Centerra Gold has received notice from the Kyrgyz Republic Prime Minister, T.A. Sariyev, notifying Centerra of the government’s intention to withdraw from further negotiations regarding the implementation of the non-binding heads of agreement dated January 18, 2014. The HOA contemplated a restructuring of the Kumtor project under which Kyrgyzaltyn JSC would receive a 50% interest in a joint venture company that would own the Kumtor project in exchange for its 32.7% interest in Centerra.
In his letter, Prime Minister Sariyev indicates the government’s desire to begin new consultations with Centerra regarding the further efficient implementation of the Kumtor project. The Prime Minister also states that “the government of the Kyrgyz Republic is still deeply interested in ensuring uninterrupted operations of the Kumtor mine and achieving mutual agreements which would allow further efficient implementation of the Kumtor project in accordance with the best world practice, standards and requirements of the mining industry transparency initiative.”
The Kumtor project is governed by an investment agreement and related agreements dated June 6, 2009 which provides for (among other things) a fixed tax and payments regime for the Kumtor project. The Kumtor Project Agreements were approved by all relevant Kyrgyz Republic government authorities in 2009, including the Kyrgyz Republic government and parliament, are the subject matter of a legal opinion issued by the Kyrgyz Republic Ministry of Justice and a positive decision by the Kyrgyz Republic Constitutional Court. Any discussion regarding the Kumtor project will take into account such legal obligations under the Kumtor Project Agreements. Any negotiations must result in an outcome that is fair to all Centerra’s shareholders. In accordance with the Kumtor Project Agreements, any disputes regarding the Kumtor project are subject to international arbitration.
Centerra says it will “continue to engage constructively and in good faith with the government of the Kyrgyz Republic to resolve all outstanding matters affecting the Kumtor project in accordance with the Kumtor Project Agreements. While Centerra has a long record of resolving matters with the Kyrgyz Republic government, there are no assurances that continued discussions between the Government and Centerra will result in a mutually acceptable solution regarding the Kumtor project, that any agreed upon proposal would receive the necessary approvals under Kyrgyz and Canadian laws or that the Kyrgyz Republic government and/or parliament will not take actions that are inconsistent with the government’s obligations under the Kumtor Project Agreements.”
Centerra owns 100% of the Kumtor gold mine through its wholly owned subsidiary Kumtor Gold Co. It is located about 350 km southeast of the capital Bishkek and about 60 km north of the border with China. It is the largest gold mine operated in Central Asia by a Western-based company, having produced more than 9.9 Moz of gold between 1997 and the end of 2014. In 2014 Kumtor’s gold production was 567,693 oz.
The Kumtor gold deposit is located in the southern Tien Shan Metallogenic Belt, a major suture that traverses Central Asia, from Uzbekistan in the west through Tajikistan and the Kyrgyz Republic into northwestern China, a distance of more than 1,500 km. A number of important mesothermal-type gold deposits occur along this belt including Muruntau, Zarmitan, Jilau and Kumtor.