A Chilean indigenous group will likely ask the Supreme Court to review a lower court decision on Barrick Gold Corp's Pascua-Lama gold mine, because the ruling does not go far enough to protect the environment, a lawyer representing the group told Reuters on Thursday.

The appeal will probably also seek a re-evaluation of the suspended $8.5 billion project and ask that Barrick present a new environmental impact assessment study, a potentially lengthy and costly process, the lawyer, Lorenzo Soto, added.

The Copiapo Court of Appeals on Monday ordered a freeze onconstruction of the project, which straddles the Chile-Argentine border high in the Andes, until the company builds infrastructure to prevent water pollution.

"It's very likely we appeal the decision," Soto said. "What we're interested in is that the project be re-evaluated. What is optimal, in our opinion, is for the project to present a new environmental impact assessment."

Soto said the decision on whether to appeal would be made on Friday. The Diaguita indigenous group has until Monday to file with the court, he added.

Chile's environmental regulator suspended Pascua-Lama in May, citing major environmental violations, and asked the Toronto-based miner to build water management canals and drainage systems. The Copiapo court's orders are broadly in line with the regulator's ruling.

Given the Andean country's complex legal system and new environmental regulator, it is hard to predict what will happen to Pascua-Lama, originally forecast to produce 800,000 to 850,000 ounces of gold per year in its first five years of full production.

But experts agree the world's top gold miner is facing a protracted legal battle in Chile, where Pascua-Lama is one of the most unpopular mining projects.

"The fact that the Diaguitas won their case unanimously in the Copiapo court sets a complicated precedent (for the project)should the case land in the Supreme Court," said Juan Carlos Guajardo, head of mining think tank CESCO. "The most serious situation for Pascua-Lama would be to have to do another environmental impact study."

Chile's Supreme Court rejected a planned $5 billion Central Castilla thermo-electric power plant last year, citing environmental reasons.

"There could be a big risk there" for Pascua-Lama, said Winston Alburquenque, a natural resources law professor at the Universidad Catolica. But ordering a new study be conducted would be "an extreme" measure for a mega project that is already being built, he stressed.

A new assessment could entail consulting with nearby indigenous groups.

The company could not immediately be reached for comment on Thursday.

Barrick's shares were up 0.61 percent before news of the likely appeal. They pared gains to trade 0.18 percent stronger on Thursday afternoon.

IMPLICATIONS

A complete rejection of the project by Chilean authorities would be a major hit for Barrick, since 80 percent of the metal reserves are on the Chilean side of the project.

While the Pascua-Lama mine is one of the richest untapped gold deposits in the world, delays and budget overruns have been a nightmare for Barrick and its investors.

The company has slowed spending at the project, delaying production to 2016, and deferring some $1.5 billion to $1.8 billion of planned capital spending. Analysts have expressed concerns about the final price tag.

Further problems for the project also would deal a fresh blow to Chile's business-friendly reputation.

Several big mining and power projects have faced setbacks in the past two years.

In April 2012, the Supreme Court suspended a key permit for Canadian miner Goldcorp Inc's El Morro copper-gold project, at the request of an indigenous community.

While the top court cleared the way for the unpopular HidroAysen hydro-power project last year, presidential frontrunner Michelle Bachelet has said she is against the energy complex.

Although Pascua-Lama still appears at risk, new environmental regulator SMA, which monitors projects that have been approved, told Reuters in May it should not face a permanent block if Barrick meets all the requirements. The regulator said the earliest it could be reactivated is one to two years.

A separate environmental regulator, the SEA, is in charge of approving or rejecting projects.

Some people in Chile believe that they have not benefited from mining profits and that the mines have hurt the environment.

(Reporting and writing by Alexandra Ulmer; Editing by Gerald E. McCormick and Carol Bishopric)