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Sitting on the Fence by Katherine Dixon Mining Journal, March 19, 2008

WE ALL know the importance of maintaining a good relationship with our next door neighbours. However, when nation states are involved and decisions can affect multi-million dollar mining projects the need for diplomacy is paramount.

There has been more than one example in the past few months of national decisions spreading their influence across international borders and of the hold-ups that can occur when more that one government must be involved in potentially delicate situations.

Not least of these is the seemingly endless delay at Barrick Gold Corp's Pascua Lama project, which straddles the Chilean-Argentinean boarder. Barrick continues to wait for the two countries to conclude a tax agreement that was specifically created for the project, but discussion between the two countries are slow moving.

The main sticking point (predominantly from the Argentinean government) appears to be that while the majority of the orebody is on the Chilean side of the boarder, the bulk of the processing will occur on the Argentinean side and be exported from there. This begs the question of who can claim the associated tax?

Being the first bi-national project in the region, teething problems were inevitable, but Barrick had not foreseen a delay of four years – the agreement was originally due to be completed in 2004 – nor the spiralling project cost, which the company recently admitted had increased a further 15% on its estimate of US$2.4 billion.

But a project doesn't have to physically straddle an international border to feel the sting when relationships become strained. Chile also relies on Argentina for much of the natural gas supplied to its northern and southern regions, as well as that used to power a number of mining operations. Last year, Argentina cut these supplies to a minimum, threatening the output from many mining projects in the north of Chile.

The country also recently announced that it was increasing the tax on gas exports to its neighbour. A decision that could further threaten the power supply to some of the world's largest mines.

Water shortages are also something of an issue (see p20). BHP Billiton's Spence mine receives water from the private Essan company in Bolivia, a somewhat politically sensitive subject in a country where water resources are scarce.

Cross-border pollution is also becoming a more signi cant issue for companies. In January, the US set a legal precedent when it declined an appeal by Teck Cominco Ltd against a ruling that the company can be charged under US law for pollution that originated in Canada.

In 2004, the US Environmental Protection Authority (EPA) charged Teck Cominco with polluting Lake Roosevelt in Washington with emissions from its Trail smelter in British Columbia which had been carried across the international border by the Columbia River.

The decision was the rst of its kind involving a mining company, and demonstrated that the US believed its laws apply to companies and even operations that were not within its national borders.

Teck Cominco said it would vigorously defend itself against the claims, and has argued that US pollution laws did not apply to its smelter, which complied with Canadian laws.

The government of Canada, the province of British Columbia and the Canadian and US chambers' of commerce have all expressed concerns about the proceedings. They argue that diplomacy, rather than litigation, would be a more appropriate way of dealing with cross-border issues.

Yet the case continues, and will be one to watch for any company operating near a river that flows into a neighbouring country.