business in Pakistan. This article provides a brief history of the Reko Diq project, and its implications for Canada’s investor relations, particularly those which are security-related owing to the recent sporadic increase of attacks by Baloch separatists after the Taliban takeover of Afghanistan.

Reko Diq Project Overview

The Reko Diq mining project located in the Chagai district of Balochistan province is estimated to hold around 5.9 billion tons of mineral resources including copper and gold deposits. The Reko Diq sits on the Tethyan Magmatic Arc, which is a rich geological formation of rare earth minerals. Different companies have had varying levels of stakes in the project since 1993. The first company to express interest in Reko Diq was the Australian mining giant BHP Billiton. They signed the Chagai Hills Exploration Joint Venture Agreement (CHEJVA) in 1993 with the government of Balochistan, but  activities were suspended and the stake was transferred to Mincor Resources, another Australian company in 2000. In 2006, the Tethyan Copper Company (TCC) acquired Mincor. The TCC was a joint venture between Barrick Gold and the Chilean Antofagasta company each holding a 50 percent stake in the mining activities of what was previously Mincor.

In 2007, the TCC sought a mineral agreement with Pakistan for which a feasibility study of copper and gold mining was done in 2010. This mining lease application submitted to the government of Balochistan was rejected in 2011. The government sought higher stakes and greater local participation on the project. TCC, which had invested over USD 220 million on the project, sought arbitration claiming damages of USD 11.43 billion? at the International Centre for Settlement of Investment Disputes (ICSID) in 2012. Several petitioners appealed to the Supreme Court of Pakistan which declared the CHEJVA void, stripping the TCC of rights to mine at Reko Diq. Among the petitioners were Maulana Abdul Haq Baloch (from the Jamaat-i-islami party) and Azam Khan Swati (from the Pakistan Tehreek-e-Insaf party) with the defendants being the government of Balochistan, and TCC with its counterparts.  At the time of the decision, the government of Balochistan was a coalition of National Party, Pakistan Muslim League (Nawaz), Jamiat Ulema-e-Islam (Fazl) and Pakhtunkhwa Milli Awami Party. In 2013, the general elections were held with multiple insurgent attacks on political parties to stall the elections since the central government wanted  parties supportive of the Pakistan military in power at the federal level, while insurgents and their supporters preferred a party with a lesser role for the military. This dilemma continues to affect political stability in the region hampering businesses.

In 2019, the ICSD ruled in favor of the TCC awarding it 5.84 billion in damages citing Pakistan’s breach of the Australia-Pakistan Bilateral Investment Treaty. By unlawfully denying the mining lease which was unfair for the TCC, the company had incurred significant financial and operational loses. The court’s decision was therefore based on the fair market value of the project for its actual investments and lost future profits. It is important to note here that the TCC invoked the Australia-Pakistan bilateral treaty to file the claim with the ICSID, because, TCC is incorporated in Australia despite its parent companies being based in Canada and Chile. Barrick Gold’s significant involvement in the case therefore has a multitude of implications on Canada-Pakistan relations and the broader relationships of Pakistan with its foreign investors.

What are the implications for Canada?

The ICSD ruling in favor of the TCC, has significant impacts on investor confidence between Canada and Pakistan. Firstly, the decision led to a renegotiation of ownership of the project as updated in the Barrick Gold website: “Reko Diq is owned 50% by Barrick, 25% by three federal state-owned enterprises, 15% by the Province of Balochistan on a fully funded basis and 10% by the Province of Balochistan on a free carried basis.” Secondly, the decision added pressure on the Pakistan government to resolve its foreign investment outlook. At the time of the ruling, Pakistan was in severe economic crisis and had sought assistance from the International Monetary Fund to secure a USD 6 million bailout package to stabilize the economy. Having to pay damages to the TCC around the same time places a tremendous amount of pressure on Pakistan to improve their investment policies and legal frameworks. Thirdly, the decision is useful for other corporations that intend to conduct business in Pakistan with a better awareness of the economic, political and security challenges facing the country and their respective investments.

The most recent development regarding this project is the entry of Saudi Arabia’s Manara Minerals with a USD 1 billion investment with the potential of altering the project’s ownership dynamics. Barrick Gold’s CEO Mark Bristow has stated to the media that the company will not dilute its stake in the project, but will welcome a decision by Saudia Arabia’s Public Investment Fund to buy out Pakistan’s equity in the project. Barrick Gold already operates a copper project in Jeddah in Saudi Arabia, therefore a foreseeable partnership with the Gulf nation may have broader geopolitical implications for Pakistan. On the one hand, the move helps Saudi Arabia’s Vision 2023 to reduce reliance on oil to diversify its economy by tapping into other forms of revenue. This could encourage other Gulf Cooperation Council nations to follow suit renewing Gulf nations’ interest in South Asia. This could potentially serve as a counterbalance against the influence of China in the region. Particularly in Pakistan, with the China-Pakistan Economic Corridor, Saudi Arabia’s interest could balance against the entrenchment of Chinese footprint.

Security Challenges

However, Barrick Gold’s target to extract its first production of Reko Diq by 2028 is compounded with challenges due to instability of Pakistan’s economic, political and security situation. Federally administered Balochistan is home to multiple terror outfits including numerous Baloch separatist groups and Islamist/sectarian groups chiefly: Baloch Liberation Army, Baloch Liberation Front, Islamic State, Lashkar-e-Jhangvi and Tehreek-e-Taliban Pakistan. One of the main reasons for the proliferation of these terror outfits, especially the separatist groups, is the perception that the region is exploited for its resources, leaving the local population impoverished and marginalized. Growing local resentment to Chinese projects, and foreign companies mining in the region have also been exploited by these insurgent groups. The growing nexus between Baloch insurgents and Islamist groups like the Tehreek-e-Taliban Pakistan has expanded the operational capabilities of these outfits making it difficult for companies to continue their operations unhindered. The Taliban takeover in Afghanistan in particular has added to this increase in capabilities. In the first quarter of 2024 alone, Baloch militants have carried out 62 attacks with the BLA’s Majeed Brigade involved in complex suicide operations.

Conclusion

The Reko Diq project by Barrick Gold Corporation in Balochistan, Pakistan, faces significant challenges due to economic, political, and security instability. Despite possessing vast mineral resources, the project has been marred by legal disputes, resulting in a $5.84 billion arbitration award against Pakistan. The security situation is compounded by the presence of various militant groups, further complicating mining operations. The potential involvement of Saudi Arabia’s Manara Minerals could influence regional geopolitics and shift project dynamics.