Talk of Kyrgyz settlement sends Centerra stock higher

VANCOUVER (miningweekly.com) – The value of Canadian miner Centerra Gold’s TSX-listed stock rose as much as 10% on Wednesday, following Kyrgyz media reports on a proposed settlement of the long-standing dispute between the company and the Kyrgyzstan government.

Kyrgyz media reported on government statements made to a Parliamentary committee, which included terms of a proposed settlement between the parties.

Centerra confirmed that its discussions with government regarding a settlement have reached an advanced stage, but cautioned that they remained subject to completion, including finalising all relevant terms of the settlement, formal approval by Centerra’s board and signing definitive agreements.

The company filed a request with the Permanent Court of Arbitration for a partial award or, alternatively, interim measures against the Kyrgyz Republic on January 12, seeking an award ordering that the Kyrgyz Republic withdraw or stay the Kyrgyz court proceedings and related decisions, court orders and judgments, the proceedings of which have been continuously postponed for several months.

One consequence of the Kyrgyz court proceedings is a freezing order from a Kyrgyz court blocking Centerra's subsidiary, Kumtor Gold Company (KGC), from distributing cash it currently holds to Centerra. The interim relief Centerra sought included a declaration that the freezing order was invalid.

Toronto-based Centerra advised that key terms of the settlement agreement include a comprehensive settlement of all outstanding disputes and court and other proceedings affecting the company’s flagship Kumtor gold project.

It is also seeking an affirmation that the existing 2009 agreements governing the Kumtor project remain in full force and effect, including the tax and fiscal regime thereunder. Executing a settlement will not signal any admission on the part of Centerra or its Kyrgyz subsidiaries of environmental wrongdoings. Nor will it signal noncompliance with Kyrgyz law, the Kumtor project agreements or any pre-existing obligation to make additional environmental or Reclamation Trust Fund payments or environmental remediation efforts.

The tentative accord entails Centerra’s Kyrgyz subsidiary, Kumtor Gold Company (KGC) making a one-time lump sum payment totalling C$57-million to a new government-administered Nature Development Fund and $7-million to a new government-administered Cancer Care Support Fund. Within 12 months of closing, KGC will also make a further one-time payment of $3-million to the Cancer Care Support Fund.

In addition, Centerra will agree to commit to yearly payments of $2.7-million to the new Nature Development Fund, conditional on government continuing to comply with its obligations under the settlement agreement.

KGC would also agree to accelerate its yearly payments to the Kumtor’s Reclamation Trust Fund to $6-million a year, until the total amount contributed by KGC reaches the total estimated reclamation cost for the Kumtor project (representing the independent assessment of Kumtor’s current reclamation costs, subject to a minimum total reclamation cost of $69-million).

Centerra said that the $69-million is broadly in line with KGC’s current estimated reclamation cost for the Kumtor mine.

Further, KGC would implement certain specified actions recommended by the government’s environmental consultant, Amec Foster Wheeler, most of which have already been fully implemented.

KGC would also undertake to consider, together with government, other potential investment opportunities in the Kyrgyz Republic and at the Kumtor project.

Centerra advised that all obligations under any definitive agreement would be subject to a range of initial conditions precedent, including that certain critical permits and approvals for the Kumtor mine should have been received.

The inability to successfully resolve all such matters could lead to suspension of operations at the Kumtor project and will have a material adverse impact on the company’s future cash flows, earnings, results of operations and financial condition.