Tethyan Copper Files Notice Of Dispute With Pakistan Province

In a sign of mounting tensions over the development of a massive Pakistani copper and gold development, Tethyan Copper Co. Pakistan Ltd. Wednesday filed a notice of dispute with the provincial government of Baluchistan in order to resolve any outstanding objections regarding its mining lease application.

"Tethyan Copper sought to meet with the Government of Baluchistan to better understand their observations and concerns and requested an extension of an additional 60 days in order to engage with the Government of Baluchistan, however no extension was granted," said Tethyan, a joint venture equally owned by U.K.-listed Chilean copper miner Antofagasta PLC (ANTO.LN) and Canada-based miner Barrick Gold Corp (ABX), in a statement Thursday.

"Tethyan Copper is hopeful that the Government of Baluchistan will engage to meet and discuss the mining lease application," it said.

Tethyan owns 75% of Reko Diq, one of the world's largest untapped copper and gold deposits, located in the Province of Baluchistan, which borders Afghanistan and Iran. The project entails an investment of around $3.3 billion in Pakistan over a three-year period, making it the country's largest single foreign direct investment.

Tethyan received a letter from the government of Baluchistan a month ago that outlined 10 observations and objections regarding Tethyan's mining lease application in which it claimed that the company's application was incomplete. Tethyan said the observations were made within "the context of an intended refusal" of a mining lease.

The government gave Tethyan 30 days to respond to the objections but refused to either engage in discussions with the company or to grant an extension period to respond to the questions, the company's chief executive, Tim Livesey, told Dow Jones Newswires in an interview. The deadline for submitting a response would have been Oct. 20, he said.

"We believe that there is a miscommunication going on," Livesey said. "We...would like to develop the project with the government of Baluchistan however if the government of Baluchistan refuses the mining [lease], we feel that we have met or exceeded all the [terms] of the 2002" Baluchistan mining rules and would be prepared to proceed to international arbitration proceedings if necessary, he said.

Tethyan would be willing to open an international arbitration proceeding in London if the two parties fail to resolve their differences within the 120-day dispute resolution period, Livesey said.

Tethyan, an Australia incorporated company, could also initiate a second arbitration proceeding involving the Pakistani federal government if failure to receive a mining lease is deemed to be a potential breach of Pakistan's bilateral investment treaty with Australia, Livesey said. The federal government is due to receive a communication from Tethyan on Friday regarding the notice of dispute, he added.

Livesey declined to say how long the arbitration processes could take, but noted that they have been known to take a couple of years, possibly five to six years, to conclude.

"We think it would be a real shame for the development of Pakistan" if the project were to be delayed or cancelled, he said.

There is much at stake. If the project goes ahead, Reko Diq will instantly double Pakistan's foreign direct investment at a time when the U.S. is considering reducing foreign-aid expenditures to cut its budget deficit. The project would also generate substantial employment over the mine's 56-year life span and could potentially provide a positive signal for other mining companies to invest in the country.

"The project has the potential to add percentage points to the GDP [gross domestic product] of the country," Livesey said.

He noted that the government's observations and objections didn't seem to bear any connection with Baluchistan's mining code. For instance, the letter mentioned that the company was "silent" on how to process the concentrate from the project and said Tethyan wasn't able to apply for the mining lease on its own without gaining prior consent from the government of Baluchistan, which owns a 25% stake in the project.

On processing, Livesey said there was no requirement in the mining code for an applicant to propose a solution to processing concentrate. Nevertheless, Tethyan included 1,000 pages in its 21-volume application about the topic and is open to signing concentrate supply agreements with third parties at internationally set prices, he said.

Livesey also noted that there was no mention in the mining code that required Tethyan to make a joint application. Furthermore, Baluchistan had technically surrendered its equity stake in the project to Tethyan by failing to notify Tethyan whether it wanted to become an active partner in the project. According to an agreement with the government, Tethyan now has the right to acquire the stake from the government at a negotiated price.

-By Alex MacDonald, Dow Jones Newswires; +44 (0)20 7842 9328; alex.macdonald@dowjones.com

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