Chile court freezes Glencore hydro project to weigh appeal

* Appeals court halts $733 million Cuervo dam

* Opponents cite environmental, geological risks

* Case seen likely to end up in Supreme Court

SANTIAGO, Oct (KOSDAQ: 039200.KQ - news) 25 (Reuters) - A Chilean appeals court has preventively blocked a recently approved $733 million hydroelectric dam to weigh an environmental appeal, a surprise setback for owners Origin Energy and Glencore Xstrata (Other OTC: GLCNF - news) PLC.

Opponents of the 640-megawatt Rio Cuervo project planned in the remote southern Aysen region say it would harm the environment and would be built above a geological fault line in highly-seismic Chile.

Lawyers from the environmental prosecutor's office lodged the appeal, claiming the plant's environmental permit granted last month was not legal.

The Coyhaique Court of Appeals agreed to look at their case, and has in the meantime blocked construction of the complex.

The fresh freeze on the project is another blow for energy-strapped miners in copper powerhouse Chile, where unclear rules have allowed environmental and social groups to appeal against projects even after approval, putting in limbo billions of dollars of investment.

If recent history is any guide, the project is likely to eventually up in the Supreme Court.

"In Coyhaique the case will be dealt with in about two to three months," a court source told Reuters. "At this point ... the case will probably arrive at the Supreme Court next year, if (one or more parties) seek to elevate it."

The Energia Austral joint venture between Origin Energy and Glencore Xstrata also has plans to build two other generating units, Condor and Blanco, for which it has yet to present environmental impact studies.

"For now we're analyzing the appeal ... and we're of course carefully following the court's determinations to define the next steps to follow," Energia Austral told Reuters.

"We reiterate that Cuervo has the potential to offer clean, renewable and trustworthy energy in the face of Chile's growing energy needs, in addition to generating long-term benefits to the region of Aysen."

COURT FIGHT AHEAD?

The Andean country's complex legal system and new environmental regulator make it tricky to anticipate what will happen to controversial projects.

Last year, the Supreme Court suspended a key permit for Canadian miner Goldcorp Inc (Toronto: G.TO - news) 's El Morro copper-gold project and rejected the planned $5 billion Central Castilla thermo-electric power plant.

But it cleared the way for the unpopular HidroAysen hydro-power project, planned in the country's deep south.

For a FACTBOX on resource projects that have been facing environmental roadblocks in Chile, see.