Tethyan Copper Co. Pakistan Ltd. said Friday that this week's rejection by Pakistan's provincial Baluchistan government of its Reko Diq copper gold mining lease application breaches the province's 2002 mineral rules, agreement with the joint venture and Pakistani law.

The Baluchistan "Licensing Authority's summary refusal to grant the Mining Licence to which TCC [Tethyan] is entitled breaches not only the Baluchistan Mineral Rules (2002), but also TCC's rights under the Chagai Hills Exploration Joint Venture Agreement (CHEJVA) and Pakistani law," the company said.

Reko Diq, one of the world's largest untapped copper and gold deposits, is located in the Province of Baluchistan, which borders Afghanistan and Iran. The Baluchistan government owns a 25% stake in the project while Tethyan, a joint venture equally owned by U.K.-listed Chilean copper producer Antofagasta PLC (ANTO.LN) and Canada-based Barrick Gold Corp. (ABX), owns the remaining 75%.

If the $3.3 billion project were to go ahead, it would instantly double the country's foreign direct investment at a time when the U.S. is considering reducing foreign-aid expenditures to cut its budget deficit.

Tethyan didn't disclose its next steps but said the rejection notice "compromises" its preferred route of negotiating a resolution.

"We firmly believe that our activities to date have been fully in line with the Baluchistan Mineral Rules (2002) and would welcome the opportunity to discuss this with the Provincial regulator and government," said Chief executive Tim Livesey in a statement.

He added that the company is committed to developing the Reko Diq mine in line with international best practice on environment, labor, health and safety issues and noted that the project could act as a catalyst to attract more investment into the province and kick start the province's nascent mining sector.

Livesey previously said Tethyan had the option to potentially launch two international arbitration cases to resolve the dispute: one with Baluchistan's provincial government and another with Pakistan's federal government.

Tethyan has spent just over $220 million on exploration and technical studies since 2006. It initially filed a mining lease application for the project in February and then received a letter of objections and observations from the Baluchistan government in September, which stated that the company had 30 days to respond.

After failing to secure clarity or meetings with the Baluchistan government, Tethyan issued a notice of dispute on Oct. 19, which gave the joint venture another 120 days to resolve any outstanding issues.

The Baluchistan government did not respond to request for meetings to resolve outstanding issues, Tethyan said, and Nov. 14 rejected the mining lease application, citing that it was incomplete and that Tethyan's application wasn't legal since Baluchistan didn't give its consent as an equity partner in the project, among other things.

-By Alex MacDonald, Dow Jones Newswires; +44 (0)7776 200 924, alex.macdonald@dowjones.com (Owais Tohid in Pakistan contributed to this story)

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