Barrick's Pascua-Lama gold project frozen for at least 1-2 years: Chile regulator

(Reuters) - Barrick's (ABX.TO) suspended Pascua-Lama gold project will likely be reactivated in one to two years at the earliest, given the infrastructure that needs to be built to avoid water pollution, Chile's environmental regulator told Reuters on Thursday.

Barrick's shares initially pared back their 6.14 percent rally after the news to trade 4.77 percent stronger. They then recovered to gain 6.28 percent.

On Friday, the new regulator ordered the $8.5 billion project be halted and fined the company $16 million, citing serious environmental violations.

A Chilean court in April had already temporarily halted the unpopular project, which straddles the border of Chile and Argentina, to weigh claims by indigenous communities that Barrick has damaged pristine glaciers and harmed water supplies.

The water management canals and drainage systems that were only partially implemented cannot be built "from one day to the next," environmental regulator Juan Carlos Monckeberg said in an interview.

"It could be one year, two years," he noted, underlining that the potential reactivation hinges on how diligent the world's largest gold producer is.

Monckeberg also stressed that predicting time frames is tricky given that the regulator, which started operating in December, is navigating in uncharted territory.

Once Barrick completes the required works, the regulator will take a "reasonable time" to assess whether the mine is upholding environmental standards, "given the seriousness of the issue," Monckeberg added.

"As long as the project meets all the requirements, it shouldn't face a permanent paralyzation," he said. He declined to comment on whether the regulator was looking into other potential environmental harm at Pascua-Lama, perched 3,800 meters to 5,200 meters (12,500-17,000 feet) above sea level in the Andes.

Barrick has said it is fully committed to complying with all aspects of the regulator's order. But it has also said it could suspend Pascua-Lama if the timetable for resolving regulatory issues at the project remains unclear.

Chilean President Sebastian Pinera said on Thursday he hoped the project would proceed as long as the company complied with the requirements.

ENVIRONMENTAL BREACHES

The fine imposed by the regulator - the highest ever in Chile for environmental harm - stems from one "very serious breach" and four "serious breaches." Given the infractions, Greenpeace said the fine was "laughable" for a company that posted $847 million in net profit in the first quarter of 2013.

As per its environmental license, Pascua-Lama had to build infrastructure to manage and treat water before launching its pre-stripping operations. But the company had only partially implemented this mitigation system before it started pre-stripping, according to the regulator.

The regulator underlined that defective water canals led to a massive rockslide in January, which affected 1,500 square meters (16,145 square ft) of meadows -- causing "irreparable harm".

The company has to implement transitory measures to capture, transport and discharge water to a sediment tank at the north of the mine before ice melts around November.

It can start building the long-term water drainage systems immediately, Monckeberg added. Barrick likely will not need additional permits for the infrastructure, he said.

Barrick has estimated it must invest about $29 million to meet environmental standards at the mine.

The company has poured about $4.8 billion into Pascua-Lama, which was forecast to produce 800,000 to 850,000 ounces of gold per year in its first five years of full production.

OPPOSITION TO MINING PROJECTS

Opposition by environmental, indigenous and community groups to mega mining and power projects has led to a series of setbacks to billion dollar investments in Chile, the world's No. 1 copper producer.

Despite being one of Latin America's most stable, prosperous countries, Chile suffers from high levels of income inequality, and many in the Andean nation feel a mining boom has bypassed them and harmed the environment.

Pascua-Lama is one of the most unpopular mining endeavors in Chile. Many opponents are incensed that it has produced environmental harm and are particularly worried about the project's effects on glaciers.

Climate change has shrunk Andean glaciers between 30 and 50 percent since the 1970s and could melt many of them away altogether in coming years, according to a study published in January in the journal The Cryosphere.

Separately, Chile's judiciary is seen taking all of 2013 to weigh the indigenous allegations against the project, setting the stage for a protracted, costly legal battle.

Critics say unclear Chilean regulations have contributed to a legal limbo that has led to the suspension of plans for hydropower projects in Patagonia, thermoelectric plants across the country and major copper mines high in the Andes.

(Reporting by Alexandra Ulmer and Fabian Cambero; Writing by Alexandra Ulmer; Additional reporting by Randall Palmer and David Ljunggren in Ottawa; Editing by David Gregorio, Richard Chang and Marguerita Choy)