COMMENT: Chilean court cancels Pascua-Lama fine, retains suspension – by Marilyn Scales (Canadian Mining Journal – March 10, 2014)

Marilyn Scales is a field editor for the Canadian Mining Journal, Canada’s first mining publication. She is one of Canada’s most senior mining commentators.

As we are used to hearing – there is good news and bad news. This time Toronto’s Barrick Gold is on the receiving end of both, thanks to the environmental court in Chile. At issue is the future of the expensive Pascua-Lama gold project that straddles the Chile/Argentina border.

Last week, Chile’s second environmental court annulled the fines imposed by a local environmental regulator (SMA). The amount is small – $16 million compared to the projected $8.5-billion cost of the project. The higher court cited “errors and illegalities” in the SMA’s resolution, and removed the fines. The SMA will now consider each of 23 charges separately, and readers can expect that the fines will be re-imposed.

That was the good news. Now the bad. At the same time the court upheld the suspension of work order imposed on the Chilean portion of Pascua-Lama. The only project Barrick has been allowed to work on is the water management system.

The Pascua-Lama project has been one of the most difficult any mining company tried to develop. First, there was a decade of negotiation before Chile and Argentina wrote a treaty allowing workers to move freely in the pit because it is bisected by an international boundary.

Financing was delayed by the financial meltdown of 2008, and at the same time, project costs skyrocketed. Then the gold price softened, and the project was put on the slow track to conserve cash, in particular by delaying pre-production capital expenses.

Will Pascua-Lama ever be finished? In our lifetime? Both are good questions.

The deposit deserves to be brought into production. The annual output is estimated at between 750,000 and 800,000 oz of gold during the first five years of operation. The deposit contains 15.38 million oz of gold in proven and probable reserves plus 675 million oz of silver.

The price of gold will be a determining factor as to when development goes forward. A falling price makes the project less economically appealing. A substantial rise in the price would go a long way towards ensuring a profitable venture, especially one with such enormous capex costs.

Another hotly debated question concerns the environmental impact of Pascua-Lama. Opponents have rallied to push for special protection for the glaciers near the project. Barrick says it can be build the mine without destroying the ice fields. (Or the problem may solve itself as the effects of global warming are felt.) Preservation of the watershed will continue to be a concern.

And finally, the question that some are thinking but no one is asking: Will Barrick abandon Pascua-Lama?

This writer cannot image Barrick giving up easily. This is a company with the people skills to accommodate local communities on many levels – social, environmental and economic. This is a company prudent with its cash. Some lesser assets in Australia have been divested, and Barrick announced on March 10 that it is selling 41 million African Barrick shares.

Just a month ago, Barrick remained committed to Pascua-Lama. The company announced that it is exploring both partnerships and royalty agreements to move the project forward. Certainly more news will be forthcoming.