BUENOS AIRES/SANTIAGO, Nov 4 (Reuters) - Barrick Gold Corp’s decision to mothball its huge Pascua-Lama project on the border of Chile and Argentina has highlighted startling divergences between the two South American countries over mining and energy investment.
In a role reversal of sorts, nationalistic Buenos Aires is championing the now-dormant Canadian-owned project, while stricter environmental norms in business-friendly Santiago paved the way for the project’s suspension.
Last week’s announcement by Toronto-based Barrick Gold Co was a blow to Argentina’s government at a time when it is seeking to attract tens of billions of dollars to develop its shale oil and gas resources.
“Even if the cancellation isn’t specifically related to Argentina’s economic policies, it’s still bad news” for the Argentine economy and the government, said Ignacio Labaqui, an analyst with Medley Global Advisors.
The estimated $8.5 billion project, already about 50 percent complete, had enjoyed the support of President Cristina Fernandez’s leftist government, which is trying to change Argentina’s reputation for intervention, nationalistic rhetoric and runaway inflation.
Aiming to distance itself from the decision, her government said neighboring Chile was responsible, alluding to a court decision ordering the world’s largest gold miner to suspend building Pascua-Lama in the spring due to environmental harm.
“The delays the project is suffering are a product of legal conflicts Barrick has in Chile that prompted the Supreme Court there to get involved after indigenous communities filed complaints,” Argentine Planning Minister Julio De Vido said in a statement. “This situation has nothing to do with the project’s conditions in our country.”
Pascua-Lama has also been plagued by cost overruns and a sharp drop in bullion prices, and policies in Argentina or Chile did not directly trigger Barrick’s decision.
“The decision to temporarily suspend construction was primarily based on economic factors, including a prolonged period of lower metal prices,” Barrick spokesman Andy Lloyd told Reuters. “While the project faces a number of outstanding legal and regulatory issues in Chile, the regulatory system itself is strong and the requirements on the project are clear.”
The regulatory and political environment in Argentina did not play a role in the decision, Lloyd added.
Still, Argentina’s reaction to the announcement not only points to the policy priorities in Buenos Aires, but highlights a broad change underway in Chile despite its pro-business reputation.
Like much of commodities-dependent Latin America, Chile is struggling to maintain export-driven economic growth while addressing heightened environmental concerns and demands that the benefits of resource development be spread more equally.
The Chilean government pointed to Barrick’s violation of the terms set out in its mining license.
“The difficulties they’ve had aren’t due to our norms, but rather due to the breach of the conditions outlined in their environmental permit,” Mining Minister Hernan de Solminihac told local radio Bio-Bio. “We regret the decision.”
The complex was one of the biggest mining projects planned in commodities-dependent Chile. It would also have been an economic boon to Argentina, Latin America’s No. 3 economy, which is grappling with high inflation and the negative impact of currency controls on investment.”
Pascua-Lama, originally expected to produce up to 850,000 ounces of gold annually in its first five years, was dogged by what the company has conceded were management problems on a tricky construction project high in the remote Andes, as well as fears the project would damage glaciers and water quality.
In April, a Chilean appeals court halted work at the request of a local indigenous group that said water polluted by construction ran off into the Estrecho River.
The complaint said high concentrations of arsenic, aluminum, copper and other elements have been found in the water near Pascua-Lama. Barrick denies it polluted the river.
Chile’s new environmental regulator and Supreme Court subsequently also froze construction, setting the stage for last week’s decision by the company to stop work indefinitely. Barrick said it intended to resume the project, on which it has already spent $5 billion, when conditions warrant.
Barrick’s decision is likely to galvanize environmental groups in Chile, encouraging them to take on more mega mining and energy projects they deem unsound.
At stake is a third of the world’s copper production and billions of dollars in investment.
“Pascua-Lama marks a before and after for mining because of the conflicts that arose with local communities,” said Juan Carlos Guajardo of CESCO, a mining think-tank in Santiago.
Public sentiment in Chile, the world’s top copper producer, is strongly against the private mining industry. Around 83 percent of Chileans say they favor nationalizing copper, according to a CEP survey published last week.
Although business-friendly Chile is highly unlikely to follow the nationalizations of neighbor Argentina, Pascua-Lama illustrates that private miners need to be especially cautious and follow environmental law to the letter.
Dealing with these tensions is one of the major challenges awaiting Chile’s next president. Polls show that Michelle Bachelet, the center-left former president, holds a wide lead and might attract enough support to win outright in the first round of voting on Nov. 17.
A BLOW TO ARGENTINA‘S MINING DREAMS
Across the Andes, Argentina hopes to emulate its mineral-rich neighbors and position itself as an attractive destination for foreign investment in resources to supplement its powerful agricultural export industry.
Pascua-Lama was Argentina’s main foreign investment project after Brazil’s Vale halted a $6 billion potash project early this year because of higher costs fueled by inflation.
Fernandez, who is convalescing after an operation to remove blood from the surface of her brain, had a sobering setback in last month’s mid-term elections.
Despite strong pro-environment sentiment in Argentina, Fernandez vetoed a glacier protection law in 2010 in a nod to mining and oil projects such as Pascua-Lama, on the grounds the legislation would hamper provincial economies. Argentina’s Supreme Court eventually upheld the law.
Last year, foreign direct investment in Argentina amounted to only about 2.6 percent of gross domestic product, whereas it accounted for 11.3 percent in Chile’s far smaller economy, according to the United Nation’s regional economic body.