The Diaguita Indians live in the foothills of the Andes, just downstream from the world's highest gold mine, where for as long as anyone can remember they've drunk straight from the glacier-fed river that irrigates their orchards and vineyards with its clear water.

Then thousands of mine workers and their huge machines moved in, building a road alongside the river that reaches all the way up to Pascua-Lama, a gold mine being built along both sides of the Chile-Argentine border at a lung-busting 5,000 metres above sea level.

The crews moved mountaintops in preparation for 25 years of gold and silver production, breaking rocks and allowing mineral acids that include arsenic, aluminum and sulfates to flow into the headwaters feeding Atacama desert communities down below.

River levels dropped, the water is murky in places and the Indians now complain of cancerous growths and aching stomachs. There's no way to prove or disprove it, but villagers are convinced Barrick Gold Corp. is to blame for their health problems.

"We don't know how much contamination the fruit and vegetables we eat may have," complained Diaguita leader Yovana Paredes Paez. "They're drying up the river, our farms aren't the same. The animals are dying of hunger. Now there's no cheese or meat. It's changed completely."

Acting independently, Chile's newly empowered environmental regulator on Friday confirmed nearly two dozen violations of Barrick's environmental impact agreement, blocking construction on the $8.5 billion project until the Canadian company keeps its promises to prevent water contamination.

The Environmental Superintendent, Juan Carlos Monckeberg, also fined Barrick $16.4 million, the highest environmental fine in Chile's history, saying agency inspectors found the company hadn't told the full truth when it reported failures.

"We found that the acts described weren't correct, truthful or provable. And there were other failures of Pascua-Lama's environmental permit as well," Monckeberg said.

Barrick promised $30 million in fixes and said it remains committed to meeting the highest standards and causing no pollution. But Chile seems determined to minimize the dangers of digging huge pits and processing ore with toxic chemicals along the spine of the Andes, causing delays that threaten the future of this top priority for the world's largest gold-mining company.

"We're profoundly sorry that Pascua-Lama has suffered obstacles in its construction and we'll make our best efforts to get back on track and meet the conditions stipulated in the approved project," Eduardo Flores Zelaya, president of Barrick Sudamerica, said Friday. "We are respectful of the institutions in the countries where we operate, and as a consequence we will follow the resolution."

Monckeberg said Barrick caused permanent damage by failing to properly construct a diversionary canal, triggering a rockfall that covered a field down below with waste rock.

"I don't believe there's any way of repairing it," he told a news conference in Santiago.

More than 70 per cent of gold is on Chile side

Barrick had hoped to begin production in early 2014, and warned shareholders that it might abandon Pascua, the Chilean side, if construction delays keep the mine from opening this year.

Argentine authorities, meanwhile, have insisted that Lama will proceed with or without Chile, taking advantage of nearby infrastructure used for Barrick's Veladero mine, which produces ore just downhill.

Some 500 Diaguita have joined a civil lawsuit against Barrick. (Ryan Remiorz/Canadian Press)

Together, the two projects employ thousands of workers, fuel a third of the provincial San Juan economy, and promise millions in revenue for a country sorely in need of hard currency. But more than 70 per cent of Pascua-Lama's 18 million ounces of gold and 676 million ounces of silver are on the Chilean side. The plan has been to extract it from huge open pits and carry it through a tunnel for processing in Argentina.

Rockfalls are just one of the threats to building anything in the high Andes, where gale-force winds have coated glaciers with construction dust for miles around and groundwater expands and contracts with each freeze and thaw. To refine ore into gold bullion, the company must transport thousands of tons of cyanide, mercury and other toxic chemicals to the mountaintop.

Once the precious metals are gone, Chile will be left with huge rock piles and Argentina with toxic waste that must be contained for generations to come on ever-moving slopes between melting glaciers and snowy peaks.

"I'm so angry at this company," said Meri del Rosario, 42, of El Corral, Chile. She has thyroid cancer; two cysts were removed from her throat last year. She blames water pollution from Pascua-Lama.

"If they keep working the valley will end up completely dry, and we'll have to go, and where? I think it's Barrick that has to go," she said.

Some 500 Diaguita have joined a civil lawsuit against Barrick, persuading an appellate court last month to block construction despite the company's denials that it caused any pollution or health problems.

Removed mountaintops without building earth up

The company's response to the environmental regulator was much more conciliatory: Faced with 23 violations, Barrick accepted nearly all of them, and obtained permission to make urgent repairs.

The violations include building some earthworks without approval, while failing to build others that were supposed to be in place before construction began so that rainfall wouldn't increase the runoff from mineral acids naturally released when rocks are broken. Instead, Barrick went ahead and moved mountaintops in preparation for 25 years of gold and silver production.

'We are respectful of the institutions in the countries where we operate, and as a consequence we will follow the resolution,' said Eduardo Flores Zelaya, president of Barrick Sudamerica. (Jorge Saenz/Associated Press)

Barrick also acknowledged making an "unjustified discharge coming from the acid treatment plant to the Estrecho river" that was "neither declared nor monitored."

The company persuaded the regulator to withdraw an allegation that it had not properly built a huge, impermeable wall that stretches deep below ground and all the way across the top of the Rio del Estrecho valley.

Barrick said the wall stretches for 206 metres across the valley and reaches down as much as 62 metres below the surface, with sealants injected nearly 30 metres deeper still into fissures in the bedrock. It meets U.S. Environmental Protection Agency standards and beats industry standards, the company said.

Despite all this work, inspectors found acid in five test wells below the wall. Barrick challenged the methodology and claimed the acid was there naturally, but after the regulator agreed that the wall met requirements, the company agreed to fortify several wells downstream to collect contaminated water.

Barrick works with 'an enormous quantity of cyanide'

Chile's environmentalists, farmers and indigenous communities were thrilled with Friday's ruling, saying it shows only strong oversight can force Barrick to keep its promises.

"One of the concerns we've always had is that they are going to work with an enormous quantity of cyanide," said Leonel Rivera Zuleta, 56, a farmer and member of the Diaguita community of Chipasse Tamaricunga. "Who will assure us that there won't be some kind of accident with this element so poisonous to nature and man?"

Living in adobe homes or concrete houses in the narrow Huasco valley, they tend "the garden of the Atacama," where the river enables them to grow oranges, apples, grapes and vegetables in landscape so barren it's been compared to the surface of Mars.

The Diaguita once followed the rivers up the mountains and roamed over both sides of the frontier, but now Barrick's security guards block their way at a checkpoint just above town. Dump trucks the size of two-story homes and dozens of red barrels with toxic warning labels are kept in a fenced lot nearby.

"The Earth is giving us the strength to be courageous," Diaguita leader Maglene Campillay said, amazed that they're being listened to in a country where mining sustains the economy. "This might be a small community that used to be afraid, but we've united, and we're defending our rights, because we're not going to let them take away our water and end our culture."