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TABLE OF CONTENTS Jun 9 - 15, 2014 Volume 100 Number 17 - 0 comments

Barrick inks deal with locals at Pascua-Lama

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VANCOUVER — In the first step of what would be a long road to reconciliation, Barrick Gold (TSX: ABX; NYSE: ABX) has signed an initial agreement with most of the indigenous groups in Chile that oppose the company’s suspended Pascua-Lama project.

Barrick faces many obstacles before restarting construction at the mountaintop gold–silver–copper project, including a suspended environmental permit, massive capital-cost overruns and insufficient metal prices. Nevertheless, a deal between the gold miner and 15 of the area’s 18 Diaguita communities to share information and for Barrick to fund independent analyses of that data marks a step forward for the strained relationship.

“We believe this agreement will form the basis of a new relationship with Diaguita communities — one based on transparency, openness and trust,” Barrick spokesman Andy Lloyd said. “Earning that trust will take time, and it will require consistent engagement and commitment.”

The Diaguita challenged the validity of Barrick’s Pascua-Lama permit in court and won, at least for the time being. The project is suspended because of that ruling, and because costs had climbed to almost three times the original estimate.

The Diaguita generally oppose Pascua-Lama because they believe the mine will either contaminate or suck dry the area’s precious freshwater supplies. The project is on a mountaintop in the Atacama desert, one of the world’s driest regions, and the water that flows down the mountainside from high-elevation rains and glacial melt makes the Huasco River Valley not just habitable, but agriculturally successful.

As such the 3,000-odd Diaguita who live in the area are protective of their water. Yet water management has been one of Barrick’s biggest failings, both technically and in terms of social outreach and response.

It was April 2013 when a water diversion canal at Pascua-Lama collapsed. The subsequent investigation revealed that Barrick had violated its permits by breaking ground on the open pit before completing the project’s water-management system.

The system is designed to keep water supplies clean by diverting glacial runoff, precipitation and groundwater around the pit and waste heaps. A facility would also be built to treat any water  that came into contact with the mine. These measures should have addressed the Diaguita’s water concerns, which is why Barrick was supposed to have the system operational before  starting work on the open pit.

Instead, the miner pre-stripped the pit area when the water system was only partly complete. In January 2013 it surfaced that it had flouted its permit requirements, when the spring melt overwhelmed the partial system and several canals collapsed.

Chile’s Environmental Superintendency laid 25 charges against Barrick relating to the collapse, including inadequate canal construction and failure to build a good water-treatment facility.

Around the same time, the Diaguita were working against Pascua-Lama through the courts. The charges added fuel to the fire, and in April the courts ordered Barrick to suspend construction.

A few months later, with the permit violations and opposition from the Diaguita working against it, Barrick’s entire environmental permit was suspended. By late October Barrick announced it was putting Pascua-Lama on a long-term hiatus.

Several issues must be addressed before that hiatus can end, but Barrick’s relationship with the Diaguita is near the top of that list — the company must earn community support. Most of the Diaguita groups say they are willing to negotiate with Barrick. The new agreement suggests as much.

In the deal Barrick agrees to share technical and environmental information with the Diaguita. The miner will also provide funding so locals can assess information independently.

The agreement lasts for six months. If the effort is fruitful, Barrick and the Diaguita will enter a dialogue that could last two years or more. During that time the parties will discuss impacts and benefits, including the potential for an indigenous royalty from the mine.

The agreement is undoubtedly a first step, though it is no guarantee of future collaboration. Lorenzo Soto, the lawyer who has represented the Diaguita in their battles with Barrick, told a Chilean radio station that “the communities have not renounced any legal action.”

Repairing its fractured relationship with the Diaguita is but one of the hurdles between Barrick and a Pascua-Lama restart. Another is the need for Barrick to find a new path forward for a project that has already cost the company more than $4 billion, and for which total capital-cost estimates have ballooned from $3 billion to $8.5 billion.

Metal prices also need to improve. The massive Pascua-Lama deposit offers proven and probable reserves totalling 15.4 million oz. gold and 675 million oz. silver, but Barrick CEO Jamie Sokalsky says the project requires a US$1,500 per oz. gold price and a US$25 per oz. silver price to be viable. 

Barrick is also facing a potential class-action lawsuit over Pascua-Lama. Three Canadian law firms are advancing the action, alleging Barrick and some of its current and former senior officers misrepresented how much risk Pascua-Lama involved.

The suit says Barrick described Pascua-Lama as a feasible and highly economic project, but the company knew or should have known development would be challenging.

“The mine is located underneath glaciers in the Andes Mountains, and the environment is subject to extreme temperature and weather changes,” the suit states. “Barrick is a sophisticated mining company that has constructed and operated mines all over the world. The challenges in developing Pascua-Lama were or should have been readily apparent to Barrick.

“There was also considerable opposition to the Pascua-Lama project from local communities that depended on the water supply the glaciers provided,” it continues. “These communities, along with various environmental groups, were concerned about adverse impacts of mining on the glaciers and contamination of the water supply.”

The suit seeks recognition as a class action seeking compensation on behalf of investors who acquired Barrick shares between May 7, 2009 — when Barrick announced it was going to build the mine — and Nov. 1, 2013, the day after the project was suspended. At the start of the period Barrick shares were worth $38.55. When Pascua-Lama was suspended they were trading for $18.30.

The allegations have not been tested in court, and the suit has not been recognized as a class action.

On news of the Diaguita agreement Barrick shares gained 8¢ to close at $17.12. The company has a 52-week share-price range of $14.22 to $23.78, and 1.2 billion shares outstanding.

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Barrick Gold's Pascua Lama project in Chile. Credit: Barrick Gold
Barrick Gold's Pascua Lama project in Chile. Credit: Ba...

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Barrick Gold Corporation

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