In a fresh act of brinkmanship, Kyrgyzstan has told Canada’s Centerra Gold that it is pulling out of talks on restructuring the joint project to develop the economically all-important Kumtor gold mine.
The government said in a statement on December 22 that the agreement under review was against “the interests of the Kyrgyz Republic.”
The announcement compounds the mounting pressure at the Kumtor gold mine, whose operations could potentially be halted on January 1 because of parliament’s failure to approve the renewal of the concession's operating license.
In its statement, the government complained that although a joint development deal had been in place since January 2014, negotiations have been at a standstill since the past April.
Kyrgyzstan owns a 33 percent stake in Toronto-listed Centerra Gold, which in turns controls Kumtor and other mines elsewhere, but Bishkek has instead pursued a 50-50 shared ownership of the mine.
The government has now said it will pursue a restructuring of Kumtor that will ensure it will an “increase in financial flows,” resolution of environmental grievances and an improvement to corporate governance at the company running the mine. Beyond those general points, however, it is not yet clear how the proposed new format will substantively differ from what is on the table at the moment.
The government has expressed particular annoyance about Centerra’s new development plan for Kumtor unveiled in March that envisioned substantially lower estimated gold reserves than earlier — 6.1 million compared with the previous 8.5 million ounces.
“After the publication … of the new development plan for Kumtor, which envisioned a drop in the quantity of extractable gold, the sides were unable to reach a consensus about the financial and economic model for restructuring,” the government said on December 22.
Kyrgyzstan has also accused Centerra of being unwilling to accept proposals to implement recommendations made by British consultancy firm AMEC regarding environmental issues at Kumtor.
The scale of Kumtor’s importance to the national economy is starkly outlined in a paper by Matteo Fumagalli published earlier this year.
“After a very negative year in 2012, output returned to acceptable levels in 2013 and 2014. Kumtor accounted for 7.4 percent of Kyrgyzstan’s GDP, 15.5 percent of industrial output in 2014, and 36.5 percent of its hard-currency revenues in 2013. In 2014 its contributions to the national budget were in excess of $120 [million] and in the period from 1994-2014 its contributions within the country exceeded $2.7 [billion],” Fumagalli wrote, citing company data.
While licensing remains in the air and the future joint development of Kumtor is now further cast into doubt, the government in Bishkek remains adamant that Centerra continue to energetically milk its cash cow.
“The government also expresses its desire to see uninterrupted work at Kumtor and hopes for constructive cooperation from Centerra,” the government said.
Separately, also on December 22, Kyrgyz members of Centerra Gold’s board of directors, complained about the Canadian company issuing new shares without going through the proper procedures.
"We believe that procedural and substantive rules have been violated during consideration of the issue," board member Emil Orozbaev was cited as saying by 24.kg news agency.
The Kyrgyz board members noted that they were informed of plans to issue new shares late in the day, only on the eve of the December 17 extraordinary meeting of board directors.
“Additional issue is contrary to the interests of Kyrgyzstan as the largest shareholder. However, despite our objections, the issue was adopted by eight votes to three. We have appealed to the Board of Directors to review the decision," the Kyrgyz board members said in a joint statement.
24.kg noted that while the current set-up gives the Kyrgyz government a 32.75 percent stake in Centerra through its 77.4 million shares, the upcoming issue will dilute that holding by 0.6 percent.