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Barrick Gold Suit May Cut Nevada Mine Output by Half (Update3)

by Joe SchneiderBloomberg

Barrick Gold Corp.’s plan to double production at a Nevada gold mine complex this year by digging out an additional $625 million in deposits may turn on a judge’s decision in an environmental suit by American Indian tribes.

The Canadian company forecast a production increase of 562,000 ounces with the addition this year of the Cortez Hills mine, located 2.5 miles (4 kilometers) from an older Nevada installation which produced 518,000 ounces last year.

The state’s Shoshone tribes claim the U.S. Bureau of Land Management didn’t fully evaluate the environmental impact of the mine expansion before approving it. They sued in 2008 to stop the new operation, about 200 miles east of Reno, and are seeking a court order forbidding production until a trial is held.

Such an injunction “would hit their share price,” said Patrick Chidley, a gold-mining analyst at Barnard Jacobs Mellet USA LLC in Stamford, Connecticut. He declined to predict how much shares may fall, saying only “it would be noticeable.” The judge overseeing the case hasn’t said when he will rule.

The Cortez deposits, near Mount Tenabo, a Western Shoshone sacred site, contain about 14.1 million ounces of gold, Barrick said in its annual report. At $1,112 an ounce, the projected 2010 increase in deposits would be worth about $625 million.

600,000 Ounces

Barrick rose 1.5 percent, or 58 cents, to $38.34 in New York Stock Exchange Composite trading as gold for immediate delivery rose $9.15 to $1112.75.

Production at the new site may exceed 600,000 ounces this year, as output from the older Cortez mine declines, said Chidley, who rates Barrick “outperform” and expects the stock to rise 56 percent to $60.20 in the next 12 months. Chidley said he doesn’t own any shares of Barrick.

Most analysts probably agree with Chidley that the existing mining operation at Cortez will produce less gold this year, Barrick’s spokesman Vincent A. Borg said in an e-mail.

“That doesn’t mean they are right,” Borg said.

The older mine produced 904,000 ounces in 2005 and output fell 43 percent in the next four years.

Overall, the Toronto-based company in 2009 produced 2.8 million ounces of gold in North America.

U.S. District Judge Larry R. Hicks in Reno must weigh the environmental harm Barrick’s operations would cause against the hardships the company and its employees would suffer if production ceased, said attorney Carrick Brooke-Davidson, a partner at Guida, Slavich & Flores PC in Austin, Texas, who specializes in environmental law.

‘The Crux’

“The crux of the issue is the irreparable harm,” which plaintiffs must prove to obtain the order, said Brooke-Davidson, who worked in the environmental enforcement section of the U.S. Justice Department for 12 years and isn’t involved in the Barrick case.

The U.S. Supreme Court has said a violation of environmental law doesn’t always result in irreparable harm. Barrick may be able to convince the judge that limited curtailment of mine operations would be sufficient, Brooke- Davidson said.

Barrick is seeking to boost output to benefit from gold prices that have risen for nine straight years. The price reached a record $1,227.50 an ounce on Dec. 3 as investors sought a hedge against inflation and volatility in other markets.

Written arguments were completed March 19. Barrick, on March 26, requested oral arguments in Reno federal court. The judge hasn’t ruled on that request, which the plaintiff tribes oppose.

Initially Denied

The judge initially denied an injunction request by the tribes. That decision was overturned in December by the U.S. Court of Appeals in San Francisco. The appeals court said Hicks failed to adequately consider the mine’s environmental impact, including the effect of air pollution resulting from ore shipments to a processing plant 70 miles away.

The appeals court ordered Hicks to “provide injunctive relief” consistent with its opinion. It left the specifics of such relief to Hicks, saying that suspending a project until “careful consideration of environmental impacts” has occurred “comports with the public interest.”

The company argued that such an order should allow for production at the mine complex to continue.

Barrick proposes to halt truck shipments of ore that must be processed at the offsite plant until the environmental review is completed. That would affect about 3 percent of the production at Cortez Hills, Barrick said.

Environmental Assessment

The company also has agreed not to pump groundwater until the review is done, in accordance with the appeals court’s finding that the environmental assessment failed to evaluate the effectiveness of company proposals to limit the impact of the operation on springs and creeks.

“We are cautiously optimistic that our proposal will be accepted,” Barrick Chief Executive Officer Aaron Regent said Feb. 18 on a conference call. “Our proposal would keep hundreds of people employed at a time when the state of Nevada is facing tremendously difficult economic circumstances.”

Chidley, the analyst, said he expects the judge to side with Barrick.

The tribes oppose an injunctive order that is limited to truck traffic and water use.

“The Ninth Circuit ruling was very clear” in permitting an injunction fully halting production, said Roger Flynn, founding director of the Western Mining Action Project, referring to the San Francisco-based appeals court. Flynn’s group represents the Shoshone tribes.

A limited injunction wouldn’t comply with the law, or the appeals court opinion, Flynn said in a telephone interview.

Preparing For Trial

The two sides are preparing for a trial whose date probably will be set near the end of May, Flynn said.

Barrick said a shutdown at Cortez Hills would also result in the loss of about 550 jobs.

“The devastating impact on these people of losing their jobs and paychecks goes without saying,” Barrick said in court papers.

The case is South Fork Band Council of Western Shoshone of Nevada v. U.S. Department of the Interior, 08-cv-00616, U.S. District Court, District of Nevada (Reno); the appeals court case is South Fork Band Council of Western Shoshone of Nevada v. U.S. Department of the Interior, 09-15230, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

To contact the reporter on this story: Joe Schneider in Toronto at

Last Updated: March 31, 2010 16:26 EDT


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