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Canadian gold miner likely to step back over Kyrgyz gov't reluctance

8 June 2015 16:46 (UTC+04:00)
Canadian gold miner likely to step back over Kyrgyz gov't reluctance

By Aynur Karimova

The Canadian Centerra Gold Inc. has cautioned a possible suspension of works at the Kumtor gold mine "due to obstacles from the Kyrgyz government agencies", the company said on June 4.

The reason for the possible suspension is the "reluctance" of the State Agency of Environmental Protection and Forestry to finalize and approve annual mine plan for 2015, submitted to the government by Kumtor Gold Company CJSC, a subsidiary of Centerra Gold Inc. and the direct operator of the mine.

Kumtor Gold Company sent the plan for the approval of relevant government agencies at the end of 2014. The government instructed on March 12, 2015 the relevant agencies to finalize and approve the plans, which was earlier adopted by the State Agency on Geology and Mineral Resources.

However, the environmental protection agency requested additional term by July 4, 2015, to study the project. The reason for the delay was Kumtor Gold Company's plan to replace ice masses and to retain the Davydov glacier from sliding into an open pit mine. All these measures were included in the company's mine plan.

These activities are contrary to the Water Code of Kyrgyzstan, which prohibits any activity that could impact the natural state of the glaciers or the quality of water contained therein.

"The approval of Kumtor’s annual mine plan and other permits required for the operation of the Kumtor project has been impacted by concerns from SAEPF regarding the potential application of the Kyrgyz Water Code to the Kumtor operations," the company noted.

However, Centerra Gold Inc. recalled that measures to replace the ice and retention of the glacier were always included in the company's plan at the Kumtor mine as an integral part of the project.

"The draft agreements provide for Kumtor to receive all licenses, permits and approvals as are necessary or convenient for the operation of the Kumtor project. The annual mine plan submitted by Kumtor is consistent with its past operations and previously approved mine plans. As such, Centerra and Kumtor believe that the annual mine plan should be approved and all permits provided in the usual course," the company noted.

Centerra and Kumtor expect to continue discussions with SAEPF to obtain the approval of the annual mine plan and further extension of the relevant permits.

"However, there can be no assurances that such approvals and extensions will be received within the required time frame or that a suspension of operations will not be required if they are not forthcoming," the company noted.

The Kyrgyz government has proposed draft amendments to the Water Code to the Kyrgyz parliament that, if adopted, would alleviate this concern. The parliament will be considering the proposed amendments in June 2015.

"There are no assurances that the Kyrgyz parliament will approve the proposed amendments to the Water Code. The absence of relevant approvals and permits could require a suspension of project operations, which would have a material adverse impact on Centerra’s future cash flow, earnings, results of operation and financial condition," the company added.

Kumtor, a large mine full of disputes

Operated by a Toronto-based company, the Kumtor gold mine is the largest gold mine in Central Asia, having produced more than 9.9 million ounces of gold between 1997 and the end of 2014. Last year, Kumtor’s gold production was 567,693 ounces.

The mine's output is crucial for Kyrgyzstan's economy, accounting for 7.4 percent of its gross domestic product and 15.5 percent of industrial output in 2014.

Kyrgyzstan has been seeking more revenue from the Kumtor mine, which lies near the Chinese border in the Tien Shan Mountains. The Kyrgyz government had been in talks with Centerra for more than a year on a deal to restructure ownership of Kumtor.

Under the current operating agreement, signed in 2009, Centerra wholly owns the mine while Kyrgyzstan owns one-third of Centerra. Parliament voted in February 2013 to refuse that agreement, arguing it is not in Kyrgyzstan’s best interests.

In December 2013, the government and Centerra announced the outline of a deal that would equally divide ownership of the mine.

As the negotiations lasted in 2014 and even in 2015, some lawmakers repeatedly threatened to nationalize Kumtor – a risky option since Kyrgyzstan seems to lack the technical know-how to solely operate the open-pit mine, located at an altitude of 4,000 meters.

In April 2015, Kyrgyzstan’s then-Prime Minister Joomart Otorbayev told a parliamentary committee that the proposed 50-50 deal is “not profitable” for Kyrgyzstan and is no longer in the country’s best interests.

As an alternative, he proposed to increase the number of Kyrgyz members from three on Centerra’s 11-member board, in order to gain “more influence” over the company.

However, his proposal wasn't adopted and Otorbayev announced his resignation after he made a report on the activity of the government for 2014 in a parliament session on April 23, and former Economy Minister Temir Sariyev was appointed the country's prime minister.

Asylbek Jeenbekov, the speaker of the Kyrgyz parliament, explained that one of the main reasons for such a decision had to do with unresolved issues related to Kumtor gold mine.

Nationalization to stop shares arrests

The fraction Ata-Meken, which is part of the ruling coalition, insists on the nationalization of Kumtor.

The initiators of the nationalization idea indicate that it will help to stop the series of arrests of Centerra Gold's shares, owned by the Kyrgyz side. The Kyrgyz government has lost several cases in international courts on the claims of a number of private investors. As a result, over 70 percent shares in Centerra Gold, which belong to Kyrgyzstan, are under arrest.

The opponents of nationalization idea claim that in this case Kyrgyzstan will have to pay up to $3 billion to foreign shareholders.

Johan Engvall, a European expert on the Central Asian region believes that "the situation with the Kumtor mine is a never ending story in Kyrgyzstan."

"It is a highly politicized topic and can easily be manipulated by politicians for populist purposes and the recurrent talk about confiscating the mine raised by some Kyrgyz politicians is a way of scoring points with the public in Kyrgyzstan who hold a negative attitude to the way Kumtor has been handled," he told Trend.


Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova

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