Thursday, February 24, 2011

Rekodeq Copper and Gold Project


There is a lot of controversy these days over the Rekodeq Copper and Gold project. A number of people have requested me to explain the rather complicated issue and hence this article. A foreign company Tethyan has completed exploration of the resource located in Chaghi, the famous place where Pakistan’s first nuclear explosion was carried out, and has prepared and submitted a feasibility study for consideration and approval of the government of Balochistan. The company claims, and perhaps rightly so that it has spent some 200 million US dollar on the project studies and exploration over the past several years. The company expects that it is given mining rights pursuant to its exploratory efforts and investments. The company proposes to bring a foreign investment of 3.2 billion USD and has provided for spending 50% of the investment on local procurement of goods and services. For seemingly archaic confidentiality reasons, the company has refrained from revealing its feasibility study, which has created doubts and controversy among the mind of general public. The project is being opposed by many quarters. This article takes account of the debate and the arguments, attempts to build a picture of the project in terms of real numbers, develops proposals on royalty issue based on international practices and in conclusion broadly supports the project, while advising Government of Balochistan to avail the services of third party experts in contract negotiations with the company.


1) Present mineral sector output in Pakistan is a paltry o.4% of GDP, way below its potential variously estimated at 2-3% of GDP, which would mean an annual output and exports of 5000 Million US dollars.

By comparison, IMF contribution to foreign exchange deficit is slightly more than 1000 million USD. However, mineral sector has been stagnating due to low technology and small scale mining and that mostly in non-metal sector. Except for Saindak with an output of 16000 tons of blister Copper, there is no sign of large scale mining, benefiting from foreign capital and technology.

2) TCC-Rekodeq is a good window of opportunity; Pakistan has been waiting for years. With a foreign investment of 3.2 Billion USD and an annual output of 220,000 tons of Copper and 16 tons Gold ,resulting in annual exports of more than one Billion USD, it is a project of international scale in every respect.

3)The project has been opposed on many counts, the most significant ones are as follows; a) the monetary terms offered by the foreign JV TCC are not adequate; b)we can do it on our own and make more money; c)there should be local processing done within the country instead of the export of raw concentrate. The alternative cited is a ECNEC approved project.

4) We have studied the international Copper industry and its workings including several large scale projects in the pipelines. We have examined the PC-1 of the ECNEC Copper Rekodeq project and other claims that have been made in this respect. We have also studied the data of Saindak Metals in so far it is publicly available. We have also examined the TCC project data, mostly based on the data and info available on the company website, and some press reports containing some useful data. We also had had an opportunity of examining the data from Aynak project in Afghanistan, which contract has been recently awarded to MCC of China.

5)The ECNEC project is very small with a daily ore output of just 5000 tons, as opposed to 110,000 tons per day of ore output of TCC proposal. It is even smaller than the existing Saindak. ECNEC proposal relies on small scale mining of the local mining companies. It is doubtful, if even 5000 tons of ore can be mined by the local sub-contractors. Understandably, its cash cost per ton are very high, i.e.3158 USD per ton, several times higher than international cost including those of TCC. It is widely known that small scale mining operations are uneconomic and the ECNEC project only supports that. There is a high probability that this project runs into snags, cost over-runs and lack of output. There may be a good chance of success, however, if the ECNEC project restricts itself to mineral processing, a point that we are going to take up later in these passages. ECNEC project does not make the kind of claims that have been attributed to the project. There is no possibility that it can give an output of 45000 tons per annum of finished Copper. The claims of the ability to give profits of 133 Billion USD can only be termed too exaggerated, unrealistic and grotesque, if not out rightly false. Apart from a poor economics, the premise of relying on local mining contractors to provide the raw materials output for such high through-put rates so as to generate 133 billion USD of Gross Profit , does not stand up to robust calculations and judgments. It cannot be done. Hence no profit or outputs in those scales are to be expected.

6) If there is a compulsive need for demonstrating capability, excellence and utilization of S&T manpower, it can be done on many unexplored and unexploited resources lying dormant in Kohistan, Waziristan and in Chagai itself. The ECNEC project, as small as it is, may be implemented on those resources. These areas badly need investment and employment opportunities. ROZ funds of the USAID could be mobilized there as well.

7) On the other hand, TCC proposal has been prepared by world renowned consultants and overseen by two big JV partners Antafagosta of Chile, where the latter operates several copper mines including Leach-Electro win operations. The other minority partner, Gold Barrick specializes in Gold project. The project structure and numbers are in broad conformity with similar international projects. t is quite likely that the proponents would make a success of the project and would be able to produce and export in the quantities planned.

8) This, however, does not mean that TCC proposal cannot be improved and altered, keeping in view some of the reasonable aspirations and requirements. Local processing component could be added, for a portion of the output. Local processing can be done by TCC itself based on its operations in Chile or give it to a local or foreign JV or to the proponents of ECNEC project. Other financial terms offered can be negotiated as well. It should be discussed in a business like setting in a transparent environment, avoiding legal battles and claims on both the sides.

9) ECNEC approval of a Copper project is rather strange in the wake of a consensus on FDI and privatization and in the light of a bad experience in Saindak. GOP has privatized many profitable ventures in the past and many strategic projects like HMC and KSEW have been put on privatization list. Some explaining of the rationale is in order.

10) TCC could have followed a better project politics and communication policy which would have prevented hostility and debate against the project. It has taken the classical view that the ore being Sulphide cannot permit the much economic and viable route of Leaching. There is abundant evidence to the contrary. Many projects have been launched recently by such big names like Phelps Dodge, BHP, Codelco etc. Infact earlier data available on the internet about Rekodeq as released by TCC included a leaching component for a percentage of output. We have included a table to substantiate this. Local processing is an important political issue, if not an economic one. It should have received much more serious attention. Secondly, it is the archaic attitude to secrecy contending that its feasibility studies contain technical secrets. This is untenable. TCC cannot possibly teach its competitors any thing new. A more open communication policy would have been in its own interest generating public confidence and support.

11) TCC project can be a start of a new chapter in Pakistan’s mineral sector offering technology, capital and exports and can be a good example to attract investments in other minerals. The reverse can also happen, if this opportunity is vitiated and wasted in hostility and delay.

12) No looting is involved in the project proposal, neither is the Reqodeq project out of this world and not certainly worth trillions of dollars. Infact, its Cu content is lower than elsewhere and matches only the US deposits which are generally considered inferior. Its on-surface valuation of 100 billion USD is realistic, and the proponent company may not be able to net over more than 3-4 billion USD over the entire project life cycle of 56 years, as is the case with other comparative projects.

13) A 50% share in gross profit is a good formula and matches with competitive offerings elsewhere. Contract framework must ensure that the promised terms actually result in the expected income. Contracting for such high value projects is a highly complicated business. Government of Balochistan should establish a transparent negotiating structure and process under the guidance of a transaction adviser seconded or selected by multi-lateral agencies and their processes.

14) Government of Pakistan may do well by launching an information campaign disseminating true and realistic data and information to correct public opinion and perceptions mired in conspiracy theories and unrealistic presumptions regarding uniqueness of mineral deposits in Balochistan and Pakistan. The reality is that there are abundant mineral resources in the world vying and competing for the investment of foreign capital and technology. The uniformed public opinion in Pakistan creates mistrust and unrealistic romanticism and folklore which in turn feeds separatist tendencies.

Conclusion and Recommendations

1) The proposed Rekodeq project is in national interest and it should be allowed without stalling it in unnecessary argumentation. It would bring in much needed foreign investment and would contribute in a meaningful way in energizing Pakistan’s economy.

2) Government of Balochistan should adopt a transparent process in negotiations with the company with suitable advice and over sight. Government of Balochistan should engage the services of an independent professional transaction advisor to facilitate a reasonable agreement maximizing national and provincial interests in the framework of adequate profitability and international good practice. International tendering is not the only feasible option always.

3) Environmental aspects should be investigated adequately and requisite remediation provided for within the established rule and good practices.

4) The company is expected to adopt a more open policy towards releasing adequate information out of the feasibility study conducted by it. Trying to hide facts does not create confidence in the minds of the general public, either in Balochistan or elsewhere in the country. It would be in every body’s interest if all aspects of the projects are out in the open.

5) Consideration should be given to provide for producing blister Copper. The company has proposed a very capital intensive and risky transport system of installing a 682 kms long slurry pipeline. The same investment could be diverted to installing Blister copper facilities. Recognizing that copper smelting is an energy intensive operation, Flash smelting based on electric arc furnaces based on cheap electrical power from Iran could be considered as a technical option. Alternatively the Bio-leaching SX-EW route could be implemented on mineral waste and tailings and as well as the virgin Sulphide ore as has been done elsewhere in the world(pls see appendix for details). The company has already offered a fund of one million US dollars for undertaking the relevant feasibility study, which is a welcome step. A separate JV can be formed for this purpose, with a possible participation of Pakistan’s private sector. The mining contract should provide for local sales, if and when such projects come up.

6) A railway track linking Rekodeq mine site with Gawadar airport would have been a more advisable option for concentrate transport. Reportedly that aspect was investigated and dropped in the least-cost perspective. GOP may be asked to fund the additional finance, if required.

7) A 189 MW power project has been proposed based on furnace oil based Internal Combustion Engines in a combined cycle mode. Pakistan is already burdened under very large unsustainable oil imports. Rekodeq has Good Wind and Solar Thermal resource. It may also make a good commercial sense to have a wind-cum solar thermal based power generation, whereby the mines process heat requirements may be met through the wind-solar combine. Possibilities of imports of cheap electrical power from Iran may also be looked into, if nothing else, than to add to the projects energy –mix and security.

8) There is almost a national consensus on pursuing open economic policies encouraging FDI and privatization. It is in this spirit that even profitable companies like PTCL have been privatized. It would be highly unadvisable for government to venture into the risky and capital intensive business of Copper mining. Government is already facing problems in meeting the deficits of large public sector corporations. The claims of self-doing do not meet up to our robust enquiry and consideration. There are other Copper deposits in the area where local excellence and expertise can be adequately demonstrated. These would become more feasible, once the proposed project is implemented which may provide a pool of trained manpower.

9) The project deserves much more conscientious attention of all the stake-holders in the interest of the best outcome in the form of the earliest implementation maximizing national gains, without recourse to a possible international litigation that may not be in Pakistan’s best of interests.

Table 6: Rekodeq profits, royalties and Revenue projections (guess-estimates)




50 year Revenue

One year revenue


Total deposit Tonnage

billion tons


Economic Deposit

billion tons


Ore composition

Ore copper



Ore Gold content

gms per ton


Ore concentrate

Copper output

Tons per year


Gold output

Oz per yr


Average selling price CU

USD per lb


Avg. selling price gold

USD per Oz


Royalty rate

% of sales


Before Tax Profit

% of sales


Tax rate

% of profit


GOB Equity



Estimates & Projections

Sales Total o/w




Sales Copper




Sales Gold




Annual Royalties




Estimated Profit o/w




GOB share




Tethyan Profit b. Tax




Tax Rev. GOP




After tax Profit Tethyan




Total GOB Revenue




Total Pakistan Rev




Asset value

Ore Copper Value

Billion USD


Ore Gold Value

Billion USD



Billion USD


Asset value(@royalty rate)


Source: Authors Estimate: Based on Tethyan website data

Full pdf report here.