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Dominican gold rush hits a bureaucratic slowdown

An overview of Barrick Gold Corporation's Pueblo Viejo gold mine, one of the world's largest, is seen in Cotui December 11, 2013. REUTERS/Ri
An overview of Barrick Gold Corporation's Pueblo Viejo gold mine, one of the world's largest, is seen in Cotui December 11, 2013. REUTERS/Ri

By Ezra Fieser

COTUI, Dominican Republic (Reuters) - Little more than a decade ago, one of the world's largest known gold deposits sat abandoned in the foothills of the Dominican Republic's Central Cordillera mountain range. Car-sized boulders leached heavy metals into what locals called the "blood river," its waters ran so red from contaminants.

Today the mine, which reopened as Pueblo Viejo this year, hums with activity. Trucks with tires twice the size of an SUV roll through its massive open pits on roads that cut through the 11-square-kilometer site (4.24 square miles), transporting tons of rock to a processing facility.

Some 2,000 people already work here, churning out shimmering gold bars that are exported to Canada and the United States, but the mine has the potential to create 12,700 more direct and indirect jobs and contribute $1.3 billion a year in exports.

This dynamic, foreign-operated enterprise is part of the country's effort to develop an industry that could help boost and diversify its tourism-dependent economy.

Yet despite robust commercial production by two of the world's largest gold mining companies, Canada's Barrick Gold Corp and Goldcorp Inc, development of the mining sector is vexed by bureaucratic delays and agitation by activists still concerned about pollution and government deals with foreign companies to exploit the nation's riches.

At stake are billions of dollars and thousands of jobs in a country of 10 million with high levels of unemployment and poverty.

DRINKING-WATER SAFETY

The river close by the mine is no longer bloody, but the destruction wrought by the Rosario mine - the site's previous name when it was run by the government until it closed in 1999 - left mining with a dirty name locally.

When they took over the mine site, Barrick and Goldcorp launched an extensive cleanup and environmental protection program to prevent pollution of the nearby streams. The mine says it treats 40,000 cubic meters of contaminated water per day.

"We don't release any water until it's been tested and meets standards," said Jorge Lobato, operations environmental superintendent at the mine. "There are very few mines that have this type of (waste removal) operation."

Nevertheless, local community groups remained concerned that the heavy metals from exposed rock could end up in nearby waterways, and the opposition says it is in for the long haul.

"We're fully prepared to mount campaigns against any future mining projects," said Domingo Abreu, one of the organizers of the loose-knit groups opposing mining.

FORCING A SHREWDER FOREIGN CONTRACT

In the spring, making common cause with the environmentalists, political activists dismayed by sweetheart deals for foreign companies operating in the country waged a public campaign against the Pueblo Viejo mine.

The government was forced to renegotiate what critics said was an overly generous contract signed with the companies in 2009 by then-President Leonel Fernandez, whose ruling pro-business Dominican Liberation Party has looked for outside interests to develop key economic sectors, such as mining and tourism.

Since the party won relection last year, President Danilo Medina has sought to distance himself from Fernandez, and he soon became a critic of the contract himself. "For every $100 in gold exports, Barrick receives $97 and the Dominican people will receive $3," Medina said in an address to Congress in February. "This is simply unacceptable."

In May a new contract gave the Dominican government roughly 51 percent of gross profits, up from 37 percent under the original agreement, costing the owners more than $1 billion at the current market price.

It has not been an easy year for Barrick's Latin American operations. Indefinite suspension of its Pascua-Lama mine, along the Chile-Argentina border, has contributed to a fall in the company's stock price and increased pressure for returns at a handful of other mines, including Pueblo Viejo, one of Barrick's five core projects, company officials told Reuters.

APPLICATION PENDING...AND PENDING

While the successful challenge to the terms of the largest single foreign investment in the country's history has cast a pall over investment in the sector generally, as has the 25 percent drop in gold prices this year, there remains a third source of uncertainty: bureaucratic delays.

In July, the Dominican congress passed a law to create a new Ministry of Energy and Mining, intended to help develop the industry. But no minister has yet been named, and questions swirl over the power of the new entity to regulate the energy sector.

The existing Mining Management Office has been left relatively powerless, leaving hundreds of applications for new explorations pending.

Precipitate Gold Corp launched a Dominican operation in August 2012. The company, also Canadian, expected an 8-to-12-month approval period to explore some 26,000 acres in the Central Cordillera, the mountainous area that holds the most promise for future mining projects. More than a year and a half has passed.

Precipitate's request is one of 284 applications pending at the Dominican Mining Office, according to data obtained by Reuters, although the office said no companies have withdrawn their requests.

Meanwhile, in an effort to improve public perception of mining, the government has launched a public awareness campaign along with the industry that highlights the benefits of mining, like jobs in economically depressed regions.

"They want to move public perception of the sector," said Andrew Cheatle, chief executive of UniGold, another Canadian company with projects on hold in the country. "It's an approach that will play out in years, not months," he said.

A SPRING SURGE?

Notwithstanding the malaise afflicting the industry, official enthusiasm over the country's mining future remains undiminished.

"The state is completely and totally in support of the expansion of mining in the Dominican Republic," said Alexander Medina, director general of the soon-to-be phased-out Mining Management Office.

The mining office estimates that the country sits atop $60 billion in mineral and metal reserves, including as much as 40 million ounces of gold. Pueblo Viejo alone is estimated to hold 25.3 million ounces of gold, as well as substantial reserves of silver, copper and zinc.

Reserves in other Latin American countries, including Chile and Peru, dwarf the Dominican deposits, but here the mining potential has only just begin to be exploited. "We're at the tip of the iceberg in terms of potential for the country," said Medina.

The delay in approving applications is purely bureaucratic, he insisted, a consequence of pulling together the new ministry. He said it would likely be established in January.

"I think that after the first three or four months, these applications will start to be approved."

Jeffrey R. Wilson, president and chief executive of Precipitate, says his company wants to hang on. "I don't see the delay forcing us to pull out of the country. But certainly investor fatigue comes in after a while."

The wait has already forced Precipitate to look to Mexico, he said, where it is drilling for gold and silver near the Arizona border.

(Reporting by Ezra Fieser; Editing by David Adams, Douglas Royalty and Prudence Crowther)

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