Kyrgyz state seized control of the lucrative Kumtor mine from the Canadian firm Centerra Gold
Seven months after the Kyrgyz state seized control of the lucrative Kumtor mine from the Canadian firm Centerra Gold, the company has confirmed that it finally entered talks with Bishkek. Last summer, Centerra complained that Bishkek was refusing to engage in negotiations.
According to a company press release dated January 3, “Negotiations with representatives of the Kyrgyz Republic are ongoing, and there can be no assurance that any proposed resolution will be consummated or as to the final economic and other terms and conditions of any such resolution, if agreed.”
I’ve summarized the initial series of events previously:
The Kyrgyz parliament passed a law in early May  allowing for the imposition of “external management” on companies with mining concession rights that are found to be violating environmental protection and safety obligations. Conveniently, on the same day the bill was passed, a Kyrgyz court issued a $3 billion fine to Centerra’s Kyrgyz subsidiary following a suit by four private citizens (one of whom was the son of the head of Kyrgyzstan’s State Ecology and Climate Committee) on behalf of Kyrgyzstan seeking reparations for the mine’s past environmentally damaging practices. Then Kyrgyz tax authorities said the company owed $170 million in back-taxes.
The onslaught culminated in the Kyrgyz government seizing control of the mine on May 17.
Centerra filed for Chapter 11 bankruptcy in the United States on behalf of its two Kyrgyz subsidiaries — Kumtor Gold Company and the Kumtor Operation Company — “to protect the interests” of the company and “prevent any further efforts by the Kyrgyz Government to strip” the mine of its assets.
The initial three-month external management was extended in August. Centerra, meanwhile, initiated international arbitration proceedings.
As 2021 came to a close, the Kumtor saga seemed stuck. Arbitration can be a very long process, so there were no clues as to how long it could drag on.
In December 2021, Kyrgyz authorities announced that they were suing Centerra over the company’s alleged blocking of user and administrator access to Kumtor’s computers from May 2021. The company pushed back, saying that “Centerra’s global IT systems restricted user access to preserve the integrity of the organization’s global IT infrastructure and its confidential information” but did nothing that put the mines’ safe operation at risk. Around the same time, news emerged suggesting that the mine’s revenues were down significantly.
In its recent press release, the company confirmed that it is in talks with Kyrgyz authorities toward an out-of-court settlement of their dispute. But the mere fact that talks are happening does not mean a resolution will come quickly or easily. Centerra’s demands set a high bar.
The press release laid out five expectations with regard to any resolution of the conflict. These include the return of state-owned mining company Kyrgyzaltyn’s shares in Centerra, which Centerra would then cancel. Kyrgyzaltyn is presently Centerra’s largest single shareholder, with a 26.1 percent stake in the company. Centerra also said that it would expect the resignation of Kyrgyzaltyn’s two nominees to the Centerra board of directors.
In addition, Centerra expects that Kyrgyzstan would assume all responsibility for the company’s two Kyrgyz subsidiaries and the Kumtor Mine. Centerra also stated an expectation of payment in cash “equal to the net amount of the three dividends paid by Centerra in 2021 that Kyrgyzaltyn JSC did not receive as a result of the seizure of the mine and certain other financial consideration associated with the settlement of inter-company balances between Centerra and its two Kyrgyz subsidiaries.”
Finally, Centerra would expect the “full and final release of all claims” and the end of all legal proceedings “in all jurisdictions with no admissions of liability.”
Put more simply: Centerra wants to wash its hands of the Kumtor headache and walk away, with at least some compensation. Bishkek, for its part, may prefer an out-of-court settlement for fear of losing in court over its seizure of the mine.
Ahead of Centerra’s announcement, Kyrgyz President Sadyr Japarov visited the Kumtor mine and issued a statement: “At present, the parties are finalizing the discussion of an amicable agreement, including, among other things, the condition for the full transfer of the Kumtor Gold Company to the Kyrgyz Republic.”
Kyrgyz authorities and the state-imposed “external management” continue to claim the mine is operating normally
Canada’s Centerra Gold has said that the flagship Kumtor gold mine—seized from the company by the Kyrgyz government in May—underperformed the 2021 mine plan for June through September by 24%, Mining.com reported.
According to a Centerra statement sent to the media outlet, Kyrgyz authorities and the state-imposed “external management” continue to claim the mine is operating normally, but a very different story is seen based on production numbers.
“In particular, gold output plunged more than 24% below Centerra’s approved 2021 mine plan over the period between June and September,” Centerra said in the statement. “That means the external management poured about KGS 6.2 billion ($73.5 million) less gold, based on the average gold price for the period.”
Toronto-based Centerra also took issue with the current management’s refusal to publish any output data or other indicators of Kumtor’s performance since the last public update in late June.
“When Centerra was in control of the mine, the Kumtor Gold Company (KGC) released timely, accurate and detailed information about its operations – including how much gold was produced and sold. Despite calls for transparency from members of parliament, the ‘external management’ has refused to publish any production data or other indicators of the mine’s output,” Centerra said.
Centerra said it wants to know where Kumtor’s missing gold is; why KGC has failed to publish any operating results since the expropriation of the mine; how the state intends to make up for falling gold output; who is purchasing the gold and where the proceeds are; how much the current mine manager Tengiz Bolturuk is being paid and why the state is not allowing an independent assessment of the mine’s condition.
‘Critical to economy’
“Kumtor plays a critical part in the Kyrgyz economy, and we again urge the government to allow Kyrgyz and international journalists to visit the mine and get answers to these and other questions,” Centerra said.
KGC, as a subsidiary of Centerra, filed for bankruptcy in June after the central Asian country brought in a law to enhance state power, enabling the government to grab control of the mine.
Kyrgyzstan is challenging Kumtor’s right to Chapter 11 bankruptcy protection in the US.
In late August, Centerra said it had obtained photographic evidence showing at least 40 metres of water at the bottom of the Kumtor gold mine and “abnormally” large amounts running down the pit walls. It claimed the situation could lead to catastrophic events.
Kyrgyzstan’s Japarov administration, which came to power following political upheaval in the country seen late last year, is facing international arbitration hearings pursued by Centerra over ownership of the mine, the second highest gold mining operation in the world and the largest taxpayer in the country. The authorities resurrected several previously settled alleged tax and environmental complaints in relation to the gold mine prior to the seizure.
The tactics deployed by nationalist strongman President Sadyr Japarov to wrestle the mine from Centerra’s hands have been especially aggressive and have shocked foreign investors. So much so that the British government, recognising that UK-based BlackRock Investment Management holds a 10.6% stake in Centerra, in late May lined up with the Canadians inwarning Kyrgyzstan that measures that “negatively impact trade and foreign direct investment will further undermine already fragile economic livelihoods of the Kyrgyz people”.
The International Monetary Fund (IMF) in Junecalled for a “speedy and transparent” resolution to the dispute between Kyrgyzstan and Centerra over the mine.
EBRD has announced its support for nuclear remediation works in Min-Kush in the Kyrgyz Republic
The European Bank for Reconstruction and Development (EBRD) has announced its support for nuclear remediation works in Min-Kush in the Kyrgyz Republic. Min Kush is one of three sites in the Kyrgyz Republic with a legacy of uranium production in the Soviet era which has contaminated land and water in the region.
There is an urgency to the clean-up operations, as local streams feed into the Syr Darya River, which runs through the Ferghana Valley, and agricultural heartland. Similarly, there is the risk of contaminated mine water coming into contact with and polluting groundwater. Political tensions have existed between countries in Central Asia since the collapse of the Soviet Union, which have included water disputes between Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan as well as problems related to mining waste in the Ferghana Valley between Kyrgyz Republic and downstream Uzbekistan.
These issues featured at a high-level meeting between the countries in Astana in 2018. The clean-up efforts in Kyrgyzstan are well underway and the aim is to complete them in the third quarter of 2021. The efforts are being funded by the Environmental Remediation Account for Central Asia, which pools donor funds from the European Union, Belgium, Norway, Switzerland and the United States to help the Kyrgyz republic, Tajikistan and Uzbekistan to remediate their most urgent uranium legacies.
The fund was established in 2015 by the European Commission and became operational in 2016. In May 2021, a contract was signed for remediation works in Shekaftar in the Kyrgyz Republic. The mining complex in question includes three closed mines and eight mining waste disposal areas containing approximately 700,000 m³ of waste. A number of waste dumps are located in the vicinity of a village and a school. A joint mission of the European Commission and The European Bank for Reconstruction and Development to the Kyrgyz Republic took place in 2017, and it was established that urgent measures were required in three locations: Mailuu-Suu, Min-Kush and Shekaftar.
China’s Zijin Mining says a parliamentary delegation has praised its operations in the Kyrgyz Republic
It said last week the MPs visited its Taldybulak Levoberezhny gold mine, operated by Zijin’s local affiliate Altynken.
The mine was the second largest in the country and produced 4.2 tonnes of gold in 2020 and paid more than US$40 million in local taxes, Zijin said.
“The delegation thanked Zijin Mining and Altynken for their contribution to the economic and social development in the country and expressed intentions to work closely with Zijin, to deliver more win-win results”, it said.
“Impressed by how well the environment is protected at the mine, the MPs said the garden-like mine site is one of a kind in Kyrgyzstan”.
Kyrgyz’s government in May took control of Canada-based Centerra Gold’s flagship Kumtor gold mine, which is expected to produce 470,000-510,000oz of gold this year, claiming Centerra had abdicated its fundamental duties of care
The move followed disputes over tax claims and environmental damage.
Centerra brought additional claims earlier this month against the government in binding arbitration and asserted claims against the state-owned entity Kyrgyzaltyn JSC in response to the “wrongful expropriation” of Kumtor.
However Kyrgyz says the Kumtor Gold Company’s activities are “exclusively subject to and governed by the laws of the Kyrgyz Republic”.
Meanwhile AIM-listed Chaarat Gold said this week the uncertainty over the country’s mining sector had not materially delayed the project timeline for its planned Tulkabash project, where first gold is slated for 2023.
Source: Mining Journal
Talas Gold Mining Complex in Kyrgyzstan launched
The Jerooy deposit located in Talas Region in northwestern Kyrgyzstan has estimated reserves of nearly 90 tonnes of gold and about 25 tonnes of silver.
Russia’s President Vladimir Putin and President of the Kyrgyz Republic Sadyr Japarov took part, via videoconference, in a ceremony to launch the Talas Gold Mining Complex at the Jerooy deposit.
The project, which is being implemented by Russia’s Alliance Group with support from VTB Bank, is among the largest in the history of Russian-Kyrgyzstani economic cooperation in terms of investment volume. The potential level of production at the enterprise is five tonnes of gold a year.
The ceremony to launch the Talas Gold Mining Complex was also attended by President of Alliance Group and President and Chairman of the Board of Directors of Russian Platinum Musa Bazhayev, and President and Chairman of VTB Bank Management Board Andrei Kostin.
“The launch of the Talas Gold Mining Complex at the Jerooy deposit is indeed an important project for Russian-Kyrgyzstani economic cooperation and, in general, for the strengthening of partner and allied relations between our nations,” Putin said, who added that “The Talas Gold Mining Complex will employ cutting-edge technology and state-of-the-art equipment, including those compliant with all nature conservation regulations and standards. This will allow the production of up to five tonnes of gold per year, efficiently and with no environmental damage.”
According to Putin, the mining complex is creating more than a thousand jobs offering new employment opportunities to the local population. Small and medium-sized enterprises in Talas Region will be able to secure lucrative deals to supply goods and services required by the complex.
“Russian investors intend to provide significant financial support for the social development of Talas Region. The company director already said that a designated foundation was established that will receive up to $2 million every year. Almost half of these funds will be spent on socially significant projects in the region while the rest of the money will be used for subsidised lending to businesses,” Putin said.
Chaarat Gold gets positive feedback from newly formed Kyrgyz government
Chaarat Gold is a gold mining company which owns the Kapan operating mine in Armenia as well as Tulkubash and Kyzyltash gold projects in the Kyrgyz Republic.
Chaarat Gold Holdings said that it has received positive feedback on the progress of Chaarat’s projects and appreciation for the investments and community support to date during last weeks’ meetings with the new president of Kyrgyzstan, Sadyr Japarov, and the new prime minister, Ulukbek Maripov.
Martin Andersson, Executive Chairman of the Board, commented: “I am pleased with the positive feedback received during the meetings in country and it was a great honour to meet the new leaders of the Kyrgyz Republic in person. The meetings confirmed that Chaarat as an investor and our projects in the Chatkal valley are seen as a major step forward for the communities and are important to the country.”
In further meetings, a memorandum of partnership and cooperation with foreign investors was signed between Chaarat Gold Holdings and the Investment Promotion and Protection Agency aimed at attracting investments, as well as developing a number of projects in the regions. The company added that the agreement includes the existing plans of Chaarat to invest more than 110 million US dollars on the construction of the Tulkubash mining and processing project including related infrastructure investments in the Chatkal district of the Jalal-Abad region over the next two years. Based on the current plans, this will help create more than 800 new jobs at the site.
Kyrgyzstan revives claims against Centerra Gold
The previously withdrawn-but-revived claims relate to 2016 and 2017. They include $106-million for withholding taxes paid to its parent company and $17-million related to payroll deductions not withheld by Kumtor Gold Company (KGC) on certain national employee compensation.
The State Tax Service in Kyrgyzstan has revived previously-terminated claims and instituted a new claim against the Kumtor mine, Canadian owner Centerra Gold confirmed, but said it believed the claims were exaggerated and without merit. In total, the claims amount to about $146-million, which include significant penalties or sanctions.
The new claim against KGC is for $23-million and relates to payments to the Kyrgyz Republic Social Fund during the years 2011 through 2017. This, Centerra said, was despite the State Tax Service having previously confirmed that KGC had no outstanding Social Fund payments.
Centerra pointed out that the 2009 restated project agreements which govern the Kumtor mine contained a specific tax and fiscal regime, which provided that no taxes were payable by KGC on intercompany transactions with Centerra, including dividends. The miner further said that KGC had received requests from the State Tax Service to re-audit KGC’s financial accounts for 2014 through 2019, but that it disputed the service’s ability to carry out such re-audits.
“The company has benefited from a close and constructive dialogue with the Kyrgyz Republic authorities over many years and remains committed to continuing to work with them to resolve any outstanding issues in accordance with the 2009 restated project agreements applicable to the Kumtor mine, which provide for all disputes to be resolved by international arbitration, if necessary,” said Centerra.
Earlier this year, Parliament formed a State Commission to, among other things, review the performance of the Kumtor mine and to review the results of a previous 2012 Kyrgyz Republic State Commission.
Kyrgyzstan banned foreign mining companies from large projects
The Kyrgyz economy is heavily reliant on gold mining, mainly on that which takes place at Kumtor.
Kyrgyzstan’s new president, the populist Sadyr Japarov, has banned foreign companies from future large mining projects for gold and other minerals in the country. Existing licences are unaffected by the decision. The move marks Japarov’s first major decision as president and bears a striking relation to his rise to power—Japarov was serving a prison sentence stemming from the October 2013 kidnapping of a provincial governor during protests over the Canadian-owned Kumtor flagship gold mine in Kyrgyzstan, but was last October busted out of jail by supporters amid the upheaval in the country sparked by demonstrations against a parliamentary election that opposition parties claimed was fixed. Centerra Gold, which owns and operates Kumtor, stands as the largest foreign investor in Kyrgyzstan.
Given the many instances of negative sentiment expressed against foreign investors in Kyrgyzstan, especially during the country’s latest troubles, Japarov’s targeting of the involvement of foreign investors in the mining of the country’s valuable natural resources might only be the beginning of a wave of investment populism. Under the new mining order, the development of “subsoil areas of national importance” can only be conducted by state-owned companies. Kyrgyzstan has been looking into options for developing its Zhetim iron ore deposit in recent months.
Chaarat set to pursue gold opportunities in Kyrgyz
Aim-listed gold miner Chaarat Gold, which operates the Kapan mine, in Armenia, and is developing the Tulkubash project in the Kyrgyz Republic, sees potential to increase its production to 500 000 oz/y of gold from its existing asset base.
The company also continues to pursue other opportunities in its chosen geographic region – the former Soviet Union.
Considering that this territory is “unloved” by larger Western gold mining companies, and on the back of continued currency decline against the dollar, he explains that the margins for Chaarat to generate value is “relatively high”.
However, while there are opportunities to pursue value-accretive deals, Volynets says Chaarat will only enter into transactions that bring value to the company, as is demonstrated by the Kapan acquisition.
Chaarat’s production is set to grow from 65 000 oz/y to 160 000 oz/y within the next three years following its acquisition of the Kapan mine and the Tulkubash project.
Kapan, a producing asset with upside potential, was acquired from precious metals miner Polymetal in January for $50-million.
The Tulkubash asset is an oxide gold project that neighbours the original Chaarat asset, Kyzltash, a five-million-ounce gold deposit in Kyrgyzstan. It is a low-cost heap-leach project, with a resource and reserve that has been built up over time and continues to increase with further drilling, Volynets elaborates.
Despite Chaarat’s positive growth prospects and the fact that its market capitalisation has increased by 100% over the past year, Volynets laments that the company remains “massively undervalued”.
“We’re still trading below our net asset value and other metrics,” he says, adding that while this has spurred the management on to “move the company along”, the market “hasn’t caught up” to the company yet.
The reason for this, Volynets explains, could be owing to the company not “being well known” because it has, in the past, chosen to remain below the radar of mainstream investors and continue focussing on drilling at the larger scale Kyzltash project, also located in in the Kyrgyz Republic.
It is because of Kyzltash that the company will likely be able to achieve potential production volumes of 500 000 oz/y in the next five to six years but will likely be able to bring it on line once it is generating cash flow from Tulkubash nearby.
Chaarat intends to update the market on Kapan’s life-of-mine, which currently extends until 2023, in due course.
Since acquiring the mine, Chaarat has managed to streamline the Kapan operation and improve its exploration performance, marking the company’s journey to achieving a run rate of $20-million in annualised earnings before interest, taxes, depreciation and amortisation (Ebitda) by the end of this year.
Volynets also refers to its Tulkubash project, where district-scale exploration continues to identify and validate new gold targets, supporting the company’s hypothesis that the 24 km Tulkubash exploration licence is an emerging gold district with the potential to host numerous gold deposits.
Current drilling, which will continue into 2020, includes an initial 1 000 m programme in the Karator and Ishakuldy areas. This programme was designed to begin testing drill targets identified along strike and to validate the district-scale potential of Tulkubash.
To date this year, 120 holes – totalling 19 500 m – have been drilled, with the remaining five holes of this year’s campaign in progress and expected to be completed by the end of October. This will bring total drilling for this year to about 20 000 m, in line with previous guidance.
Volynets says that, by drilling about 20 000 m in 2018, the company had been able to increase its resource base by 67%.
Despite this increase, he tells Mining Weekly Online that the company is “still under 20% of what is available to be drilled in the licence area”.
The current Tulkubash resource estimate stands at about 1.6-million ounces of gold, based on drilling in 2018.
Tulkubash will become the company’s second operating gold mine and is scheduled to start production in the fourth quarter of 2021, with the full run rate to be achieved in the year thereafter.