China’s MCC turns back on US$3b Mes Aynak Afghanistan mine deal

Chinese state-owned mining giant MCC has been renegotiating a huge copper contract with the Afghan government to reduce its exposure to the war-torn country in a move that threatens Kabul's plans to use revenue generated by its mineral resources to bankroll development.

MCC has a US$3 billion deal to mine and process copper south of Kabul. With copper prices falling and the Chinese economy slowing, and security in Afghanistan deteriorating, the company has yet to begin production on the site and, according to mining industry and other sources, no longer wants to abide by the terms of the contract it signed in 2007.

The company wanted to renege on building a railway, power plant and processing factory, as stipulated in its deal to mine at Mes Aynak, site of one of the world's biggest copper deposits, the sources said.

MCC also wanted to renege on paying the remainder of a bonus worth US$808 million to the Kabul government, having already paid US$133 million, one source close to Kabul's ministry of mines said. It also wanted to cut the royalty payments, currently set at 19.5 per cent, about double the worldwide average.

Neither the ministry nor MCC responded to requests for comment. Mining industry executives and sources close to the Afghan government said that MCC was in a position to dictate terms, having secured a 30-year lease on the mine, which contains 5.5 million tonnes of high-grade copper ore.