13 May, 2022

Centerra and Kyrgyzstan Reach Agreement to Split

If implemented, the agreement would see the Canadian mining firm exit Kyrgyzstan after a tumultuous 20 years and Bishkek assume responsibility for the mine.

On April 4, Canadian mining firm Centerra Gold announced that it had reached an agreement with the Kyrgyz government, and Kyrgyzaltyn JCS, the state-owned mining company, which would see the Canadian firm exit the Central Asian state. The agreement was preceded by late March reports that the Kyrgyz government had approved such an agreement. At the time, however, the details were not known beyond the statement that they would fulfill the core terms outlined by the company earlier in the year when it confirmed it was in talks with Bishkek.

The agreement, to “effect a clean separation” includes the transfer of the Kumtor Mine and Centerra’s investments in Kyrgyzstan, the end of Kyrgyzaltyn’s involvement with Centerra, and the resolution of the standing disputes between Centerra and the Kyrgyz authorities.

In May 2021, Kyrgyz authorities moved to take control of the Kumtor Gold Mine, one of the country’s most lucrative assets. Long a flashpoint for nationalization calls, the seizure triggered a cascade of disputes that has led to this moment: Centerra looking to wash its hands of dealing with the Kyrgyz altogether.

Currently, Kyrgyzaltyn is Centerra’s largest single shareholder, with a 26.1 percent stake in the company. The announced agreement would see Kyrgyzaltyn transfer all of its 77.4 million shares to Centerra for cancellation for a purchase price of 972 million Canadian dollars (778.68 million U.S. dollars).

Kyrgyzstan would then receive from the Canadian firm 100 percent equity in its two Kyrgyz subsidiaries — the Kumtor Gold Company and Kumtor Operating Company — and assume responsibility for the Kumtor Gold Mine. This step includes a US$36 million cash payment, although $25 million would be withheld by Centerra for the Canadian tax authorities. The remaining $11 million would be paid out to Kyrgyzaltyn.

Upon closing of the agreement, Centerra would extinguish the inter-company balance between Centerra and the Kumtor Gold Company with a US$50 million payment. Kyrgyzaltyn’s two nominees to Centerra’s board would resign.

The agreement is contingent on the termination of all legal proceedings related to the Kumtor mine “with no admissions of liability.” These include all “ environmental, tax and other claims, fines, penalties or proceedings, including all criminal investigations and proceedings, in the Kyrgyz Republic” as well as the suspension of international arbitration proceedings. Centerra would agree to an order setting aside a February judgment in the Ontario Superior Court against Tengiz Bolturuk, a former member of the Centerra board of directors who, shortly after the Kyrgyz government seized control of the Kumtor Mine in May 2021, was put in charge of its operation. Centerra would then work to get its petition for Chapter 11 bankruptcy in the United States dismissed.

Not only is the agreement contingent on the cessation of all legal bickering, but it requires approval from Centerra’s shareholders (excluding Kyrgyzaltyn, for obvious reasons). The company’s press release states that it expects to hold a shareholder meeting in the second quarter of 2022 (so, between now and the end of June) to consider the matter, after sending shareholders “full details” of the agreement, the relevant transactions, the company’s rationale, and the risks.

Importantly, the company’s press release notes that “there can be no assurance” that Kyrgyzaltyn and the Kyrgyz government will fulfill the obligations laid out in the agreement, nor can it be assured that Centerra’s stakeholders and the Ontario court will approve the agreement.

If all the necessary conditions are met, the results would be a complete split of Centerra Gold from Kyrgyzstan, bringing to an end a tumultuous 20-year relationship, Diplomat writes.