ISLAMABAD:
Pakistan on Tuesday revised upward the total cost of the first phase of the Reko Diq copper and gold mines project to $6.8 billiona 58% increase – by enhancing the scope of the strategically important scheme and taking into account inflationary impact and higher production needs.
The revision has been done on the basis of a new feasibility study and a technical report of the project being conducted by Barrick Gold Companythe 50% partner in the project.
The $2.5 billion or 58% increase against the originally approved cost will be offset by higher prices of gold and copper in international markets, according to Pakistani authorities.
Pakistan’s federal and the provincial governments will also receive $7.1 billion in royalties and taxes during the 30-year period, in addition to getting dividends from its 50% shareholding.
The Economic Coordination Committee (ECC) of the cabinet approved increase in the project cost to $6.8 billion, including the $1.1 billion operational expenses, according to the Pakistani authorities.
About two years ago, the project cost had been estimated at $4.3 billion. As a result of the upward revision, the obligation of the federal government for its 25% shareholding through three state-owned entities will jump to $1.9 billionan increase of $685 million. Likewise, the financial obligation of the Balochistan government will increase from $717 million to $1.1 billion, the ECC was informed.
The federal government will pay on behalf of the Balochistan government while the three companies will arrange funds from their own resources. In case these three companies face any shortfall, the federal government will bridge the gap, according to the decision.
Based on the feasibility study, the capital cost of the phase I project has been estimated at $5.7 billion “with an accuracy of 15% plus or minus”, states the Technical Report of the Reko Diq project. The phase I will help achieve initial production of 45Mtpa.
With Phase II, to be completed by 2034, another $3.3 billion will be spent to increase the production capacity to 90Mtpa, states the report. This will bring the total project cost to nearly $9 billion.
The mining project attracts greater interest equally by the US and China. The project’s net cash flow over a period of 37 years is $70 billion, which is almost 10 times more than Pakistan’s existing gross official foreign exchange reserves.
The technical report says that the project is on track to begin production by the end of 2028, starting with 200,000 tons of copper annually in its first phase, which will cost an estimated $5.7 billion. Completion of the first phase is expected by 2029.
The Reko Diq project is located in the north-western corner of Balochistan.
Finance Minister Muhammad Aurangzeb virtually chaired the ECC meeting. The minister is in China where he is attending the Boao Forum for Asia 2025 meetings. Petroleum Minister Ali Pervaiz Malik’s ministry presented the summary for the ECC approval.
The ECC took up a summary by the Petroleum Division regarding the Reko Diq project and changes in its overall development plan and related financial commitments and project finance considerations due to inflation and enhanced scope of the project concerning capacity, energy mix, alternative water supply options and updated processing plants and machinery, according to a Finance Ministry handout.
“The ECC noted the factors leading to the project escalations, and approved the proposals contained in the summary with the directions to the ministries of petroleum and finance to continue close coordination with a view to ensuring timely implementation of all agreed actions,” according to a statement issued by the Ministry of Finance after the meeting.
The ECC assured full support for the project, calling it a project of immense national importance. Out of the $6.8 billion, the $3 billion debt will be raised for the project. The negotiations for the debt are at an advanced stage, being led by an arm of the World Bank Group.
The remaining $3.7 billion will be arranged by the shareholders in equity investment as per their existing stakes.
Pakistan’s three government-owned companies – the Oil and Gas Development Company Limited (OGDCL), the Pakistan Petroleum Limited and the Government Holdings (Private) Limitedequally hold 8.33% as part of a collective 25% held by the federal government.
Of the remaining Pakistani share, 25% is held by the government of Balochistan and 50% is held by Barrick Gold Corporation, which is the operator of the project.
In light of increase in the cost, the OGDCL on Tuesday decided to increase its contribution for the project to $627 million. This included $349 million in equity contributions. The PPL also decided to increase its contribution to $649 million, to be followed by Government Holding Limited.
Amid the deteriorating law and order situation in Balochistan, the government also approved Rs1.8 billion funds for the project’s security.
The recently completed feasibility study details two phases of project development. The Phase I’s Initial throughput will now be 45Mtpa of ore that commences production in 2028; and with the completion of Phase II, the total throughput will jump to 90Mtpa that is planned to occur from 2034, according to the technical report.
The project’s internal rate of return (IRR) is estimated at 21.32% on the basis of a copper price of $4.03/lb and a gold price of $2,045/ oz, according to the report. The payback period is six years and two months at this price, showed the report.
Infrastructure
The project proposes to utilise rail, road and port infrastructure throughout the region, including an existing rail network route to Port Qasim for export to international markets. The project is planned to be connected to the National Highway (N40) via a purpose-built 45-kilometer long road. Site roads will connect various areas within the project and allow for haulage of mined material and other vehicle movements.
Groundwater is planned as the primary water supply. Water will be supplied from boreholes located north of the mine and will be supplied via a pipeline of approximately 70km. Water demand has been calculated and based on expected water usage for both construction and operations.
The portion of the phase I Initial capital costs attributable to Barrick Gold under the terms of the joint venture agreement is $3.1 billion a 100% equity basis, assuming no debt.
The Reko Diq Mining Company is estimated to pay a total of $7.1 billion in taxes across the life of the mine. Out of this, $3.9 billion will go to the governments of Balochistan and Sindh, $2.2 billion to the Workers Profit Participation Fund and $823 million in contribution to the final tax regime.
The project has been granted many of the permits to support ongoing early works. However, as of the date of this technical report, a number of permits and approvals are still in the process of being obtained necessary for the construction and operation, according to the report.
To ensure that Balochistan is receiving significant cash flows during the development and construction phases of the project, the Mineral Agreement provides for the following advance royalty payments, to be paid on an annual basis on or before the end of the relevant year. The Balochistan government will get $5 million in advance royalty in the first year, $7.5 million in the second year and $10 million per year until the production begins.
In October 2024, Barrick engaged a third-party consultant (SRK Consulting) to complete an independent review of the mining components of the Reko Diq feasibility study. The external consultants verified the contents of the feasibility study.
The economic analysis indicates the project has a net present value of $13 billion at a discount rate of 8%.
