* Controversial project suspended by Chile court
* Chile-Argentine project's permit at risk, experts say
* Pascua-Lama hurting water supply, glaciers - critics
* Chile's legal framework tricky to navigate
By Alexandra Ulmer
SANTIAGO, April 15 Barrick Gold Corp
faces some tough legal obstacles to complete its up to $8.5
billion Pascua-Lama gold mine after a recent court decision, and
even the possibility that its Chilean environmental permit might
In the latest of several recent blows to the country's
mining and power industries, a Chilean court last week suspended
construction of the mine, which straddles the border of Chile
and Argentina, while it weighs claims by indigenous communities
that the mine destroys pristine glaciers and harms their water
The ruling is one of several challenges facing Pascua-Lama,
which was originally touted as one of the world's largest and
lowest-cost gold mines. Experts say there is a risk that the
unpopular project faces months, or even years, of legal limbo,
damaging Chile's investor-friendly reputation.
Moreover, politicians are unlikely to intervene during an
election year on behalf of the project, a hot potato in Chile.
"Pascua-Lama's legal path looks difficult," said Luis
Cordero, law professor at the Universidad de Chile. "If the
company isn't able to adequately negotiate a plan to meet
(demands), its permit could be revoked."
A government source told Reuters that President Sebastian
Pinera's administration will not "persecute" Barrick. But the
company could see its permit revoked if it fails to deal with
dust, drainage and water issues at Pascua-Lama.
"The ball is in their camp," the source said.
A spokesman for Barrick said the company remains absolutely
committed to meeting environmental and regulatory requirements
at Pascua-Lama and it is working diligently to address the
concerns of Chilean authorities.
Whether Barrick can turn its operation around and meet
environmental requirements hinges on whether fresh management
will be up to the task, mining sources say. Poor management has
been a major problem for the mine; one Santiago-based source
described it as "chaos".
Barrick shook up the management team at Pascua-Lama last
year as the project's costs mounted. The company told Reuters it
continues "to take steps to further strengthen and improve that
structure, with additional changes to come."
Several big mining and power projects have faced setbacks in
recent months in Chile, the world's No. 1 copper producer, where
around 60 percent of export revenue comes from the metal.
Last year, the Supreme Court suspended a key permit for
Canadian miner Goldcorp Inc's El Morro copper-gold
project, and rejected the planned $5 billion Central Castilla
thermo-electric power plant.
More than $22 billion and more than 8,000 megawatts in
energy investment are suspended due in part to legal disputes
and regulatory delays, Libertad y Desarrollo, a conservative
think-tank in Santiago, said last year.
However, Chile's top court cleared the way for the unpopular
HidroAysen hydro-power project last year.
At Pascua-Lama, which is expected to produce 800,000 to
850,000 ounces of gold and 35 million ounces of silver in its
first five years of production, local communities say water
polluted by construction processes has run off into the Estrecho
River, which indigenous and other communities in the valley use
for agriculture and personal use.
The complaint, lodged with the appeals court in the northern
town of Copiapo, said high concentrations of arsenic, aluminum,
copper and sulfate have been found in underground water
Barrick denied it had polluted the river.
"Barrick has not polluted the waters of the Estrecho River,"
said company spokesman Andy Lloyd. "Extensive water monitoring
demonstrates that Pascua-Lama has had no negative impact on
water quality in the surrounding area."
It remains unclear what kind of legal action Barrick could
take if the permit was canceled or placed under review.
The appeals court of Copiapo first needs additional reports
before it can examine the case, said Lorenzo Soto, the
environmental lawyer representing roughly 500 members of the
Diaguita community who filed the complaint against Pascua-Lama.
Both parties will then make their pleas. A decision is
expected in a few months, he added.
Whoever loses will likely appeal to the country's Supreme
Court. In Chile, appeals courts are the first to deal with
injunctions. If the decision is contested, the top court then
takes up the case.
"This is going to take up the whole year," Soto said of the
timetable, including a potential top court decision. That might
delay Barrick's 2014 target date for initial production.
Barrick said last week it was too early to assess the impact
of the suspension on the capital budget or on the timetable for
In addition to the suit in Copiapo, Chile's newly created
environmental regulator last month charged the project with
failing to uphold environmental standards prescribed in its
Barrick told the regulator in January that a canal meant to
divert run-off water away from the mine had failed. The project
has also come under scrutiny on the grounds that workers' health
could be at risk from excessive dust.
Barrick is due to present a program detailing how it will
correct the problems this month, but there is no fixed limit on
how long the regulator may take to review its response.
Other groups have been waiting to launch their own suits
against the project, which they say will destroy nearby glaciers
no matter how strict the environmental norms.
"We're going to present legal actions," said Lucio Cuenca,
head of the OLCA environmental group, whose lawyer successfully
represented a tiny village in its battle to block the Castilla
thermo-electric power plant project.
Environmental groups have protested against Pascua-Lama in
Argentina as well, but the Argentine government backs the
project and lawsuits have floundered in the courts. On Friday,
Argentina's planning minister met with Barrick executives in a
sign of support for Pascua-Lama.
Barrick has said construction on the Argentine side, where
most of the infrastructure is, will not be affected by the court
order. But since roughly 80 percent of the metal reserves are in
Chile, and any permanent prohibition would kill the project.