London/Lusaka/Toronto: A Barrick Gold Corp. and Antofagasta Plc joint venture was awarded $5.8 billion in damages from Pakistan over a disputed mining license, though the copper and gold project remains a long way from development.
“I think, at the end of the day, Reko Diq will be developed,” Barrick Chief Executive Officer Mark Bristow said, referring to the Pakistan deposit. “The question is when, and by who.”
An international tribunal run by the World Bank ordered Pakistan to pay the global mining giants after the country denied them a license to develop the copper and gold deposit in 2011. The damages include compensation of $4.09 billion for the fair market value of the Reko Diq project when the mining lease was denied, plus interest of $1.75 billion. The tribunal also awarded the joint venture just under $62 million in costs.
Collecting the funds may be a challenge, given Pakistan’s fragile economic state, but the ruling may provide leverage to the mining companies if they still hope to develop the asset. “Along with our partners at Antofagasta, we remain willing to engage with Pakistan to explore the potential for a negotiated settlement,” Bristow said in a separate statement.
The damages almost match the $6 billion bailout Pakistan agreed to with the International Monetary Fund two months ago to help the South Asian nation avert an economic crisis. Pakistan’s government said it will review the ruling and consider a potential petition to the tribunal.
A feasibility study conducted before the 2011 standoff began showed Reko Diq to be one of the largest undeveloped copper and gold deposits in the world, capable of producing 200,000 tons of copper and 250,000 ounces of gold a year for more than half a century. At the time, the joint venture said it had spent more than $500 million on the project. The initial capital investment would have exceeded $3 billion.
Bristow and Barrick Executive Chairman John Thornton have previously suggested it would make sense to combine some of Barrick’s copper assets through partnerships. The Toronto-based miner’s operating copper assets are Jabal Sayid in Saudi Arabia and Lumwana in Zambia. On Monday, Bristow damp speculation the company might sell Lumwana, saying it might make make more sense to look at partnerships there as well.
“Given the size of the award, we expect the Government of Pakistan to appeal by any route possible and to defer and delay to all and any extent possible,” Andrew Kaip, an analyst with BMO Capital Markets, said in a research note. “That said, we ascribe no value to Barrick for Reko Diq, so any settlement would be positive, in our view.”
Antofagasta surged as much as 6% in London, for its biggest gain in a month, before slipping back to trade up 4%. Barrick fell 1.1% to C$21.27 in Toronto.
While Antofagasta said there are limited grounds for challenging the award under the World Bank’s International Center for Settlement and Investment Disputes, the company will only recognize potential proceeds once they have been received.
“It’s a step in the right direction, but they are unlikely to receive any dollars anytime soon,” said James Bell, an analyst at RBC Capital Markets. “I think the shares are a bit overdone.”
The loan Pakistan agreed to with the IMF in May represents the 13th bailout since the late 1980s for a country facing a balance-of-payments crisis triggered by high fiscal and current-account deficits and dwindling foreign exchange reserves.