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Kyrgyz woes deepen for Centerra as legal proceedings restrict Kumtor subsidiary

Kumtor, Kyrgyzstan

Kumtor, Kyrgyzstan

Photo by Centerra Gold

6th June 2016

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – The headwinds facing Canadian miner Centerra Gold in the Kyrgyz Republic seem to be escalating, as State-sponsored legal challenges and restrictive measures imposed by the country’s courts and State authorities hinder the company’s management of its flagship Kumtor mine, the single-largest economic contributor to the country’s gross domestic product (GDP).

Toronto-headquartered Centerra stated Monday that Kyrgyzstan – the second-most impoverished country in Central Asia, according to the European Union – had, through the Bishkek Inter-District Court on Friday, issued an interim order against subsidiary Kumtor Gold Company (KGC) to secure a $220-million claim made by the Kyrgyz Republic State Agency for Environmental Protection and Forestry (SAEPF) alleging that Kumtor owed environmental pollution fees.

Centerra advised that it had by Monday not received an official version of the court order, but noted that it understood that, effective immediately, the order interdicted KGC from taking any action relating to certain financial transactions including transferring property or assets, declaring or paying dividends or making loans.

“The decision of the court is a clear violation of the fundamental investment protections contained in the 2009 agreements governing the Kumtor project, including the 2009 restated investment agreement, as the injunction appears to deprive Centerra of the fundamental economic benefits of ownership of the Kumtor project,” Centerra stated.

KGC vowed to appeal the Inter-District Court’s order to higher courts in the Kyrgyz Republic and would add the dispute to the international arbitration proceeding against the Kyrgyz State, which it started last week. The next hearing on the SAEPF claim was scheduled for June 21.

The Kumtor mine, which in 2015 produced 520 695 oz of gold, contributed about half of the impoverished country’s industrial output, and was responsible for up to a similar level of exports. Its contribution to the Kyrgyz gross domestic product had been estimated to range between 7% and 11% between 2009 and 2013, while it contributed up to 10% of the government’s yearly budget.

ANOTHER CASE OPENED
Meanwhile, Centerra advised that a new criminal case had been opened by Kyrgyzstan’s General Prosecutor’s Office (GPO) against unnamed KGC managers, alleging that the managers engaged in transactions that deprived Kumtor of its assets or otherwise abused their authority, causing damage to the State.

Specifically, Centerra advised that the case appeared to be focused on the commercial rationality of certain of KGC’s transactions and, in particular, its buying of goods and supplies in the normal course of its business operations and the expenses relating to the relocation of the Kumtor project’s camp in 2014 and 2015.

It was regarding this case that the GPO had raided KGC’s offices in April and seized documents and records. Centerra and KGC stated that they “strongly dispute the allegation that any such commercial transactions or the actions of KGC managers were in any way improper”, vowing to also challenge the actions of the GPO in the country’s courts, as well as in international arbitration.

Further, Centerra reported that, under instruction of the GPO, several of KGC’s senior expatriate managers had been advised by Kyrgyzstan’s border service that they would not be allowed to leave the country for the time being. The company understood that the restrictions related to the ongoing criminal cases regarding alleged financial violations by KGC in connection with past intercorporate transactions between KGC and Centerra, including a $200-million intercompany dividend declared and paid by KGC to Centerra in December 2013.

Centerra argued that the measures, together with other actions taken by the Kyrgyz Republic courts and State authorities, were clear breaches of the agreements governing the Kumtor project and, in total, threatened to deprive Centerra of its fundamental rights to exercise effective management control, as well enjoy the economic benefits of ownership of the Kumtor project

Further to the international arbitration launched last week, the company was also evaluating the full range of options for responding to the actions of Kyrgyz courts and State authorities, the company advised.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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