Barrick seals deal with Pakistan to restart Reko Diq project after a decade; Antofagasta exits 

Barrick Gold (TSX: ABX; NYSE: Gold) has reached an agreement with the Pakistan government to restart Balochistan’s Reko Diq project, which hosts one of the world’s largest undeveloped open pit copper-gold porphyry deposits.  

According to Barrick CEO Mark Bristow, the project, which was suspended in 2011 due to a dispute over the legality of its licencing process, could be in production in five to six years.  

“This is a unique opportunity for substantial foreign investment in the Balochistan province,” said Bristow in a press release. “Reko Diq could also be the springboard for further exploration and other mineral discoveries along the highly prospective Tethyan Metallogenic Belt.”  

In September 2011, Baluchistan’s government said that it considered the mining lease application for the project, which Barrick ran along with Chile’s Antofagasta (LSE: ANTO) back then, to be “incomplete and unsatisfactory.”  

The mining companies, however, considered the decision unlawful and filed arbitration claims at the World Bank International Centre for Settlement of Investment Disputes (ICSID). In 2019, the ICSID awarded US$5.5 billion in damages to the mining companies with an interest of 1% per annum until the award is paid.  

As the project sets to restart, the penalty will be waived, Pakistan’s Finance Minister Shaukat Tarin said according to a report filed by Thomson Reuters. 

“If the definitive agreements are executed and the conditions to closing are satisfied, the project will be reconstituted including the resolution of the damages originally awarded by the ICSID,” stated a press release from Barrick.  

A feasibility study on the project, submitted in August 2010, stated that the property would have a mine life of over 50 years with an estimated initial capital investment of over $3 billion. It outlined an average annual production for the first five full years of operation of roughly 190,000 tonnes of copper and 270,000 oz. of gold. 

Studies on the project also envisaged a conventional truck-and-shovel open pit operation with comminution and flotation processing facilities producing a copper-gold concentrate.  

The deposit is estimated to have a mineral resource of 5.9 billion tonnes with an average grade of 0.41% copper and 0.22 gram gold per tonne. 

In a separate press release, Antofagasta announced that it had reached an agreement with the Pakistan government to exit the project. The company will be replaced by Pakistani shareholders when the project restarts, while Barrick will hold 50% of the project.  

“Antofagasta has decided not to participate in the reconstituted project as the company’s growth strategy is focused on the production of copper and by-products in the Americas,” the company said.  

Pakistani state-owned enterprises are expected to acquire Antofagasta’s shares for about US$900 million, the company said.  

BMO mining analyst Alexander Pearce expects the deal to have a positive impact on Antofagasta if the deal works out. However, he expects the settlement to take a long time to materialize.  

“We ascribe no value for Reko Diq in Antofagasta’s valuation. As such, the potential cash settlement of US$900M could add up to 6% to our valuation (depending on tax). However, we note that although an agreement in principle is in place, the actual settlement may take years to materialize,” Pearce wrote in a research note to clients.  

Scotiabank mining analyst Orest Wowkodaw echoed a similar sentiment and stated that exiting the project amidst “elevated geo-political risk” was consistent with the company’s strategy.  

“We currently carry zero value for the Reko Diq project… given the ongoing uncertainty of closing this agreement, we are unlikely to ascribe any value for the potential cash proceeds ($900M or $0.91 per share) until received, which is not expected to occur until 2023,” he wrote in a research note.  

At presstime in Toronto, Barrick was trading at $30.53 per share within a 52-week trading range of $22.30 and $33.50. The company has 1.7 billion common shares outstanding for a market cap of $54.3 billion.