An arbitration tribunal of the World Bank's International Center for Settlement of Investment Disputes (ICSID) has ruled against the Islamic Republic of Pakistan in relation to the unlawful denial of a mining lease for the Reko Diq project in 2011, Chilean mining company Antofagasta plc announced on Tuesday.

The arbitration claim had been submitted in 2012 by the Tethyan Copper Company Pty Ltd (TCC), a joint venture between Antofagasta and Canada's Barrick Gold Corporation.

"Yesterday's decision by the ICSID tribunal rejected Pakistan's final defence against liability and confirmed that Pakistan had violated several provisions of its bilateral investment treaty with Australia, where TCC is incorporated," a press release issued by the company said.

The claim could not be verified with Pakistan's legal representatives in the case.

The tribunal is presided over by Klaus Sachs from Germany. The arbitrators are Stanimir A. Alexandrov from Bulgaria, appointed by TCC, and Leonard Hoffman from England, appointed by Pakistan.

From March 22, the tribunal will start assessing the damages that are to be paid by Pakistan to TCC. The tribunal will consider both parties' claims to determine the amount that Pakistan must pay.

A ruling on the amount of damages to be paid is expected in 2018, the company said.

"We are pleased with this decision and now the damages phase of the arbitration can begin. We expect that, at the conclusion of this phase, Tethyan will receive an award entitling it to the fair market value of the project at the time that the mining lease application was denied," Antofagasta's chief executive officer, Iván Arriagada, said.

Mired in legal issues

The government of Balochistan had in 2011 refused to grant a mining licence to TCC for the Reko Diq gold-cum-copper project.

“Yes, the Balochistan government has rejected the application of TCC for a mining licence,” the then chief secretary of Balochistan, Mir Ahmed Bakhsh Lehri, had said in Nov 2011.

The project's feasibility report, submitted by TCC on Feb 15 the same year, had also been rejected.

“The feasibility report was found unsatisfactory by experts,” Lehri had said.

He alleged that the company had not mentioned anything in its report about the processing of gold and copper, which was the main concern of the Balochistan government.

The provincial government, he said, had already announced a decision to install its own refinery for the processing of gold and copper and allocated substantial funds for it.

“TCC can go to court against the decision,” the chief secretary had added.

"It's been difficult to define what their actual issues were," Tim Livesey, then CEO of TCC, had told Reuters in 2012 in an exclusive interview. "We went back to them for clarification, as many of their issues are not covered in the Balochistan Mining Regulations."

A local government official, who requested anonymity, said at the time that TCC took 'too long' to complete its feasibility study and that it was "cheating" Balochistan by under-valuing the worth of the copper and gold.

Agreement 'null and void'

The Supreme Court had in January 2013 declared the Reko Diq agreement void and in conflict with the country's laws.

The Supreme Court had been hearing a case constituting identical petitions filed against the federal government’s decision to lease out gold and copper mines in Reko Diq in Balochistan’s Chagai district to TCC.

In its ruling, a three-judge bench of the apex court, headed by then chief justice Iftikhar Muhammad Chaudhry, had stated that the Chagai Hills Exploration Joint Venture Agreement — signed between the Balochistan government and Australian mining company BHP in 1993 — was in conflict with the laws of the country.

BHP had later sold its stakes to the then unknown TCC, which ran the mine till the case started in 2008.

The bench added that all amendments made to the agreement after its signing were unlawful and in contradiction with the agreement.

It further stated that TCC no longer had any rights in relation to the Reko Diq agreement.

As litigation continued, TCC approached the International Centre for Settlement of Investment Disputes (ICSID), initially citing breach of contract.

However, the ICSID had initially denied its contention of mine ownership.

The company then argued for loss of investments amounting to $400 million and appeared to have presented a case for a favourable verdict.

However, it had also appeared willing to reach a compromise if allowed to maintain a stake in the lucrative venture.