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Energy and Resources World Bank orders Pakistan to pay Barrick Gold joint venture $5.8-billion in damages

The World Bank has ordered Pakistan to pay Barrick Gold Corp. and Chile’s Antofagasta PLC US$5.8-billion in damages stemming from a long-running international arbitration dispute over mine rights for a massive copper gold project.

The dispute dates back to 2011, when the Balochistan province in Pakistan rejected efforts by a joint venture (JV) operated by Barrick and Antofagasta to secure a mining lease for the project at Reko Diq. The JV, called Tethyan Copper Company Pty Ltd., appealed the decision and launched an arbitration claim against the government of Pakistan.

The award from the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) in the arbitration case comprises US$4.1-billion, made up of the fair market value of the project at the time, and accumulated interest of US$1.75-billion.

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Despite the windfall ruling from the ICSID, shares in Barrick fell by 0.93 per cent on Monday to close at $21.31 apiece on the Toronto Stock Exchange, as doubts arose over the willingness and ability of Pakistan to pay the bill.

Kerry Smith, mining analyst with Haywood Securities Inc., said in an interview that considering Pakistan’s shaky finances and a domestic political scene rife with corruption, he’d be “very surprised if Barrick and Antofagasta got a penny.”

Earlier this month, the International Monetary Fund (IMF) approved a US$6-billion bailout package to Pakistan as it grapples with yet another fiscal crisis.

The language of the press releases from both Barrick and Antofagasta suggests neither expects to be paid in full.

Barrick and Antofagasta both indicated a willingness to come to a “negotiated settlement” with Pakistan.

In its own release, the Office of the Attorney-General for Pakistan expressed “disappointment” over the ruling, but welcomed the commitment by Barrick and Antofagasta to “work towards a mutually beneficial solution that works for both sides.”

Barrick and Antofagasta assert that the site at Reko Diq in Balochistan is one of the world’s largest undeveloped deposits of copper gold. It has a potential mine life of more than 50 years. Getting the project off the ground would require a capital expenditure of US$3.3-billion.

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The joint venture had already spent US$220-million in development costs before Pakistan halted the project, including the completion of a detailed technical report outlining the geology and economics.

Mr. Smith said that even if Pakistan doesn’t pay a cent, it may eventually extend an olive branch by granting the mining lease to the joint venture, and perhaps guarantee title on the property in perpetuity.

Regardless of the outcome, the huge expense of building at Reko Diq and the inherent difficulties of operating in Pakistan, including poor infrastructure and near-constant military tension with India, make it unlikely that Barrick and Antofagasta would develop it at this stage – even if the lease is granted.

A copper gold project is a deposit that contains mainly copper, but also some gold.

Barrick and Antofagasta will likely hold the project as an option to develop if the price of copper rises. Unlike gold bullion, which has rallied in recent months, copper has drifted this year as trade wars have raged and worries persist over the health of the global economy.

While Barrick is predominantly a gold-focused miner, it operates a number of copper mines. The company diversified into copper with the $7.3-billion purchase of Equinox Minerals Ltd. in 2011.

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