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Barrick suffering big setbacks in Latin America

Friday - 4/12/2013, 10:16am  ET

FILE - In this March 22, 2006 file photo, a woman plays a Kultrum, a traditional Mapuche instrument, during a demonstration on World Water Day by people holding a sign that reads in Spanish ""Let us take care the water, No to Pascua Lama" rejecting a gold mining project they claim will affect water supply to a fertile valley in northern Chile, outside the presidential palace La Moneda in Santiago, Chile. A Chilean court halted on April 10, 2013 the construction of Barrick Gold Corp.’s $8 billion, border-straddling mine on the high-altitude spine of the Andes. Barrick also faces growing environmental resistance in Argentina, which shares the Pascua-Lama project, and the Dominican Republic’s government is insisting on rewriting the royalties contract for its $4 billion Pueblo Viejo mine. (AP Photo/Santiago Llanquin, File)

LUIS ANDRES HENAO
Associated Press

SANTIAGO, Chile (AP) -- 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 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."

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