Glaciers, protests and court cases slow Barrick in Pascua-Lama – by Catherine Solyom (Montreal Gazette – December 17, 2012)

This series was made possible thanks to a Bourse Nord-Sud grant attributed by the Fédération professionnelle des journalistes du Québec and financed by the Canadian International Development Agency.

At the beginning of November, Barrick Gold’s CEO, Jamie Sokalsky, announced yet another jump in the estimated capital costs of the Pascua-Lama mine, from less than $1 billion in 1997, to $3 billion in 2009, to $8 billion in July, to $8.5 billion last month – with “first gold” extracted from the Andean mine closer to the end of 2014 than to the beginning.

But, Sokalsky assured shareholders once again, Pascua-Lama is the company’s “top priority.”

There are, however, a number of obstacles remaining on the bumpy road to Pascua-Lama, to the delight of some and the dismay of others, from legal wrangling in Chile over the deeds to the vast, frigid territory, to a Supreme Court of Argentina decision over whether any mining can take place there at all, given the presence of glaciers so close to the mine pit.

Capital costs, which may yet rise again when the company releases its year-end results in February might be the least of Barrick’s worries.

Lucio Cuenca, the director of the Latin American Observatory of Environmental Conflicts (OLCA), a non-governmental organization, has been following the ups and downs of Pascua-Lama, in the courts and in Barrick’s boardroom, for the last decade.

“How can there be such a huge miscalculation of costs by one of the top mining companies in the world?” Cuenca asked from his office in central Santiago. “Either they are lying, or they stand to make so much money they don’t really care how much they have to invest.”

Rod Jimenez, Barrick’s vice-president of corporate affairs in South America, said the cost overruns and delays were due to Barrick’s trying to build the mine “in-house” between two countries at high altitude and under incredibly inhospitable conditions.

“We underestimated the complexity of the engineering involved and the enormous amount of work,” Jimenez said.

In July, the company fired CEO Aaron Regent, and announced it would be hiring Fluor, the engineering firm which built its controversial Pueblo Viejo mine in the Dominican Republic, to take over the construction of Pascua-Lama.

Sokalsky, the new CEO, mentioned “external factors” also contributing to the soaring costs. Perhaps he was referring to the countless protests blocking access roads to Pascua-Lama that have held up construction crews, legal fees to represent Barrick in a number of ongoing court cases, or the consultants and academics it hired to prepare, as Jimenez put it, “thousands of pages” on the environmental impact of the project.

All of these costs are negligible, however, compared to what Pascua-Lama will bring once it is up and running, thanks to the incredibly low cost of producing gold at the mine, and the precious metal’s high price on the market.

In fact Pascua-Lama will be one of the world’s lowest-cost mines, because the sale of silver extracted as a by-product – about 665 million ounces – is expected to more than cover the cost of processing the gold. Barrick estimates that it will cost $25 to $50 to produce an ounce of gold, which closed at $1,697 on Friday. Compare that with the cost of producing an ounce of gold at Barrick’s only mine in Canada, at Hemlo near Thunder Bay, Ont. In 2011, Hemlo produced 227,000 ounces of gold at $774 per ounce.

With a suitable compensation package, Barrick might be able to settle out of court with some of the various parties contesting the project, if Barrick’s lawyers don’t prevail.

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