Barrick high on Pascua Lama

SITE VISIT

Pascua, Chile — After weathering a storm of protest about plans to move parts of three glaciers at its Pascua Lama gold-silver property on the Chile-Argentina border, Barrick Gold (ABX-T, ABX-N) will start construction on the project in September with a restructured mine plan.

Pascua Lama, which straddles Chile’s Region III and Argentina’s San Juan province, will produce 750,000-775,000 oz. annually over its first five years of operation starting in 2010, declining to 600,000 oz. per year after that. The world’s largest gold producer, Barrick churned out 8.42 million oz. gold in 2006.

There is more gold at Pascua-Lama, but the company has agreed to mine around three glaciers that lie over the gold-bearing property, a decision that cut reserves from 18.3 million oz. to 17 million oz., and which means that 1.3 million oz. worth US$832 million at current prices will be left in the ground.

Pascua Lama also hosts 689 million oz. silver and 257,000 tonnes of copper.

Mine plan changes and delays have seen project development costs rocket 53% to US$2.3 billion from US$1.5 billion.

“Infrastructure costs associated with virtually every aspect of mining construction have increased,” says company president and CEO Greg Wilkins. “We are experiencing wage inflation and so even with an innovative construction process, a mill redesign and downsizing, it is more expensive.”

Capital costs may have soared, but the project remains viable due to operational cost reductions incorporated in the redesign. The average cost of producing each ounce of gold has been slashed to US$40-US$50 in the first five years from US$90-US$100 by producing more byproduct silver. The mine will produce a massive 35 million oz. silver per year in its first five years before dropping to 23 million oz. per year. Over the life of the mine, the average cost per ounce will be US$130-US$160, making Pascua Lama one of the lowest cost gold mines in the world.

“The capital cost is higher, but the operational cost is lower with more silver credit,” Wilkins says.

“Improving silver recovery three percent means twenty-one million ounces more silver over the mine life. At ten dollars (US) an ounce, that is 210 million dollars off costs,” says vice-president of corporate communications, Vince Borg.

Steeper pit walls will mean less waste rock.

“We know more about the rock and have changed the pit design so the development cost is lower. When we knew less about the deposit, the safety coefficients were more conservative,” says Ricardo Palma, Pascua Lama operations manager.

Cool reception

Barrick’s original plan to move parts of three glaciers overlying the project blew up into an international protest by environmental groups such as Earthworks and Mining Watch. An upshot of this is that Chile’s parliament is now debating a glacier protection bill.

“This was very frustrating because there was no objective dialogue and a lot of misinformation,” Wilkins says. “It is very emotive to talk about glacier destruction and anti-mining groups used it to their advantage.”

The Toro I, Toro II and Esperanza “glaciers” are really penitentes, blades of hardened snow as tall as a man formed at high altitude by strong winds, first recorded by Charles Darwin when he visited Chile. Named because they look like praying hands, they are nothing like the Alpine formations one thinks of as glaciers.

Barrick finally backed down on the glaciers and agreed to monitor them and repair any damage throughout the project’s life.

“Instruments on the glaciers’ surfaces will detect any non-natural material on them like rock dust,” says Placido Avila, director of environmental authority Conama in Region III.

Sara Larrain, director of environmental NGO Chile Sustentable, says the environmental impact assessment is deficient and leaves many environmental points unanswered.

“In the third year of mining, a rock glacier — which is a mixture of ice and rock — will be covered with waste material. The environmental protection measures are not enough,” she says.

Local NGO Observatorio Latinamericano de Conflictos Ambientales (OLCA) says this is too little too late and claims Barrick destroyed much of the glaciers before the project came to public notice, citing a report by the Director General of Water’s (DGA) office that says their size was reduced by 50-70% between 1983 and 2003. OLCA has asked Chile’s state attorney, the Consejo Defensa del Estado, to prosecute Barrick for environmental damage.

“In the 1996-2000 period, Barrick built a road over part of the Toro I and Toro II glaciers, moving ice and putting down riprap,” says Lucio Cuenca, OLCA director. “On Esperana, it built drill pads with access roads to make thirteen exploration holes.”

Cuenca says damage from climate change and global warming is an unlikely cause as other glaciers in the area have not experienced the same reduction.

“Global warming has to be very severe, some eight degrees in this zone, to melt the glaciers, as they reflect solar radiation and do not melt unless you change their colour by putting dust on them,” he says.

Agriculturalists in valleys downstream from the project are still protesting against potential impacts to their water supplies, having delivered a petition with 18,000 signatures to the Chilean government in December 2005 to stop the project.

Pascua Lama will extract only 0.3% of the water from the Huasco River, have closed loop processing and recycle water that accumulates in its tailings dam as well as employing other measures, Barrick says.

“We have spent tens of millions of dollars in planning water systems to ensure that water quality and quantity are at the same or better levels than they are today,” says Wilkins of the efforts to assuage concerns in Chile’s Huasco Valley, 50 km west.

Avila of Conama commends Barrick’s intention to use fences to accumulate snow, although he suspects this is a contingency for glacier damage rather than water provision.

“Barrick may foresee that its truck movements are going to affect the glaciers through particulate contamination and the accumulated snow can be added to them,” he says.

Barrick also says it has put the measures in place to overcome agriculturalists’ concerns about contamination from acid mine drainage.

“The tailings facility will be built to a standard that can deal with a one-thousand-year event,” Wilkins says.

Avila agrees. “This project has extreme conditions, so an extreme standard to mitigate environmental threats was established,” he says. “Of all the projects in Chile, this has the highest standards in terms of the obligations for Barrick.”

OLCA is not so sure, given that the project will use 80 tonnes of explosives per day to create a 300-hectare hole that is 600 metres deep.

“How can Barrick guarantee that it will maintain the ecosystem with this scale of intervention?” Cuenca asks. “With the climatic conditions at this altitude, there is no company in Chile that can guarantee one-hundred percent that there is not going to be contamination.”

Veladero

Veladero, a gold mine Barrick opened in Argentina in October 2005 just 10 km from the Pascua Lama deposit, has given the company experience operating in the area. A guanaco, a relative of the llama, takes little notice of the SUVs driving past as it chews the tough grasses of the Andean vega 4,200 metres above sea level, amid reddish mountains where winter temperatures drop to an inhospitable minus 35 Celsius.

“We do a yearly census of the guanaco and they have actually increased around the mine,” says Veladero mine manager Hernan Vera.

Veladero cultivates the grasses the guanacos eat in what has to be one of the oddest-looking “reforestation” nurseries in mining, little more than patches of spiky grass with which Barrick will reclaim land as mining progresses.

Barrick’s challenge is now obtaining the dozens of permits it needs so construction can start in
September. Wilkins is reluctant to begin work until the ink dries on every last permit, perhaps sensing that something could still go awry.

“It is a very large project and I am not anxious to commit to massive expenditure until all the ducks are in a row,” he says.

The bulk of the mine, some 65-75%, will be in Chile, along with the primary crusher. Crushed ore will be transported 7 km through a tunnel to the processing facility stockpile in Argentina where three 15,000-tonne-per-day milling lines will give a total ore processing capacity of 45,000 tonnes per day, with one line for refractory sulphides and two for the non-refractory oxide ore. Milled sulphide ore will go to flotation cells and produce concentrates containing 12% copper, 100 grams gold per tonne and 4 kg silver per tonne, while oxidized mineral will be cyanide leached, precipitated with zinc via the Merryl Crowe process, toasted to remove mercury and smelted into dore bars.

Once production is under way, Wilkins expects Pascua Lama to be able to generate significant upside potential. The sulphide concentrate could be sent to Barrick’s Zaldivar copper mine in Chile’s Region II and produce sulphuric acid that would reduce acid costs at Zaldivar by US$20 million in addition to reducing the concentrate treatment charges payable for the Pascua Lama concentrates.

High-grade material from Veladero could be transported to Pasuca Lama for milling to produce higher recoveries than its leach process can obtain. “Veladero does not have enough of this type of ore to warrant its own plant, but it makes sense to reroute it to Pascua Lama,” Wilkins says.

Promising exploration targets in the area could add to reserves.

“The gold industry does not have a lot of long-life assets,” Wilkins says, explaining that having projects with 20 million oz. or more is unusual. “Our exploration team says that only fifty have been discovered in the world and ten of these are depleted. Of the remainder, we have interests in up to nine of them.”

The harsh Andean environment could also help reduce costs in a location where trucks have to be chocked against the fierce wind. That forceful wind could help Barrick reduce energy costs over the mine’s 23-year life, Wilkins says.

The company is installing a 1.5- to 2-megawatt pilot turbine at the project to see how much energy wind power could generate there.

“We want to be a model global corporate citizen so we are seriously thinking about the energy strategy of the company and renewable energy is one of those solutions,” Wilkins says.

— The author is a freelance journalist based in Santiago, Chile.