Centerra Gold, Kyrgyz govt Kumtor JV negotiations hit renewed uncertainty

9th April 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America


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TORONTO ( – Negotiations between Canadian miner Centerra Gold and the Kyrgyzstan government reached renewed uncertainty after the country’s Prime Minister, Djoomart Otorbaev, suggested to the Kyrgyz Republic Parliament and local media that the restructuring of the Kumtor gold mine as a 50/50 joint venture (JV) between the two parties would not be in the interest of the country.

TSX-listed Centerra had been in talks with the Kyrgyz government since 2013 on a deal that would involve the State swapping its 32.7% stake in Centerra for half of a JV that would control the gold deposit.

Kumtor, the largest gold mine in Central Asia, is located in Kyrgyzstan’s Tien Shan mountains, and is bisected by a glacier. Centerra owned 100% of the Kumtor gold mine through its subsidiary Kumtor Gold Company, while the Kyrgyz Republic held a stake in Centerra through State gold company KyrgyzAltyn.

"It is good that a JV has not been created, because the recent studies have shown that the JV would be uneconomical for Kyrgyzstan,” local publication The Times of Central Asia quoted the Prime Minister as saying on Tuesday.

The government had decided not to create the JV after Centerra in February published a new mining plan for the Kumtor deposit, which significantly reduced its probable gold reserves.

Centerra had announced a decrease in Kumtor gold reserves and a new development plan for 2015/16. The new technical report for the mine reported that, compared with 2013, Kumtor’s mineral reserves had declined by 20% in tonnes and 28% in contained ounces, while the average grade dropped from 3.1 g/t to 2.8 g/t.

There were also increased risks related to the state of the mine that led to the work plans until 2020 being revised. These included pit wall instability, the movement of the glacier, movement of the waste rock dumps, the tailings content and drainage from the pit, which could lead to increased project costs.

These issues challenged Kyrgyzstan’s potential benefits as envisioned in the draft agreement between the parties, inked in December 2013.

While Prime Minister Otorbaev had ruled out nationalisation of the Kumtor mine, Parliament remained in favour of nationalisation. Otorbaev also advised that the government would push for proposed changes or additions to the composition of Centerra’s board.

Centerra said it would continue to engage constructively and in good faith with the government to resolve all outstanding matters affecting the Kumtor project.

The company noted that there were no assurances that continued discussions between the Kyrgyz government and Centerra would result in a mutually acceptable solution, or that any proposal for restructuring would receive the necessary legal and regulatory approvals under Kyrgyz law and/or Canadian law, as was the case at present.

The company also warned that there were no assurances that the Kyrgyz government or Parliament would not take actions that were inconsistent with the government’s obligations under the current Kumtor project agreements, including adopting a law ‘denouncing’ or purporting to cancel or invalidate the Kumtor project agreement, or laws enacted in relation thereto.

According to The Times of Central Asia, Centerra Gold was given until July to adjust the terms of the JV proposal.

Centerra's TSX-listed stock fell 4.5% in morning trading to C$6.26 apiece.

Edited by Tracy Hancock
Creamer Media Contributing Editor


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