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Barrick Gold Corp. ABX-T is resurrecting a massive Pakistani copper and gold project that had been in limbo for more than a decade, but questions remain over the cost to build the mine, and Barrick’s ability to operate in a notoriously dicey mining jurisdiction.

Toronto-based Barrick, the world’s second-biggest gold company, said in a news release on the weekend that it had reached a new ownership agreement around the Reko Diq project in southwestern Pakistan. Under the pact, Barrick’s stake will rise to 50 per cent from 37.5 per cent, and the share held by Pakistan’s federal and provincial governments increases to 50 per cent from 25 per cent. As part of the agreement, Chilean miner Antofagasta PLC is selling its stake to Pakistan for US$900-million.

Situated in southwestern Pakistan in the province of Balochistan, near the Afghanistan border to the north and Iran to the south, Reko Diq is one of the world’s biggest untapped copper and gold projects. According to an engineering study done more than a decade ago, the site contains enough metal for a 56-year mine. Barrick said in a release that Reko Diq could be in production in five to six years.

“It’s a huge deposit. It’s got a very long life. It’s going to be a great addition to Barrick’s portfolio of properties,” said Joe Foster, portfolio manager with New York-based fund manager VanEck, Barrick’s biggest shareholder. “To me, the only question is geopolitical risk.”

Barrick to restart Reko Diq project in deal ending dispute with Pakistan

Barrick and Antofagasta acquired Reko Diq in 2006 after BHP Group Ltd., the huge Australian miner that did a lot of the early development work, pulled out after about a decade of political instability in Pakistan. In 2011, work at the project was suspended after the provincial government blocked Barrick and Antofagasta from obtaining a mining licence. The partners subsequently took the government of Pakistan to arbitration, and in 2019 they were awarded US$5.8-billion in damages by the International Centre for Settlement of Investment Disputes. Pakistan, however, never paid up and, owing to the revised ownership announced on Sunday, now won’t have to.

Acknowledging the cancellation of the multibillion-dollar fine, Pakistan’s Prime Minister Imran Khan on Twitter congratulated stakeholders for reaching a new agreement, adding that he believes the mine will “usher in a new era of development and prosperity.”

A 2010 feasibility study estimated the cost to develop Reko Diq at US$3.3-billion, but analysts expect a planned updated figure to be significantly higher, especially considering years of cost inflation across the industry.

Tanya Jakusconek, an analyst with Scotia Capital, wrote in a note to clients on Monday that while the resolution of the dispute is positive, “the market could be reluctant” to support Barrick’s plans to move forward on Reko Diq.

Among her concerns: the capital expenditure associated with the mine’s construction, uncertainty over how and whether Pakistan will fund its share of the costs, and the reality that Pakistan is a risky mining district.

Also cognizant of the political risk is VanEck’s Mr. Foster. “It won’t be smooth, it never has been,” he said.

However, Mr. Foster is confident that Barrick will eventually make it work. Barrick, he added, has consistently proven itself to be a savvy operator overseas, and navigated all manner of tricky relationships with foreign governments, including with the Democratic Republic of Congo, the Dominican Republic and Tanzania.

“Barrick is very good at managing projects with higher geopolitical risk,” Mr. Foster said.

Gold is struggling amid ideal conditions. Can Barrick do any better?

Barrick’s renewed push into copper comes as the metal trades near an all-time high, owing to brisk industrial demand and its growing use in alternative energy such as electric car batteries and wind turbines. Over the past two years, copper has more than doubled in price to trade at roughly US$4.70 a pound.

Historically, Barrick’s scorecard in copper hasn’t been great. Barrick paid $7.3-billion for copper producer Equinox Minerals Ltd. in 2011, only to write down the value of the mine portfolio by more than 50 per cent a few years later, after the commodity corrected.

Mark Bristow, Barrick’s chief executive officer since 2019, however, has made it clear on several occasions that he’d like to grow the company’s exposure to the base metal. A few years ago, he publicly mused about merging with U.S. copper giant Freeport-McMoRan Inc., but was soundly rebuffed.

Shares in Barrick rose 59 cents, or 2 per cent, on Monday to close at $30.59 on the Toronto Stock Exchange.

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