Kyrgyz parliament votes to renegotiate Kumtor mine contract

Published by MAC on 2013-02-25
Source: Bankwatch, Reuters, Mining.com

Centerra Gold slapped with US$315 million fine for environmental violations

Constant dripping wears away the stone

Kyrgyz parliament votes to renegotiate Kumtor gold mine contract

CEE Bankwatch statement

21 February 2013

Challenging a mining operation that generates about ten percent of GDP in a country and particularly doing so on environmental and social grounds is an intimidating task.

But as the example of the Kumtor gold mine in Kyrgyzstan shows, indefatigability and scientific expertise can persuade decision-makers to defend the interests of a country and its people.

The Kyrgyz Parliament today voted to renegotiate a contract signed in 2009 [*] with Canadian Centerra Gold Inc. for the exploitation of the Kumtor gold mine, near the border with China.

The parliamentarians invoked, among others, serious environmental concerns to motivate their decision, which can be considered a success for local activists that have been for years campaigning against the negative impact of mining by Centerra.

One day before this vote, the Kyrgyz Parliament heard from a State Commission appointed with a comprehensive investigation into the risks and benefits of gold mining by Centerra. (Following an Interagency and a Parliamentarian Commission, this was already the third official investigation since 2011.)

In the environmental part of the report, the State Commission argues that mining by Centerra has caused irreparable damage to nearby glaciers, including destroying the largest glacier in the area, Davidov. Results from German and Slovene laboratories show that mining activities have led to the pollution of the Kumtor, Taragay and Naryn river basins and will continue doing so if no measures are taken. At the moment, there is considerable risk that the dam on Lake Petrov might break because of pressure from mining operations, leading to a disastrous spill of tailings downstream.

The reassessment of the terms on which Centerra can mine in the future is good news also beyond current threats. The new open pit mines planned by Centerra would negatively affect more glaciers in the region. In addition, the company is at the moment exploring territories which intersect the territory of the Sarychat-Ertash nature reserve, permission to which has been waved in July 5, 2012 by the Government. A reassessment of the contract might make the Kyrgyz authorities to also toughen up on limiting such activities.

In addition to environmental awes, the State Commission told the Kyrgyz legislators that the deal with Centerra never brought considerable benefits for Kyrgyzstan (although the Kumtor mine is the main profit-generating project of Centerra, responsible for 92 percent of the Canadians' income in 2011; and a profitable year that has been!). The Commission advised Kyrgyz authorities to renegotiate the contract, investigate the conditions under which it was signed, and adopt measures necessary to avoid similar mistakes in the future.

The company has indeed enjoyed shockingly favourable terms, to mention but a few: a generous tax regime, fixed environmental charges (USD 310 000/year), an extended allowance to operate the open-pit mine until 2026 and very low payments for future recultivation works after the mine's closure. These come on top of other beneficial conditions like the high gold component in the ore (on average 2,9 g per ton and more), relatively low spending on the gold production (502 USD/ounce) and a bulk of proven and probable remaining gold reserves (about 900 tonnes of gold compared to 260 tonnes produced 1997-2011).

The decision taken by the parliament today should serve as a wake up call, both for all Kyrgyz authorities with any influence on the direction of the country's development, and to the international financiers of Centerra (including the EBRD, which in 2010 extended a revolving debt facility to the company). The voices of citizens and civil society groups - which have been for years sounding alarm bells about Centerra - cannot be shoved aside by claims about bringing sustainable development to a country. On the contrary, they should be involved in these decisions from the very start.

Notes

* The 2009 deal is just the most recent form of the contract between the Kyrgyz state and Centerra. It offers the Kyrgyz state a 33 percent of the company and a minor share in Centerra Gold.

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Centerra given 3 months to revise Kyrgyz gold deal

Olga Dzyubenko & Bhaswati Mukhopadhyay

Reuters

22 February 2013

Kyrgyzstan has given Centerra Gold three months to redraw terms before ripping up an agreement to run its flagship mine in the Central Asian country, accusing the Canadian miner of "colossal" environmental damage and underpaying the state.

Centerra said it had received a new claim from the government for $315 million for alleged environmental destruction, almost tripling the damages claims that it faces.

Parliament ended two days of fierce debate by passing a resolution on Thursday demanding the government revise a deal struck in 2009, a year before then-president Kurmanbek Bakiyev was driven from power by a popular revolt.

"If within three months our negotiations yield no results, the government will unilaterally cancel the agreement," Economy Minister Temir Sariyev said during the debate on Wednesday.

Centerra, whose shares have halved since the Kyrgyz government said in June it would review the mine deal, said the 2009 agreement was "solid and transparent" and it had already started talking to the government.

The Kumtor mine, bisected by a glacier 4,000 meters (13,000 ft) above sea level, is the largest gold mine in Central Asia operated by a Western company. It is the industrial centerpiece of the fragile Kyrgyz economy, contributing 12 percent of GDP in 2011.

Kyrgyzstan's gross domestic product contracted by 0.9 percent last year after Centerra reduced output at the mine by 40 percent as a result of ice movement in the pit.

Sporadic protests, often fueled by the nationalist rhetoric of opposition politicians in the five-party parliament, have also disrupted operations at the mine over the last year.

Sariyev said there was no desire within parliament to nationalize the mine, repeating earlier statements by both the country's president and prime minister.

But a specially appointed state commission has determined that deals signed by Centerra between 1992 and 2009 were approved by previous political elites without public discussion and were not entirely in Kyrgyzstan's interests.

"We want to cancel it all and return to the legal framework," said Sariyev, who also heads the commission.

He accused Centerra of paying too little into Kyrgyz state coffers and said the company had inflicted "colossal damage" to the environment.

Centerra, which maintains it has broken no laws, said it would study the latest claim, but believed the allegations were "exaggerated or without merit".

"We think the environmental claims are unfounded," said Chief Executive Ian Atkinson, who visited Bishkek last week to meet Prime Minister Zhantoro Satybaldiyev.

Atkinson said he hoped Centerra, in Kyrgyzstan for 15 years, could resolve the issue without the need for arbitration.

"We managed to resolve this in the past through discussions. We hope to do it again this time," he told Reuters in an interview.

RECOVERING PRODUCTION

Under the 2009 agreement, the Kyrgyz state became a 33 percent shareholder in Toronto-listed Centerra Gold, giving it a foothold in the company's Mongolian operations and exploration projects in Turkey, Russia and China.

Asked whether its international assets offered Centerra bargaining power in talks with the government, Atkinson said: "If we are a two-mine company today and we become a four-mine company, it just gives you greater operating flexibility."

But Kumtor will continue to generate the bulk of production. As operations recover in 2013, Centerra forecasts consolidated gold output - including its Boroo mine in Mongolia - in a range of 605,000 to 660,000 ounces, versus 387,076 ounces in 2012.

"Once we get through this year, our production profile at Kumtor ... for the next 10 years is going to be back up to 650,000 ounces a year," Atkinson said.

The company must first reach accord with the government.

Official Kyrgyz data show that, if the current agreement were to be renegotiated, Centerra would pay about 5 billion soms ($105 million) more to the government every year.

"They would also have to pay (another) $10 million annually for ecological damage," Sariyev told parliamentary deputies.

The additional damages claim for $315 million relates to tailings, rock dumps, and other waste from the mine. This comes on top of the government's previous environmental damages claim worth 6.8 billion soms, or $142 million at current exchange rates.

The company on Wednesday reported a fourth-quarter loss of $68 million, or 29 cents per share, on a one-time accounting charge and said it expected to incur closure costs related to underground operations at Kumtor in the first quarter of 2013.

It made a profit of $79.4 million, or 34 cents per share, a year earlier.

Shares in Centerra, which has a market value of C$1.8 billion, edged up a cent to C$7.61 on Thursday, having fallen from C$16.19 last June.

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Centerra faces $315 million in fines for new claims of environmental damage in Kyrgyzstan

Cecilia Jamasmie

Mining.com

22 February 2013

Canadian miner Centerra Gold continues to be under pressure in the Kyrgyz Republic as its subsidiary Kumtor Operating Company CJSC received a claim from the environmental authority for about $315 million relating to alleged environmental damages at is flagship Kumtor project.

In a statement release Thursday, the gold producer acknowledged the country's parliament has set a three-month deadline for the government to revise the deal with Centerra, which dates back to 2009.

If the parties cannot agree on mutually acceptable terms within such three month time period, the Parliament instructs the Government to take certain actions with respect to the Kumtor Project, including among other things, to:

i. invalidate the legislation enacted by Parliament in 2009 approving the Kumtor Project Agreements, and to unilaterally terminate the Kumtor Project Agreements;
ii. invalidate the legislation enacted by Parliament in 2009 amending the Kyrgyz Republic Tax Code (which provides for the tax regime set out in the Kumtor Project Agreements);
iii. confiscate land plots in connection with the adoption of Government Decree, "On abolition of the Government Decree on allocation of lands to Kumtor Gold Company CJSC dated March 25, 2010", approved by the Government Decree dated July 5, 2012. (This March 25, 2010 Decree granted Kumtor surface rights in relation to the Kumtor Project. See Centerra's news release dated July 6, 2012.); and authorize the State Inspectorate Office for Environmental and Technical Safety ("SIETS") to take measures to have Kumtor Operating Company pay fines and other charges for violations of environmental, mining and geological and subsoil legislation. (See Centerra's new release dated December 14, 2012 and February 20, 2013 for information on significant claims received from SIETS on alleged environmental violations for an aggregate total of approximately $152 million.)

Centerra's market capitalization has been cut in half since the Kyrgyz government announced last year it would review the mining deal. The country's administration yielded to pressures from legislators who wanted Centerra's rights over Kumtor revoked.

Kumtor has operated without major interruptions since 1997, though political unrest has been a recurrent issue for Centerra Gold in Kyrgyzstan. The company has dealt with multiple nationalization concerns, a taxation evasion probe, an international arbitration case, and two revolutions.

Centerra Gold is a major employer and taxpayer in Kyrgyzstan and a key contributor to its economy. In fact, the Kumtor open pit gold mine accounts for 60% of the nation's industrial output and, according to the company, it is the largest gold mine operated in central Asia by a Western-based company.

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Centerra Gold posts loss, Kyrgyzstan's parliament exerts more pressure

Cecilia Jamasmie

21 February 2013

The Kyrgyzstan parliament has given the government three months to renegotiate the terms of a financial agreement signed with Canadian miner Centerra Gold in 2009, or cancel it unilaterally if no compromise is reached, reports Reuters.

The news comes only a day after the Toronto-based firm posted a net loss of $68 million or $0.29 per share for the fourth quarter of 2012, as a direct consequence of spending $180.7 million for the de-recognition of its Kumtor mine expansion, as announced last November. (*)

The results are substantially worse than those published by the gold miner in the same period the year before, when it logged net earnings of $79.4 million or $0.34 per common share.

At the heart of Centerra's troubles in the Kyrgyz Republic lays a study divulged last year, which accused the company of damaging the environment and stealing the country's riches. Shortly after the Kyrgyzstan government cancelled a ruling that gave Centerra surface rights at Kumtor, as requested by a parliamentary commission, and charged the firm with a $152 million fine.

But the company has insisted independent experts have previously determined that the Kumtor mine project had "no materially significant" environmental issues, decrying as "exaggerated" and "without foundation" the damages claim from the central Asian country.

Kumtor has operated without major interruptions since 1997, though political unrest has been a recurrent issue for Centerra Gold in Kyrgyzstan. The company has dealt with multiple nationalization concerns, a taxation evasion probe, an international arbitration case, and two revolutions.

The gold firm thought most of its problems were resolved a few years ago, when it inked a contract that established tax terms for Kumtor and gave the Kyrgyz government a 33% stake in Centerra. But recent comments from local authorities imply the country wants to renegotiate the terms of the miner's license for Kumtor, shows it remains a contentious topic in the Central Asian country.

Centerra Gold is a significant employer and taxpayer in Kyrgyzstan and a key contributor to its economy. In fact, the Kumtor open pit gold mine accounts for 60% of the nation's industrial output and, according to the company, it is the largest gold mine operated in central Asia by a Western-based company.

The Canadian miner has been the subject of several recent research reports. Analysts at RBC Capital restated a "sector perform" rating on the company's shares in a research note to investors on Tuesday. They now have an $11 price target on the stock. And analysts at Scotiabank cut their price target on shares of Centerra Gold from $20 to $17 in a research note to investors on Friday, Jan. 25. They now have an "outperform" rating on the stock.