Centerra, Kyrgyz government in talks to resolve Kumtor impasse

Centerra Gold (TSX: CG; NYSE: CGAU) confirmed on Jan. 3 that it is in talks with the Kyrgyz Republic to resolve their […]
Pouring gold at the Kumtor mine in the Kyrgyz Republic. Credit: Centerra Gold.






Centerra Gold (TSX: CG; NYSE: CGAU) confirmed on Jan. 3 that it is in talks with the Kyrgyz Republic to resolve their disputes related to the expropriation of the Kumtor gold mine in May 2021.

The government used a US$3.1-billion environmental fine and unpaid taxes of US$170 million as reasons for the seizure.

Centerra demanded binding arbitration, saying an agreement signed in 2009 exempted its local subsidiary Kumtor Gold from certain taxes.

The dispute has been heated up since then. Centerra filed suit against a former director alleging that he conspired to steal the mine while he was on the board. Kumtor Gold was forced to seek bankruptcy protection. It named its largest shareholder, Kyrgyzaltyn, in the suit fighting what it called ‘wrongful expropriation.’ A U.S. bankruptcy court held the Kyrgyz government in contempt over the seizure after Kumtor Gold sought bankruptcy protection. Centerra accused the Kyrgyz government of mismanaging the mine as an estimated 40 metres of water accumulated in the pit. Then it accused the government of high-grading the mine. Late last year, the company reported a 24% drop in gold production from the 2021 mine plan.

The Kyrgyz media recently reported on a potential negotiated transfer of the mine to the government, which led Centerra to clearly state its expectations in light of any resolution:

First, the approximately 26.1% in Centerra common shares held by Kyrgyzaltyn would be returned to the company and be cancelled. Second, The Kyrgyz Republic would receive and assume all responsibility for Centerra’s two local subsidiaries and the Kumtor gold mine. Third, Centerra would pay a cash amount covering unpaid dividends and certain other financial considerations associated with the two subsidiaries. Fourth, the two Centerra board members nominated by Kyrgyzaltyn will resign. And fifth, full and final releases of all claims of the parties and the termination of all legal proceedings in all jurisdictions with no admission of liability.

Centerra cautioned that although negotiations are underway, there is no assurance that its demands will be met. A formal agreement would be subject to compliance with all applicable legal and regulatory requirements as well as an independent valuation or shareholder or government approvals.

The Kumtor mine is one of the largest in central Asia. In 2020 it produced over 556,000 oz. of gold. The all-in sustaining cost was US$741 per ounce. Before the expropriation in February 2021, Centerra published a technical report outlining a 3.1 million (87%) increase in contained gold ounces in proven and probable reserves. They stood at 73.3 million tonnes grading 2.66 g/t gold for 6.3 million oz.

The same study extended the mine life by five years to 2031, and the company announced an investment in 29 haul trucks to expand capacity. The tailings management facility was to be expanded and the potential for underground mining studied.

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