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Barrick says Pascua-Lama faces delays, cost-hikes

Michael Warren, Associated Press

BUENOS AIRES, Argentina (AP) -- The world's highest-altitude gold mine has gone off-track, with production delayed for another year and costs rising by as much as $3 billion before Barrick Gold Corp. can begin extracting gold, the Canadian mining company's chief executive said Thursday.

Barrick CEO Jamie Sokalsky said the Pascua-Lama project straddling the Chile-Argentina border will cost up to 60 percent more than previously estimated, raising the cost of the mine to as much as $8 billion, and that the first gold won't be produced until mid-2014.

"As the CEO I accept full responsibility for this," he told an investors conference call, explaining that Barrick underestimated the complexity of the project, the challenges of working at high altitude, a shortage of skilled engineers and "bi-national external factors as well."

Shares in the company dropped sharply Thursday before recovering and were trading down 4.32 percent at $32.38 shortly before the close.

The mine is expected to be one of the world's largest, with reserves of 17.9 million ounces of gold and 676 million ounces of silver to be extracted over a 25-year-lifespan. The company had hoped to begin production next year, extracting as much as 850,000 ounces of gold and 35 million ounces of silver a year on average over its first five full years of operation.

"The preliminary results from the review are disappointing and they have indicated a greater than anticipated increase in project capital costs and a delay in the schedule," Sokalsky said. "Initial gold production is now expected in mid-2014 with an approximate 50-60 percent increase in capital costs from the top end of our previously announced estimate of $4.7 to $5 billion."

Sokalsky blamed Argentine inflation and labor issues for much of the delay, and made no reference to an Argentine Supreme Court ruling this month that environmentalists hope will prevent the mine from opening at all.

Argentina's top court overruled Barrick's injunctions against a national law banning any human activity on or around the country's remaining glaciers or the "peri-glacial" areas that immediately surround them. Already, most of the infrastructure for Pascua-Lama has been built, in areas that the company says are near glaciers but not on top of them.

"What has been announced today has absolutely nothing to do with the ruling of the Supreme Court of Justice in relation to the Glaciers Law," said Miguel Gimenez Zapiola, director of corporate issues for Barrick Argentina.

Environmentalists say Pascua-Lama and other Barrick mines violate the national law anyway due to their proximity. The law aims to settle the dispute by requiring a thorough scientific inventory and new environmental impact studies for any human activity planned on or near glaciers.

"There's no way Pascua-Lama can operate under this law because it's clearly occupying a peri-glacial area, in the presence of glaciers," said Gonzalo Strano, who leads Greenpeace-Argentina's glaciers campaign.

Peri-glacial areas are generally covered by permafrost, forming a protective rim around glaciers, and are full of fresh water. Strano said Pascua-Lama's toxic pollution would be left in a containment pond covering nearly a thousand acres (400 hectares) on the Argentine side of the border, and that to produce all that gold and silver, the mine would need 82 gallons (311 liters) of clean water per second for the next 25 years.

Even with the cost overruns announced Thursday, Pascua-Lama will be one of the world's cheapest gold mines, Barrick said, since the silver extracted as a byproduct will more than cover the cost of processing the gold.

But the project makes economic sense only because it essentially gets the water for free, and has been granted huge tax breaks as well, Strano said.

"If they really had to pay for the water like any other resident of the province, they wouldn't do this project," Strano said.

Sokalsky said he only learned recently about the magnitude of the delays and cost increases, and is still trying to get to the bottom of it.

"I am as disappointed as you undoubtedly are but I give you my commitment that we will take corrective action and we will begin producing gold at low cash costs in 2014," he said. "Our view is that this is still a very attractive return project for Barrick."


Associated Press Writer Ben Fox in San Juan, Puerto Rico, contributed to this story.