Recently, an important conference, ‘Pakistan Mineral Summit’, has been organised in Islamabad by the Petroleum Division. Top national and international dignitaries and a large number of professionals participated.
The conference brought Pakistan’s minerals into a new perspective and possibly marked a new beginning. It also reaffirmed Barrick’s commitment to the Reko Diq project as outlined by the CEO of the company in the context of the new Reko Diq agreement. We will discuss in this space Pakistan’s mineral outlook today in the context of the new initiatives that are under study.
Pakistan’s mineral sector contributes 2.5% to the GDP, which is very miniscule, although there are several large known deposits. Copper, gold, lignite coal, iron, lead-zinc, ferrochrome and marble/granite are the most distinct and visible. Besides, there are a number of non-metals that are there.
Thar coal/lignite is on the top of minerals with 185 billion tons estimated resources, which are already playing a major role in supplying energy to Pakistan. More can be done and should be done to increase its output before the window is closed (within the next 50 years) on this important resource under international climate regime.
Copper and Lithium are the future oil. Copper is already playing a major role in electrical sector worldwide. No electricity can be conceived without it. However, emergence of Electrical Vehicles (EVs) has created a new market and prospects for it.
Copper prices have been increasing. When Saindak was launched in the 1990s, copper prices were only around 2000 USD per ton, which created difficulties for its financial survival. It is above 8000 USD per ton now and the prospects of it going up to 15000 USD per ton cannot be ruled out.
Major copper and gold resources are at Reko Diq, which is now through with the legal problems. Recently, news has come out of a copper deposit in Waziristan which is actually working. Not much has been publicised about it in public domain. This deposit is, however, much smaller than Reko Diq as opposed to wrong information publicised by some journalists.
Copper resources (deposits) have been estimated at 5.9 billion tons (contracted), out of which 2.5 billion tons have been found recoverable, although the latter is variable and depends on the prevailing prices. There is confusion about contracted and non-contracted deposits. Average depth of 15-20 meters has been reported, indicating good mining economics. At current and long-term international prices (LME grade A cathode), the deposit value can be said to be of 100-200 billion USD.
The resource value at copper finished prices may be misleadingly high. However, in concentrate form in which it is usually exported from mines, its value is lower.
As per existing studies by investor Barrick, there are both gold and copper in the Reko Diq deposit (Copper 0.53% and gold 0.3 gms per ton). Whatever be the value, Balochistan will get a proportional royalty at 5% of the ex-mine price. In addition, there would be income from income tax and corporate profits.
Under new terms of agreement, there is 50-50% share of Pakistan and Barrick. The province of Balochistan will have 25% and three federal companies will have a combined share of 25%.
Earlier, foreign companies had a share of 75%. Balochistan’s share will be 10% without actual equity subscription and 15% would be on payment basis. So Balochistan is having a good deal. Pakistan has been saved of a major financial catastrophe of having to pay fines of about 10 billion USD.
Rival governments have cooperated in the revival of the project along with the Supreme Court which earlier created the problem by declaring the earlier Reko Diq agreement null and void. Let us not repeat such mistakes in the future. World will carefully watch our conduct in the current arrangement
As per existing studies, 200,000 tons of copper and 250,000 oz of gold will be produced per year. Reportedly, it is being studied to double the output in second phase. Concentrate (usually containing 20% copper and gold) output would be 80 million tons per year.
Aggregate turnover and exports should exceed 2 billion USD per year, depending on the prices. Earlier feasibility study is being updated. Investment of 8-10 billion USD has been projected. The project will start giving output by 2028. The project should have an economic life of 40 years.
Estimated income Flows, (as per private estimates of this scribe): Royalty (@ 5% of sales) should yield 100 million USD per year, all of it going to Balochistan. Additionally, profit share of 25% would accrue.
Three participating national companies will get their profit share as per their equity share. The federal government will get corporate income taxes. It is not known whether corporate income tax exemption has been awarded under SEZ rules.
Earlier project feasibility study limited local production to concentrates only containing 25-30% copper. Copper concentrate was to be exported for extra-processing abroad into saleable products. Concentrates’ trade is not unknown. Some 30% copper (3.3 Mt out of 11 Mt) is traded in copper-in-concentrate form. It is not known as to what would be the project structure in the new setting.
However, it is not usual for mining companies to install downstream processing units. They cannot be and should not be forced to install downstream industries. A wide variety of business interests invest in the down-stream sector. Industrialization and technology expansion take place under this model.
Copper processing is an energy intensive process requiring both gas and electricity. Chaghi area of Balochistan is quite rich in solar and wind resources.
A hybrid solar and wind along with some fossil fuel would be an optimum energy mix. It may, however, be noted that Al-Tuwairqi Steel Mills could not be commissioned. Therefore, energy cost and availability would have to be seriously examined before insisting on smelting and refining components.
There are about 20 countries which have active copper mines: Russia, the US, China, Canada and Australia among developed countries and Chile, Peru, Mexico, Brazil, Zambia, Congo, Indonesia, Iran, Kazakhstan and Mongolia among the developing countries. China imports and exports more than 50% of world Copper.
Although most developing countries started with concentrate production and exports, gradually most of them have installed smelters and refineries. They are Zambia, Congo, Iran, India and Chile. Indonesia is mulling banning concentrate exports and is installing the world’s largest smelter with a capacity of 1.4 mtpa of concentrate handling. Canada, a developed country, is exporting concentrate only. So it depends on the individual countries’ situation and preferences.
It appears that there is sufficient lead time available between now and plant commissioning in 2028. Mining processing equipment is similar to the fabrications work used in the cement sector. Many cement plants have been made by local Pakistani companies. Discussions should be initiated between local companies and the Reko Diq project. Similarly, institutional strengthening is required of the Geological Survey of Pakistan if mineral sector is to be expanded adequately.
Lithium is a highly conductive metal, both for heat and electricity. It is said that it was produced along with the Big Bang which reportedly produced the universe. It has a variety of uses but has emerged as a major electrode material in batteries especially in Electrical Vehicles.
It is found both as brine and as solid ore. Largest Lithium deposits are found in South America called Lithium Triangle consisting of Chile, Argentina and Bolivia. Bolivia has reportedly the largest Lithium resources. Australia is the largest supplier.
South Asia, India, Afghanistan and Pakistan have been reported to have lithium. Russians had discovered lithium in Afghanistan during their invasion of this country. There are accounts of discovery of Lithium in occupied Jammu and Kashmir’s Reasi district.
Deposits have been reported to be of 5.9 million tons per year having a value of 410 billion USD, depending on the prevailing prices. In Rajasthan also, lithium finds have been reported. Recently, prices in China have been quoted at 36000 USD per ton. A lot of preprocessing, including electrolysis, is required to produce marketable lithium.
It has been reported that in Pakistan also lithium has been found in Gilgit-Baltistan, Chitral, parts of KPK and Chaghi in Balochistan. Adequate geological effort should be put and its institutional strengthening would be required for fast-track development of this resource. Cobalt has also been indicated in the same area, which is a pricey mineral more than Lithium probably.
Pakistan has Iron ore resources of around 1.4 billion tons, most of which are of low grade, except the recent discovery of iron ore in Chiniot. Several iron ore deposits have been identified for years, like Kalabagh, Nokundi, Dalbandin, etc.
PPL has a JV with provincial government of Balochistan as Bolan Minerals, which provided beneficiated iron ore to Pakistan Steel Mills (PSM). For quality and other reasons, PSM rescinded the contract. Chiniot iron ore is reportedly of higher grade of 60%. Reserves may increase with further exploration. Reserves are of 250 million tons which may increase to 500 million tons.
However, there are bright chances of utilising Chiniot iron ore. PMDC Punjab is developing this project and there have been reported negotiations with Saudi Maaden Company for a JV on it. There may be issues of the supply of energy; coal or gas. While gas is out of question, one of the DRI plants in Karachi has been shut down due to gas supply and pricing issues. On coal side, there is Thar coal, nearby salt range coal, Balochistan coal from Dukki or imports from Afghanistan.
Chiniot project has been designed on DRI (Direct Reduction Iron) — Corex process with an output of one million tons per year. Chiniot ore can also be utilised by adding Corex process line to Karachi located Al Tuwairqi DRI plant (1.28 million tons per year output) that was closed down almost immediately after its opening.
There was gas pricing and availability issue. Possibly, Thar coal can be used in the Corex process. Both being probable Saudi projects, there may be good prospects in this respect. The issue is whether to bring iron ore to the coal source or bringil coal to the iron source.
Other ore resources
A lot is known about Thar coal of 185 billion tons, which is today producing cheapest electricity .Presently, 8-10,000MW of Thar coal based electricity is projected in the next ten years. In addition to electricity, many other products can be produced through gasification route. As mentioned earlier, the deposit is very large and every effort should be done to maximize its output on fast-track basis.
Pakistan has 300 billion tons of marble resources spreading over in all the provinces. Marble is mostly utilised in the local construction industry. Only 37 million USD of exports have been reported. It has been claimed and perhaps rightly that this number can and should go up to 370 million USD and even more.
However, the sector suffers from highly unsafe labour intensive operations and low technology. There is a waste of 70-80% as opposed to 50% in other countries. This increases cost, reduces quality and competitiveness in the international market. There is a great scope for increasing quality, output, employment and exports. Foreign investment and induction of technology are required.
There are other mineral resources, important among these are zinc-lead and ferrochrome. Cobalt has also been indicated in Gilgit-Baltistan. Besides, there are non-metallic resources as well.
Mining policy and laws
While mineral resources are rightly provided the ownership rights in the constitution of Pakistan, there is a need of developing a unified countrywide mineral policy regime a la oil and gas. The whole country has suffered under policy confusions and subsequent judicial activism in the case of Reko Diq.
The federal government had to foot the bill. And in future, the whole country would suffer under a similar debacle. It has to be a balanced investment friendly policy; neither should it be a declaration-of- independence-type political statement nor should it be a sell-off.
There are two issues under which Reko Diq debacle occurred; conversion of exploration license to a production license and installation of down-stream industry by the licensee created a lot of confusion which should be resolved and clearly delineated. Downstream industries ought to be separated from the licensing issue.
Two parts can be there in the policy; one provincial domain related with local investments and SMEs; second with large scale mining agreements of international scope to be jointly handled by federal and provincial governments. While there are ample models for dealing with international mining contracts, there isn’t much available to promote local SMEs in the mining sectors. SME mineral sector can be a good tool for creating employment throughout the country.
There is rampant corruption and middlemen in the SME mineral sector which increases cost of production and discourages small and efficient parties. e-Auctions or simple manual auctions can be considered for SME mining contracts. e-Auctions can also be useful in local large-scale mining sector. For smaller and weaker mining labour, mineral cooperative system could be introduced as well.
There is a controversy in economic literature led by renowned economist Jeffery Sachs that mineral resources cause various economic, political and social difficulties among developing countries having mineral resources. Focus shifts to earning rents rather than profits through growing and developing. Elite capture and corruption increase. Currency strengthens to higher levels which hinder exports of other products. Evidence of mineral rich African countries such as Congo, Niger, and Guinea, etc., has been cited.
The situation of mineral rich South America is, however, not that bad. Chile and Peru are reportedly doing well but have suffered under imperial and colonial conspiracies and pressures. Mineral curse has already been there in Pakistan to some extent in various forms. We were about to lose 10 billion USD in the fines levied by the World Bank tribunal. Unrealistic projections of mineral abundance have promoted separatism and terrorism.
Fortunately, Pakistan has mineral resources but cannot be called as having abundant resources. Resource abundance is a relative and possibly controversial subject. Pakistan has a large economy and a wider resource base such as agriculture. It won’t be a single source economy at all. Thus the prospects of becoming mineral resource dependent, as happened in many countries of Africa, do not seem to be there.
However, Pakistan is suffering from trade imbalance and falling currency. Mineral exports and industries can contribute to the alleviation of these issues. However, we should not commit mistakes of keeping these industries under public sector.
Private sector investment under JVs in downstream industries may be promoted. Private sector would naturally ensure that uneconomic projects are not launched. FDI as being negotiated should help Pakistan in ameliorating its current financial problems. For long-term growth, we will have to focus on agriculture and industry.
Copyright Business Recorder, 2023