TORONTO (miningweekly.com) – Canadian gold producer Centerra Gold is confident that the right to own and operate its flagship Kumtor gold mine, in the Kyrgyz Republic, is secured by acts of law, as the company forges ahead in ironing-out issues in 18-month-long negotiations regarding the government’s ownership and participation in the mine.

The Kumtor mine is located 4 000 m above sea level and is the largest gold mine in Central Asia operated by a Western company. It is the industrial centrepiece of the Kyrgyz economy, alone contributing 12% of gross domestic product in 2011. It has been in production since 1997 and has produced more than 9.5-million ounces of gold to the end of June.

“We are comfortable that we have very transparent and solid agreements with the Kyrgyz government safeguarding our ownership and [operation] of the Kumtor mine. At no point during the ongoing negotiations with the government was changing this on the table,” Centerra president and CEO Ian Atkinson said in an interview.

He noted that to ensure its rights were adequately protected, Centerra had followed a two-year process to formulate the current standing agreements, which were first reviewed by the five political parties in Parliament, before the company submitted them to Parliament for voting. After that, the agreement governing Centerra’s ownership of Kumtor was signed into law by the Kyrgyz president.

As a double measure, Centerra sought to test the legality of the operating agreement through several avenues, including a Ministerial review and an opinion from the Constitutional Court.

“The agreement cannot be changed without the consent of both parties. If one of the parties implements any unilateral change, it would be subject to international arbitration,” Atkinson explained.

On December 24, Centerra entered into a nonbinding heads of agreement (HoA) with the Kyrgyz government and State-owned miner Kyrgyzaltyn JSC regarding a potential restructuring transaction under which Kyrgyzaltyn would exchange its 32.7% equity interest in Centerra for a 50% interest in a joint venture company that would own the Kumtor mine.

Early in February, after their review of the HoA, the Kyrgyz Parliament adopted a resolution that “appeared” to support the concept of the restructuring described in the HoA, but which also contained a number of recommendations that were materially inconsistent with the terms of the HoA, Atkinson explained.

Among other things, the resolution called for further audits of the Kumtor operation and for the government and the general prosecutor’s office to continue pursuing claims for environmental and economic damages, which the company disputes. The Kyrgyz Republic in December sued Centerra for $304-million over what the government said was ecological damage. The company was also currently dealing with a barrage of other legal claims, all of which Atkinson labelled as “opportunistic” and “without merit”.

However, Atkinson stressed that any agreement to resolve matters must be fair to all its shareholders and follow due processes both in the Kyrgyz Republic and in Canada.

He said government negotiations were expected to continue regarding a potential restructuring transaction to resolve all outstanding concerns relating to Kumtor. He revealed that Centerra was in the process of drafting a total of about 14 agreements that would formalise and implement the provisions of the HoA, which the company would submit to government by August.

For the three months ended June 30, Centerra on Tuesday reported a net loss of $31.7-million, or $0.13 a share, compared with earnings of $1.6-million, or $0.01 a share, in the same period a year earlier. The miner said the bottom line reflected increased depreciation, depletion and amortisation and an inventory impairment at Kumtor, as well as lower realised gold prices and higher share-based compensation.

Centerra’s TSX-listed stock on Wednesday fell by almost 9% to C$5.78 apiece.