VALLENAR, Chile — Chile's environmental regulator blocked Barrick Gold Corp.'s $8.5 billion Pascua-Lama project on Friday and imposed its maximum fine on the world's largest gold miner, citing "very serious" violations of its environmental permit as well as a failure by the company to accurately describe what it had done wrong.
After a four-month investigation, the Environmental Superintendent said all other construction work on Pascua-Lama must stop until Barrick builds the systems it promised to put in place beforehand for containing contaminated water.
The fines add up to 8 billion pesos – about $16 million – the highest possible under Chilean law.
Chile's regulator noted that while Barrick itself reported failures, a separate and intensive investigation already begun by the agency's own inspectors found that the company wasn't telling the full truth.
"We found that the acts described weren't correct, truthful or provable. And there were other failures of Pascua Lama's environmental permit as well," said the superintendent, Juan Carlos Monckeberg. "This the first sanction taken by this superintendency and it is the biggest one taken in the environmental history of this country."
Barrick said it accepts all aspects of the resolution.
"We deeply regret that Pascua Lama has suffered inconveniences in its construction and we'll do our best efforts to straighten the road ahead and meet the conditions stipulated in the approved project," said Eduardo Flores Zelaya, president of Barrick South America and Senior Vice President of Pascua Lama. "We respect the institutions of the countries where we operate therefore we will act according to the resolution."
Argentine authorities have insisted that Lama, their side of the bi-national project, will proceed with or without Chile, taking advantage of the infrastructure already in place for its Veladero mine, which is already producing ore just downhill.
But most of Pascua-Lama's 18 million ounces of gold and 676 million ounces of silver are in Chile, where Barrick warned shareholders earlier this year that it might abandon the project if production can't begin in 2013.
Monckeberg said the sanctions, the first since his agency gained enforcement power in December, were based on a thorough investigation by agency inspectors as well as government experts in mining, farming, and water
Pascua Lama was temporarily halted last month by an appeals court in the northern city of Copiapo after members of the Diaguita indigenous community complained that the project threatens their water supply and pollutes glaciers.
"This is what we have always been hoping for," said Maglene Campillay, a Diaguita Indian leader whose community downstream from the mine alleges that its river has been contaminated by the construction work. "Finally the state is showing its power. They never investigated this and now they're doing their job."
The regulator found 23 violations, and Barrick accepted all but one of them in a detailed response on April 29.
But the sanctions don't mean the end of Pascua-Lama – far from it.
In its response, Barrick asked for permission to make $30 million in urgent repairs, saying "they turn out to be fundamental to keeping the first ice melts of this year from causing events that trigger effects or environmental contingencies." The environmental agency approved the remedial work on Friday, starting with temporary measures to contain any runoff while Barrick builds more permanent structures.
The violations include building some earthworks without prior approval, while failing to build others that were supposed to be in place before other construction began, so that rainfall wouldn't increase the runoff from mineral acids naturally released when rocks are broken. Instead, Barrick's bulldozers went ahead and moved mountaintops in preparation for a projected 25 years of gold and silver production.
The violations also include an "unjustified discharge coming from the acid treatment plant to the Estrecho river" that was "neither declared nor monitored," Barrick acknowledged.
Still, the Diaguita Indians, who live in small towns along rivers that flow down from the mine through an otherwise completely barren Atacama Desert, were feeling powerful on Friday.
"Even though we seem so small, we could beat Barrick, which is a giant," said Osvaldina Guzman Villegas, who lives in Diaguita community of Chipasse Tamaricunga. "And with the help of our ancestors, we're going to beat them."
President Sebastian Pinera's spokeswoman, Cecilia Perez, said the government is "very much in agreement" with the sanctions.
"What should happen is that until they remedy all the requirements of the environmental permit, fix all the issues that the Environmental Superintendent is asking for, and finally until this is decided by the Supreme Court, they cannot keep operating," she said.
The sanctions also were praised by independent mining experts, who noted that the containment structures Barrick failed to build were fundamental to obtaining environmental approval.
"Twenty years ago, maybe nobody would have required these fixes, and perhaps wouldn't even have required the canal to divert rainwater, but today it's necessary, more than anything because there's agriculture down below," said Gustavo Lagos, mining professor at Santiago's Universidad Catolica.
The strong sanctions show the mining industry that Chile's independent environmental regulator intends to use its new enforcement powers, he said: "This sets a tough example and I think it should show other companies, not just in mining but in all industries, that this is becoming serious."
How the ruling might affect the bottom lines of many other international mining companies in Chile also wasn't immediately clear, but Lagos said it sends a good message.
"It shouldn't be forgotten that new environmental institutions were required of Chile as a condition for its entry into the OECD," he said, referring to the Organization for Economic Co-operation and Development, which represents the world's leading economies. "It's a good signal to the world that in Chile there are controls, that there's a new institutionality that is working."
Environmentalists say regulators have been much less demanding on the Argentina side of the project, where mining is regulated at the provincial level. Barrick and other pro-mining groups obtained injunctions to block enforcement of a national glacier protection law passed in 2010 in response to the Pascua-Lama project.
"In Argentina, despite public statements that the house is in order, we are beginning to reveal serious environmental flaws regarding dozens and dozens of glaciers that have been unaccounted for in Barrick's environmental impact studies. The Glacier Law further complicates Pascua-Lama," said Jorge Daniel Taillant, director of the Center for Human Rights and the Environment, which tracks environmental compliance by mining companies.
Associated Press Writers Michael Warren in Buenos Aires and Eva Vergara in Santiago contributed to this report.
Luis Andres Henao on Twitter: https://twitter.com/LuisAndresHenao