BUSINESS

TREASURE QUEST

A nasty fight for Chilean gold may explain Barrick’s takeover plans

COLIN CAMPBELL December 5 2005
BUSINESS

TREASURE QUEST

A nasty fight for Chilean gold may explain Barrick’s takeover plans

COLIN CAMPBELL December 5 2005

TREASURE QUEST

BUSINESS

A nasty fight for Chilean gold may explain Barrick’s takeover plans

COLIN CAMPBELL

High in the Andes Mountains, in a remote stretch along the Argentine-Chilean border, sits a vast and much sought-after treasure—one of the world’s largest remaining untapped gold deposits. But like any good treasure, this one, called Pascua Lama, is closely guarded. For its owner, Toronto’s Barrick Gold Corp., the trouble with Pascua Lama is that its massive reserves—estimated at 17.6 million ounces—are buried beneath three Ice Age glaciers. Those, in turn, are watched over by an increasingly vocal and impassioned environmental movement that objects to the project, which would see an open-pit mine dug through five acres of ice. Opposition to the US$1.5-billion project reached a flashpoint this month when, according to reports, protesters in Santiago, Chile, clashed with police as they tried to present the government with a petition carrying 18,000 signatures. At an earlier demonstration in Santiago, buckets of ice were dumped at the front door of Barrick’s office.

Battles with local environmentalists are nothing new for mining companies, but for Barrick the stakes at Pascua Lama are higher than most. Finding major gold deposits is proving increasingly difficult, and the remote Chilean site qualifies as a genuine blockbuster. Representing almost 20 per cent of Barrick’s total gold reserves, it could form a pillar of the company’s production and cash flow through the next decade. The mere suggestion

that Pascua Lama may be in serious trouble is enough to ratchet up pressure on management. And that, analysts say, may be one of the hidden reasons behind Barrick’s recent bid to acquire rival Placer Dome Inc. of Vancouver—a takeover attempt that sparked a possible white-knight offer from Newmont Mining Corp. “Placer has some large reserves, so you dilute the importance of Pascua Lama in a merged company,” says Barry Allan, a gold industry analyst at Research Capital Corp.

The Pascua Lama problem may be a harbinger of things to come for gold companies. Environmental and social concerns over large mining projects multiply even as opportunities shrink. According to a recent J.P.

Protesters in Santiago dumped chunks of ice at Barrick’s office doors

Morgan report, the bid for Placer, which would create the world’s largest gold producer, “highlights the growing importance of the few remaining undeveloped large gold deposits.”

Pascua Lama is also a very capital intensive project, “that will affectively require taking the top off a mountain,” says Allan. A merger with Placer could help ease these concerns, too. Just 150 km from Pascua Lama

sits Cerro Casale, a project that Barrick has expressed interest in and which Placer has a reluctant stake in. In addition, Barrick also has a project six kilometres from Pascua Lama, called Veladero. If the company could operate all three mines at the same time, it would spread the significant energy and building costs across three sites, making the mines more profitable, says Barrick spokesman Vince Borg. Cerro Casale is “worth revisiting in the context of possible synergies with Pascua Lama and Veladero,” he notes.

The irony of Pascua Lama is that Barrick won approval for the project in 2001, but the price of gold was too low then to make the project worthwhile. By 2004, the price of gold, which is now nearing US$500 an ounce, was soaring and the company voted to proceed with the project (with no mention in its annual report of environmental problems). Much, however, changed over those three years. “The time lapse allowed people to find out what the proposal really was and get organized,” says Jamie Kneen of the watchdog group MiningWatch Canada. The project quickly became bogged down over the concerns of farmers in the nearby river valley fed by the glaciers. Soon enough, opposition to the mine was attracting the attention of activists world wide.

“Any significant project like Pascua Lama will be exposed and so broadly discussed in the communities that it will attract like a magnet activists who are opposed to projects of any kind, mining or forestry,” says Borg. The protests are heightened by the politicized atmosphere of the lead-up to Chile’s December presidential election, he says. But while the election campaign has shed new light on the issue of mining projects like Pascua Lama, nothing is likely to significantly shift government policy in the politically stable country, including views on foreign development. Barrick is confident it will eventually win approval sometime next year, and have the mine running by 2009-

The company has gone to some lengths to modify its plans to appease the local farmers, adding more precautions to protect the water, and agreeing to truck away ice displaced by the mine to another nearby glacier. The company says only 0.3 to 0.4 per cent of the ice in the entire basin will be affected. Farmers in the river valley signed a US$60 million, 20-year deal with Barrick to mitigate any damages, and two weeks ago voted 93 per cent in favour of Barrick’s latest submission to the Chilean environmental authorities. Barrick may also have overcome a major hurdle last month when a group of independent glaciologists said the ice over Pascua Lama is not technically a glacier after all, but merely an ice fieldsomething the mine’s opponents discount out of hand, and even Barrick has refrained from playing up.

But these developments are unlikely to

assuage all critics. Some worry about chemical spills, particularly of the hazardous sodium cyanide used in gold production. The Latin American Observatory for Environmental Conflicts says years of exploration have caused Pascua Lama’s glaciers to shrink by more than 50 per cent. And for some, any mining at Pascua Lama is simply unacceptable. “I think it’s one of these projects that should be left alone,” says Kneen. “This is a sensitive environment that is of critical importance to the watershed. Some places just shouldn’t be mined.” M