Handling of copper, gold, gas reserves a big question mark

[MohammedA]

Jang.com.pok

Handling of copper, gold, gas reserves a big question mark

By Kamran Khan

KARACHI: An intriguing attitude of the Ministry of Petroleum and Natural Resources toward the change of foreign ownership of Pakistan’s massive copper, gold and gas reserves in Balochistan in the past two years has left Islamabad as a silent spectator to the fortunes made from its precious mineral resources by a small group of little known foreign companies, interviews with industry analysts and informed officials said.

As a result, the world’s largest copper and significant quantity of gold reserves in Balochistan are now under the control of a little known Australian company and an equally little known Canadian company that had won a major gas reserve from Pakistan for free is now selling the same facility to a Pakistani company for a hefty premium.

Industry analysts said that the Pakistan government, for reasons unspecified, made no objection when the world famous Australian company BHP Billiton decided to sell its stake in the Riko Diq copper project - considered as the world’s largest copper reserves - to a newly formed Australian company named Tethyan Copper Company Limited last year.

The government had awarded a contract to the BHP Billiton in 1994 to explore copper and gold reserves in the mineral rich Chagai range of Balochistan that also include the Riko Diq which has the potential to produce about 500 million tonnes of copper every year.

The most credible international surveys suggest that Riko Diq is one of the biggest undeveloped copper projects in the world with over 11 billion pounds of copper and nine million ounces of gold.

The industry analysts are questioning as to why the government did not opt to use its right to refuse the transfer of the Riko Diq project from the internationally reputed BHP Billiton to the Tethyan Copper Company which after acquiring the Riko Diq project raised funds for the project by floating its shares in the Australian Stock Exchange.

The Balochistan government that had the basic contract with the BHP for the exploration, a senior official conceded, could have easily used the BHP’s failure to make any significant progress in the copper and gold exploration and its decision to assign the control of the Riko Diq project to a new Australian company by seeking fresh international and local offers for its most precious reserves.

"World’s best mining companies would have rushed to Pakistan to make bid for the world’s largest copper reserve in addition to proven gold reserves," said an industry analyst. "There was more to it that what was seen on the surface," he added.

The Balochistan government is only 25 per cent partner in the world’s largest copper reserves project, which is now owned 75 per cent by the Tethyan.

Significantly, the federal government or the Balochistan did not bother to examine the Tethyan’s "zero year mining experience" or even the financial strength to undertake this huge exploration work, before it agreed to the transfer of Riko Diq control from the BHP Billiton to Tethyan.

Instead a huge favour was granted to the Tethyan by the federal government that announced to grant the Riko Diq project a status of export processing zone that practically excludes the government’s oversight of transfer of funds from the zone to abroad.

Barely a few months after the take over of the Riko Diq project in Balochistan, Tethyan made headlines in the international business circles, intriguingly not in Pakistan, when it was reported in April last year that the company had found significant gold zone at its world-class Reko Diq copper gold project.

The Perth-based Tethyan Copper revealed in Australia that drilling four holes into a mineral complex called H36 (Riko Diq) had unearthed results with strong gold values. No wonder the news caused an 11 per cent surge in Tethyan shares that day in Australia.

"The extent and apparent continuity of the mineralisation suggest that a gold-copper resource may well be present an excellent compliment to the generally more copper rich mineralisation at the western porphyries," said David Moore, the managing director of Tethyan Copper, in a statement issued after the gold discovery was announced.

When asked the Tethyan’s present relationship with the BHP that initially had won the Riko Diq project from the Pakistan government, John P Schloderer, general manager, Tethyan Copper Co Ltd, said: "The BHP Billiton is still involved in the project. But they have brought in a third party to carry on the exploration with a right to come back into any major discovery under the terms of their Alliance Agreement with the Tethyan Copper Company."

Senior officials and industry sources interviewed for this article attributed Tethyan’s tremendous success in acquiring the Riko Diq project to its decision to appoint a well connected Pakistan representative for this project.

Muslim Lakhani, the company representative for the Tethyan in Islamabad, till mid 90s was known in Islamabad as one of the best friends of Asif Zardari whom he (Lakhani) often joined for polo sessions.

After the fall of the PPP government, he went through initial investigation for a few months from Nawaz government’s anti-corruption Czar Saifur Rahman, but he somehow managed to escape the typical Saifur Rahman-style investigative techniques. The overthrow of the Nawaz government ultimately brought Lakhani close to the people considered close to the military government.

Besides the Tethyan takeover of the copper-gold rich Riko Diq project, Lakhani’s name emerged again when the Oil and Gas Development Corporation decided to abandon its Rodho-2 well with estimated gas reserves of 5 billion cubic feet with a heating value of 1129 btu.

Questions were raised in the related government circles when the Rodho-2 well without a transparent procedure was granted to a newly formed company, called Scimatar Hydrocarbon Pakistan - a local subsidiary of a small Canadian company of the same name.

What was common between the Tethyan and the Scimatar was the distinction that both had Muslim Lakhani as their representative in Pakistan.

The Scimatar earned the Rodho Block by promising to invest $553,000 the infrastructure for the 5 billion cubic feet Rodho Block, but only a few months later the Scimatar, armed with the lucrative Rodho Block license from Pakistan, sold its global business interest to another Canadian company named Rally Energy Corporation, which also decided to retain the services of Muslim Lakhani.

Officials said initially the Rodho Block, also known as Safed Koh block, was awarded to Scimatar as an exploration site hence no public offers were sought.

They, however, refused to comment that Safed Koh was a confirmed gas reserve as depicted in the Pakistan Energy Book of 2002, hence the site should have been auctioned through a transparent procedure.

Recent interviews have revealed that the gas-rich Rodho Block that was initially awarded to Muslim Lakhani’s Scimatar Hydrocarbon Pakistan and later moved to Rally Energy is now being sold to a newly created oil and gas exploration wing of a known automobile-cum-industrial business house of Pakistan that has agreed to pay a multi-million-dollar premium for this confirmed gas reserve.

[Hamood Khan]

Kamran Khan is a former colleague of the rougue ex-editor of the The News, Shaheen Sehbai. Kamran has a habit of bringing forth sensationalist canards like this report. 90 percen of the time he goes unnoticed. And 100 precent of the time he is lying. He's got some kind of a vendetta against the goverment. He's smart enough to not to target the army directly but tries to hurl insinuations indirectly.

[osman]

I wont believe this joker without a second source to confirm his story. He was lucky enough to be beaten up once by some police people and that got him an american award and after that he is a hero for them.

[Ahmed M]

I wont believe this joker without a second source to confirm his story. He was lucky enough to be beaten up once by some police people and that got him an american award and after that he is a hero for them.

What's wrong with that? And what does that have to do with the topic?

[Ahmed M]

Regardless of whether this article is true or not, we certainly need to do a better job of utilizing our mineral riches. The ministry of Petroleum & Mineral Resources has been considered a "lucrative" one under past governments and I don't know if it is any different under the current govt.

[osman]

What's wrong with that? And what does that have to do with the topic?

After getting beaten and gotten an award this guy gets attention whatever he writes and not always is it correct, mostly its sensational

[Usman S.]

Petroleum Ministry clarifies

A spokesman of the Ministry of Petroleum and Natural Resources has termed the contents of The News item "Handling of copper, gold, gas reserves questioned" appearing in the Daily News of 26th May 2004 as conjectural and without any basis.

Clarifying the factual position the spokesman said the grant of concessions for solid minerals is exclusively controlled by the provincial Governments as their Constitutional right. Mineral deposits are not discovered or proved without putting large risk capital investment on exploration. As per international practices, governments of developing countries attract international investment in mineral exploration by offering pragmatic investment friendly policies. The area of Reko Dek having reported copper - gold deposit had not even been explored by any agency till 1993, when BHP Mineral International Exploration Inc. corporation of the state of Delaware, USA (BHPM) and the Government of Balochistan (GOB) entered into a joint venture Agreement, to carry out exploration of about 8000 sq. kim in Chagai district, Balochistan for copper-gold and other associated minerals.

By virtue of this Agreement, GOB holds 25% interest in the joint venture but without any obligation to contribute towards the cost of exploration till the end of feasibility study. BHPM was to arrange loan for meeting the GOB equity at Libor+2%. By March, 2000 BHPM had spent almost US$ 8 million on exploration and identified H-4 Reko Diq prospect, which however was considered by BHPM not of large size. Additional exploration efforts and expenditure was, therefore, considered necessary to prove more reserves. BHPM as a matter of their international policy was keeping their focus on major mining projects and therefore, transferring their smaller interests to other junior mining companies with a usual provision for a claw back right in case of a major find.

As per their joint venture Agreement BHPM first offered their 75% share to GOB, who and however no resources to take over the property. GOB, therefore, agreed to waive off their right of first refusal and allow BHPM to look for any other company capable to invest in exploration. After NOC from GOB, BHPM entered into an option agreement with Mincor Resources of Australia a reputed international mining company. Mincor set up Tethyan Copper Company (TCC) in Australia having 81% share, while the rest was held by investors from Canada and Australian.

In 2001, TCC approached Ministry of Petroleum & Natural Resources through GOB and informed about its plans to develop H-4 Rko Diq as a pilot project for producing 40,000 tonnes of copper annually. TCC requested the Government of Pakistan (GOP) for grant of EPZ status to Reko Dek as had been extended to Saindak copper-gold project. The grant of EPZ status to Rekodiq was granted to expedite investment in the neglected mineral sector and development of backward area of the Country.

Regarding Rodho 2 well, OGDC had acquired a license for Rodho area in 1968 and 1994. The recoverable reserves from Rodho 2 had been determined at about 1.8 billion cubic feet (not 5 bcf) as alleged in the report. Since the size was small and not commercially viable from OGDC’s perception, it relinquished the license to the Government of Pakistan in 1998, had the ell been rich in reserved as presumed in the press report, OGDC would not have surrendered it in the first place. Subsequently the government awarded the exploration licence over Safed Koh to Scimitar Hydrocarbons Pakistan Limited alongwith MESA (a local Exploration and Production company) after a transparent process in January, 2002, OGDC could have again participated in the process but opted not to do so.

Under the Rules, any investing Exploration & Production Company which invest millions of dollars in exploration activity has the right to partially or wholly assign or transfer its working interest to any other company and it is common practice in the industry to transfer/acquire working interests. Therefore, nothing against the rules had taken place in transfer of working interest to Rally Energy Pakistan Limited. If Rally Energy has now decided to transfer its working interest to an other company, there is nothing malafide or unusual about it; the spokesman said.

Efforts should be made by all concerned including media to encourage investment including foreign investment in the Oil, Gas and Mineral sectors rather than giving straightforward transactions, a controversial appearance.

Islamabad

http://www.jang.com.pk/thenews/index.html

[Mehtab Khan]

Petroleum Ministry clarifies- Tethyan Copper Company- Muslim Lakhani

A spokesman of the Ministry of Petroleum and Natural Resources has termed the contents of The News item "Handling of copper, gold, gas reserves questioned" appearing in the Daily News of 26th May 2004 as conjectural and without any basis.

Clarifying the factual position the spokesman said the grant of concessions for solid minerals is exclusively controlled by the provincial Governments as their Constitutional right. Mineral deposits are not discovered or proved without putting large risk capital investment on exploration. As per international practices, governments of developing countries attract international investment in mineral exploration by offering pragmatic investment friendly policies. The area of Reko Dek having reported copper - gold deposit had not even been explored by any agency till 1993, when BHP Mineral International Exploration Inc. corporation of the state of Delaware, USA (BHPM) and the Government of Balochistan (GOB) entered into a joint venture Agreement, to carry out exploration of about 8000 sq. kim in Chagai district, Balochistan for copper-gold and other associated minerals.

By virtue of this Agreement, GOB holds 25% interest in the joint venture but without any obligation to contribute towards the cost of exploration till the end of feasibility study. BHPM was to arrange loan for meeting the GOB equity at Libor+2%. By March, 2000 BHPM had spent almost US$ 8 million on exploration and identified H-4 Reko Diq prospect, which however was considered by BHPM not of large size. Additional exploration efforts and expenditure was, therefore, considered necessary to prove more reserves. BHPM as a matter of their international policy was keeping their focus on major mining projects and therefore, transferring their smaller interests to other junior mining companies with a usual provision for a claw back right in case of a major find.

As per their joint venture Agreement BHPM first offered their 75% share to GOB, who and however no resources to take over the property. GOB, therefore, agreed to waive off their right of first refusal and allow BHPM to look for any other company capable to invest in exploration. After NOC from GOB, BHPM entered into an option agreement with Mincor Resources of Australia a reputed international mining company. Mincor set up Tethyan Copper Company (TCC) in Australia having 81% share, while the rest was held by investors from Canada and Australian.

In 2001, TCC approached Ministry of Petroleum & Natural Resources through GOB and informed about its plans to develop H-4 Rko Diq as a pilot project for producing 40,000 tonnes of copper annually. TCC requested the Government of Pakistan (GOP) for grant of EPZ status to Reko Dek as had been extended to Saindak copper-gold project. The grant of EPZ status to Rekodiq was granted to expedite investment in the neglected mineral sector and development of backward area of the Country.

Regarding Rodho 2 well, OGDC had acquired a license for Rodho area in 1968 and 1994. The recoverable reserves from Rodho 2 had been determined at about 1.8 billion cubic feet (not 5 bcf) as alleged in the report. Since the size was small and not commercially viable from OGDC’s perception, it relinquished the license to the Government of Pakistan in 1998, had the ell been rich in reserved as presumed in the press report, OGDC would not have surrendered it in the first place. Subsequently the government awarded the exploration licence over Safed Koh to Scimitar Hydrocarbons Pakistan Limited alongwith MESA (a local Exploration and Production company) after a transparent process in January, 2002, OGDC could have again participated in the process but opted not to do so.

Under the Rules, any investing Exploration & Production Company which invest millions of dollars in exploration activity has the right to partially or wholly assign or transfer its working interest to any other company and it is common practice in the industry to transfer/acquire working interests. Therefore, nothing against the rules had taken place in transfer of working interest to Rally Energy Pakistan Limited. If Rally Energy has now decided to transfer its working interest to an other company, there is nothing malafide or unusual about it; the spokesman said.

Efforts should be made by all concerned including media to encourage investment including foreign investment in the Oil, Gas and Mineral sectors rather than giving straightforward transactions, a controversial appearance.

Islamabad

[Abbas]

Chileans bankroll Tethyan copper plan
By Robin Bromby
29dec05

CHILEAN copper giant Antofagasta will bankroll Perth company Tethyan Copper's massive Pakistan project, a move that will finally see off a troublesome takeover bid for Tethyan.

The London-listed but Chilean-owned Antofagasta will initially inject $US133 million ($183 million) into Tethyan in return for a 50 per cent stake in the Reko Diq project and 17.3 per cent of Tethyan itself.

As a result, Tethyan shares added 11c to 71c, comfortably above the 64c a share being offered by Hong Kong-based Crosby Capital Group. But that hostile bid, announced last May, was already dead in the water, even though it remains open until January 19. The predators hold just 1.31 per cent of Tethyan. Tethyan managing director David Moore said yesterday the hostile bid had hamstrung the company for more than half a year. "It's stifled our share price."

Reko Diq, located in a sliver of western Pakistan that protrudes between Afghanistan and Iran, has 4.8 million tonnes of contained copper and 9 million ounces of gold - and there are 14 unexplored mineralised zones within Tethyan's licence area.

BHP Billiton pulled out of Reko Diq in 2000 because it considered the project too small but retained a clawback right. BHP Billiton will surrender that right for $US50 million.

Antofagasta has sufficiently deep pockets to take on the Reko Diq project. It produces about 450,000 tonnes of copper a year from three mines in Chile, has cash reserves of over $US1 billion and is a FTSE 100 member.

Antofagasta started in 1888 when the company raised money in London to build the port of Antofagasta in northern Chile and a railway to La Paz, Bolivia. The company today operates railways associated with its copper mines. In 2000 it commissioned the $US1.36 billion Los Pelambres mine high in the Andes.

Mr Moore said one of the best things about the deal was that Tethyan retained a half-share.

"We're not just a junior partner stuck on the sidelines," he said.

Antofagasta will pay for the next $US75 million of exploration and feasibility work to earn its 50 per cent.

It will also pay $US20.5 million for 33 million Tethyan shares at about 83c a share.

On top of that, there will be another $US37.5 million to bankroll a new joint venture company, most of that money going to pay off BHP.

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