A mining speculator fights a gold Goliath high in the Andes

Rick Westhead
Toronto Star
Saturday, March 10, 2007

http://www.thestar.com/article/190390

COPIAPO, Chile -- When mining speculator Rodolfo Villar discovered Canada's Barrick Gold Corp. wanted to buy his claim to a remote, rugged tract of land in the Andes mountains, he anticipated a million-dollar payday.

It was no secret that Toronto-based Barrick, which owned a sprawling mine in the mountain range called Pascua-Lama, was anxious to buy Villar's nearby claim, the 56-year-old said.

Located in the thin, frigid air of the Andes some 4,500 metres above sea level in northern Chile, the mine reportedly has gold and silver reserves worth US$12 billion. Lucky for Villar, the lone road to the mine snakes straight through his claim.

But days after he signed over mining rights to a 3,100-hectare plot, Villar said he learned what he had unwittingly agreed to.

"I got $20," said Villar, a pot-bellied and balding former miner with a round, bronzed face. "I felt sick and cheated."

A Chilean court agreed last fall that Villar had been wronged and ordered Barrick to return the rights to the plot.

The contentious court decision, which the company is appealing, now threatens to at least delay Barrick's efforts to tap one of the world's largest undeveloped deposits of gold, silver and copper, as it wrestles with the multi-million-dollar legal claim.

A spokesperson for Barrick, Vincent Borg, calls Villar's case a "nuisance suit" and said the company is appealing. Chile's appellate court could decide as soon as April whether to uphold the decision against Barrick. The company has received permission to proceed with plans to develop the mine until the ruling.

Like many mining ventures, Barrick's efforts at Pascua-Lama, which straddles Chile's border with Argentina, have been controversial.

Environmentalists have bristled over plans to move literally mountains of ice to access the coveted deposits. But what sets the Barrick dispute apart from most mining battles is its thorny, if unlikely, dispute with Villar.

Villar acquired the mining rights to the area in 1996 after a former rights-holder let the claim lapse. He owned them for a year before Barrick approached him with a purchase offer.

"My lawyer was my friend for a long time," Villar said from his hometown of Copiapo, Chile. "I drove down to Santiago to his office and he opened the contract to the last page and said sign here. I trusted him."

The same day he signed away his mining rights for land near Pascua-Lama, Villar's lawyer sold a much smaller parcel of land to Barrick for $650,000. Barrick spokesperson Borg says the company believed it had a package deal to buy both parcels of land.

Villar's new lawyer, Hernan Montealegre, is a prominent human rights advocate; in 1998, he travelled to London to assist prosecutors building a case against dictator Augusto Pinochet for genocide, terrorism and torture.

"There's no way to get trucks to the mine without going through Villar's concession, and there's nowhere to put waste rock without having that land," Montealegre said, motioning to maps showing the disputed territory. "We had first asked Barrick for $1 million to settle this, but after the court decision, we wouldn't take less than $300 million."

It's pointed out to Montealegre that his client's signature is clear on the photocopied sales contract he pulls from a ream of files.

"That doesn't mean anything," he said. "You think he would get in his car in Copiapo and drive 10 hours to Santiago for the day, staying over for the night, so that he could sell this land for $20? It doesn't make sense and the judge agreed with that. Rodolfo has an eagle eye for mining, but not for business."

Yet Barrick lawyer Patrick Garver said Villar made the trip because he eyed a much larger payday.

Both Villar and Montealegre have been trying to sell financial interest in their case against Barrick, "on the streets of Vancouver, on the Internet, and wherever else they can," Garver said.

For instance, a Dec. 1, 2006, email solicitation allegedly distributed by a German company offered Villar's "litigious rights" for $600 million. The email, provided by Garver, alleges that once Villar's claim is confirmed by Chile's high court, the value of his mining interest will eclipse $1 billion.

"Barrick Gold is trying to negotiate with us, but we are not prepared to subordinate our timing to theirs," the email said. "We are going to negotiate with the first investor that is willing to close this negotiation within the parameters expressed in this letter."

The tactic, Garver said, amounts to an "interesting marketing campaign.

"They're literally selling pieces of their litigation like lottery tickets," he said.

"The first time Villar raised his head and said anything about this was 2001. Where was he for four years if he thought he had been defrauded out of $1 million?"

Barrick also contends the judge's ruling in its case against Villar is replete with inconsistencies.

For starters, the judge, Maria Isabel Reyes Kokisch, was an interim on the bench and had access to the case file for mere days before issuing her decision, Garver said, adding that Kokisch issued her judgment without having heard any testimony on the case.

Garver said a Chilean appellate court judge commissioned to investigate Kokisch's conduct has recommended that the justice ministry take a closer look at the case. A justice ministry spokesperson couldn't be reached to comment.

Even if it fails in its legal battle against Villar, it won't thwart Barrick from using the narrow roads to Pascua-Lama, Garver said. That's because Villar would only control mining rights to the disputed territory, not surface rights.

Garver said surface rights are all the company needs to shuttle trucks to and from Pascua-Lama.

Its battle against Villar is just one vexing obstacle for Barrick in this mineral-rich South American country.

Chile's Huasco Valley is a strip of fertile farmland that stretches several hundred kilometres from the Andes to the Pacific Ocean. A few hours south of the world's driest desert, the Atacama, water that originates near Pascua-Lama is used throughout the valley for drinking and crop irrigation.

Environmental groups charge that a chemical spill could cripple farms that grow olives, tomatoes and grapes used to make wine and pisco, Chile's iconic colourless brandy.

Some critics say Pascua-Lama may never be developed because of a host of public-relations setbacks and growing opposition to the project.

"Barrick has totally botched this," said James Whalen, an adviser to the Canadian silver mining company Silver Standard Resources Inc., who also wrote Out of the Ashes: Life, Death and Transfiguration of Democracy in Chile.

"It's a fiasco," Whalen said. "Barrick is widely viewed as the bad guy here and they don't know how to manage it.

"People here have the mindset that the environmentalists are on the side of the angels. There are very serious questions about whether Barrick will be allowed to move forward."

Barrick's plans to mine Pascua-Lama have sparked a maelstrom of debate.

The company had planned to use dump trucks to move thousands of tonnes of ice from three glaciers sitting atop some of the gold, to a larger nearby glacier nearby that wasn't exposed to direct sunlight.

Under pressure from environmentalists, Chile's mining regulators rejected that plan and Barrick has since pledged that it won't disturb the majestic glaciers.

The Andes can be treacherous terrain. Forty-five Chilean soldiers froze to death last year while on manoeuvres in the mountains, where exposure to the open air can burn the skin in seconds and sear the eyes purple.

At least three years before Pascua-Lama is to produce its first gold and silver bars, 12 people have already have died in accidents related to the mine's preliminary construction.

The most recent were four workers in 2001 who were caught in a severe blizzard high in the mountains. As snow engulfed their pickup truck, the four left the engine idling to keep warm and died of carbon monoxide poisoning, Kettles said.

In the streets of Vallenar, a bucolic city of 20,000 replete with leafy plazas and bright-coloured, clay-roofed houses, opinion over Pascua-Lama is polarized.

The unemployment rate here hovers around 12.6 per cent, nearly double Chile's national average and Barrick has said Pascua-Lama, 119 kilometres away, would create 1,500 jobs.

"This project is going to give us a chance to grow up," Edgardo Toledo, president of the pro-Barrick Rural Communities Association of Vallenar, said in an interview at the firm's office.

The world's largest gold company already has bought an ambulance and radio equipment for the nearby village of Alto del Carmen, and says chances of a chemical spill are remote.

But Marcela Castaneda, a 32-year-old English teacher whose family has lived in the city for generations, offered a more skeptical view of the project as she gave a tour of the town.

"Many people think Barrick is going to poison the valley with chemicals," she said. "For Barrick, what's the worst thing that can happen if there is a spill and Vallenar becomes a dying town? They'll have filled their pockets with money and moved on, but we will still be living here."

Every ounce of gold requires 30 tonnes of rock to be taken from the earth. Before being bathed in cyanide, which leaches the gold from the rock so it can be milled, it is broken into small pieces.

Boulder-sized chunks of waste rock are discarded. Exposed to the rain and air, sulphides in the rock react with oxygen, making sulphuric acid. That can free heavy metals like cadmium, lead, and mercury.Barrick's Ron Kettles, the Canadian-born manager of the Pascua-Lama project, said waste rock at Pascua-Lama would be kept in a pair of covered pits lined with a 1.5-millimetre to 2-millimetre membrane that, he said, "You couldn't pierce with a knife."

Kettles said Barrick would set up intermittent emergency stations along the traffic route to deal with accidental spills and that cyanide, transported in 18-gram briquettes, could be easily cleaned up.

The Barrick imbroglio comes with the Canadian mining industry at a crossroads. For more than a year, eight federal ministries have been discussing with companies and their environmental adversaries how Canadian companies can be better held to account for their actions abroad.

A Foreign Affairs spokesperson declined to comment on the hearings or on Pascua-Lama. The ministries are expected to present to cabinet a final report with recommendations as early as this month.

Back in Vallenar, in the late afternoon shade of his small vineyard and with the sun fading fast, Rene Sandoval, a local homeowner who has spent years working in the fields near this city, likely spoke for many locals when he said he expects the Barrick mine to proceed despite the continued protests.

"It's not an easy thing to say that you should just stop mining, because that's not going to happen," he said. "But there are dangers, however, and no one should pretend that is not the case."

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