Chilean Court halts Pascua Lama mine

Published by MAC on 2013-04-15
Source: Bloomberg, Globe and Mail, AP

Barrick's fortunes fall to 4-year low

Barrick Falls After Chile Court Halts Pascua Lama: Toronto Mover

Sonja Elmquist

Bloomberg

10 April 2013

Barrick Gold Corp., the world's largest gold miner by sales, fell to the lowest in more than four years after a report that a Chilean court ordered work at its Pascua-Lama mine halted.

The shares fell 5.9 percent to C$25.56 at 10:33 a.m. in Toronto, the lowest intraday since Nov. 18, 2008 after local radio station Radio Cooperativa reported that the Copiapo Appeals court accepted an injunction filed by indigenous communities.

Barrick said it hasn't received notice from the court and couldn't comment on the measure, Rodrigo Jimenez, a Santiago- based spokesman, said in an e-mail today.

Barrick, based in Toronto, faces as much as $10.2 million in fines in connection with the mine, which Chile's environmental regulator said in March has failed to comply with environmental rules. Last year, Barrick said production at the mine would be delayed to the second half of 2014 amid $5.5 billion in cost overruns.

Located 4,500 meters (14,700 feet) above sea level in the Andes Mountains and spanning the border between Chile and Argentina, Pascua-Lama was approved only after Barrick agreed to mitigate feared impacts on glaciers, the principle source of water for the agriculture-dependent Huasco Valley.

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Barrick suffering big setbacks in Latin America on environmental protection, mining royalties

Associated Press

12 April 2013

SANTIAGO, Chile - A Chilean court's halt to construction of Barrick Gold Corp.'s $8 billion, border-straddling mine on the high spine of the Andes is only the latest setback in Latin America for the world's largest gold miner.

Barrick also faces growing environmental resistance in Argentina, which shares the Pascua-Lama mine project, and the Dominican Republic's government is insisting on rewriting the royalty contract for its $4 billion Pueblo Viejo mine.

The Canadian company's troubles reflect increased risks for the industry in Latin America, where authorities are taking a closer look at how mining is regulated and taxed. They are determined to capture more of the profits while protecting natural resources.

In country after country, the world's biggest miners are facing new environmental standards, confronting changing tax and currency laws and defending long-term contracts they thought were written in stone.

Denver-based Newmont Mining Corp. has seen its $5 billion Minas Conga project in Peru stalled amid violent protests over allegations of water pollution. Brazil's Vale SA sank $2.2 billion into building a mine, railroad and port in Argentina before bailing out in frustration last month over soaring inflation and restrictive currency controls.

"There are more concerns about standards of living and more concerns about environmental issues. At the same time, there's pressure on governments to increase mining revenues, improve education, health and services," said Risa Grais-Targow, Latin American analyst at Eurasia Group.

"Peru has experienced exceptional growth, but many feel they have not benefited and have been left out. Most of the conflict there revolves around water, whereas in Chile there's a growing middle class concerned about the environment."

The court ruling against Barrick on Wednesday in Copiapo, Chile, sent shares of the Toronto-based company tumbling 6 percent to a new four-year low. The stock recovered some Thursday, rising 27 cents, or 1.1 percent, to close at $24.73 a share.

Chile's environmental and mining ministries are on record supporting the suspension of work on the Andes mine. Critics allege construction has spread dust that has settled on the nearby Toro 1, Toro 2 and Esperanza glaciers, hastening their retreat, and is threatening the Estrecho river, which supplies water to the Diaguita tribe living downstream.

Barrick said it will work "to address environmental and other regulatory requirements" on the Pascua side of the project. But it insisted construction will continue on the mine's Lama portion in Argentina, where mining is regulated by provincial governments rather than national officials.

The company said it's following all applicable Argentine laws, but environmentalists say Pascua-Lama and Barrick's nearby Veladero mine, which produced 611,000 ounces of gold last year, clearly violate the nation's 2010 law forbidding any mining on or near glaciers.

While Barrick has blocked enforcement of the law so far, Argentina's Supreme Court has ordered a nationwide inventory of water supplied from glaciers as well as peri-glacial areas - the rocky underbeds that hold water after glaciers retreat.

"In light of the Chile court ruling, completing this inventory is fundamental," said Miguel Bonasso, who helped pass the 2010 law and whose book "El Mal" ("The Evil") accuses Barrick of many environmental violations.

"If it's proven that Barrick Gold's activities affect glaciers and peri-glacial areas, Barrick will have to leave Argentine territory. It's that simple," Bonasso said.

Barrick said it is "too early to assess the impact, if any, on the overall capital budget and schedule" of Pascua-Lama. The site has 17.9 million ounces of proven gold reserves and would be one of the world's biggest and lowest-cost mines if allowed to open.

Even before the court ruling, the project was off track. Its start date had been delayed by more than six months to the second half of 2014, and the estimated start cost had jumped from an original $3 billion to more than $8 billion last year.

Some analysts say that since more than 70 percent of Pascua-Lama's reserves lie on the Chilean side, any permanent ban could effectively kill the project.

Argentina's mining minister, Jorge Mayoral, countered that even without Chile's gold, the project is more than worth the effort.

"It's true that most of the reserves are on the Chilean side, but if we speak about a project of this magnitude and say that at least 30 percent of the reserves are on the Argentine side, then we're talking about a very important quantity of reserves that would guarantee the value of any work unit in the immediate future," Mayoral said.

Andy Kaplowitz, an analyst at Barclays Capital, said in a research note that "we will have to wait to see how this situation sorts itself out, but given that Barrick has already spent $4.2 billion on the project ... and construction is 40 percent complete, we think there is a strong incentive for the developer to press forward with only minimal delays."

In the Dominican Republic, meanwhile, the soaring price of gold has the government wanting more from the Pueblo Viejo mine, which has 20 million ounces of gold reserves as well as silver, copper and zinc.

Barrick owns 60 percent of the venture and Goldcorp Inc. of Vancouver, British Columbia, owns 40 percent. The companies reopened the mine last year after investing nearly $4 billion, the largest direct foreign investment ever in the Dominican Republic, and have estimated it will eventually pay about $7 billion to the government.

But President Danilo Medina and Congress have yet to see any money. They want to rewrite the 25-year contract, which promises royalties only after the two Canadian companies recoup their investment and the venture's profits rise above 10 percent.

Barrick's executives "have to change their attitude, because if they don't, the president has told them: 'Either you negotiate or more taxes will be imposed,'" said Ramon Peralta, Medina's administrative minister.

Barrick spokesman Jorge Esteva said the companies are open to discussions, but the current deal took 27 months of talks before it was approved by the country's congress and former president.

Chile, the world's No. 1 copper producer, has among the region's most stable ground rules for mining, an industry the country relies on for most of its economy.

But even here, mining and energy projects have been delayed as environmentalists go to court demanding tougher protections for nearby populations and natural resources.

"This is part of the adaption to the new social and environmental conditions of Chile and companies will have to face this. If not, there will be no more mining projects," said Gustavo Lagos, mining professor at Universidad Catolica.

"There's much more opposition to Pascua-Lama than any other mining project in Chile. Barrick will have to solve this mess because the mine is really important to the company and it has already invested a lot of money."

Associated Press writers Michael Warren and Debora Rey in Buenos Aires, Argentina, and Ezequiel Lopez Blanco in Santo Domingo, Dominican Republic, contributed to this report.

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Barrick's woes in Chile deepen as Pascua Lama is suspended

Pav Jordan, Mining Reporter

The Globe and Mail

10 April 2013

Barrick Gold Corp. has suspended construction in Chile on its massive Pascua-Lama gold and silver project, responding to a court order that further delays work on a mine already a year behind schedule and billions of dollars over budget.

Barrick stock fell 8.6 per cent to a new 52-week low of $24.81 per share on Wednesday after the appeals court said Pascua-Lama should be halted amid allegations the project is polluting precious groundwater and rivers in the Atacama desert region, one of the driest areas on earth.

The allegations have not been proven in court, but they mark the latest roadblock to a project that has been more than a decade in the making, enduring intense environmental scrutiny that has reverberated from Santiago to Toronto.

The complaints are also another instance of communities demanding more control over their environment amid building resource nationalism.

Less than a year ago, Barrick raised the development price tag on Pascua-Lama to more than $8-billion, compared to estimates of around $3-billion when the company launched the project in 2009. A significant portion of higher costs were attributed to a year-long delay in building the mine.

Citing a court source, a Reuters report said the case may not be resolved for months, and may go as far as the Supreme Court before a judgment is rendered.

"It is too early to assess the impact, if any, on the overall capital budget and schedule of the project," Barrick said late Wednesday. The project straddles the Andes mountains between Argentina and Chile. Barrick said construction activities in Argentina, where critical infrastructure like the process plant and tailings storage facility are located, are not affected by the court ruling.

The work stoppage threatens to be another blow to Barrick.

Barrick has endured one of the most tumultuous years in its 30-year history, beginning with the sudden replacement of its chief executive officer in mid-2012, the subsequent cost overrun at Pascua-Lama and a $3.8-billion writedown on a high-priced copper acquisition. As an industry, mining is facing the worst cost increases in decades.

Pascua-Lama promises to be one of the world's largest gold mines, with nearly 18 million ounces of proven and probable gold reserves and another 676 million ounces of silver. Set at about 5,500 metres above sea level, the bi-national project is at once lauded as an engineering feat and decried as an environmental scar alongside ancient and pristine glaciers.

"Assuming that the current events delay Pascua by a further six months and increase capex by say $250-million (U.S.), (Barrick's) NPV (Net Present Value) would be reduced by $0.56/share (U.S.) or 3 per cent," David Haughton, an analyst with BMO Nesbitt Burns said in a note.

The complaints before the Chilean appeals court date back to September and October, when four indigenous communities alleged groundwater and the Estrecho and Huasco rivers were being contaminated by the project and the company did not comply with environmental regulations.

The communities also accused environmental authorities of not enforcing regulations, and requested suspension of construction until all environmental obligations were fulfilled. A preliminary injunction was not granted.

Barrick says its water monitoring demonstrates Pascua-Lama has had no negative impact on water quality in the surrounding area. It said on Wednesday it was working to address environmental and other regulatory requirements to the satisfaction of Chilean authorities.

"In the interim, activities deemed necessary for environmental protection will continue as authorized," the company said.

Challenges even to established projects are increasingly commonplace in Chile as miners race to develop some of the richest mineral deposits known to man, putting mounting pressure on the environment as well as water supplies and the electricity grid.

The trend is part of a cresting wave of demands heard from indigenous communities from northern Chile to northern Ontario for a greater say in the mining process. In the Dominican Republic, Barrick has been asked by the government to renegotiate profit sharing from the $3.7-billion Pueblo Viejo gold mine.

Objections to Pascua-Lama come in the run-up to presidential elections in November which, if history is any guide, will see mining issues highly politicized.