Centerra faces $315 million in fines for new claims of environmental damage in Kyrgyzstan

Canadian miner Centerra Gold (TSX:CG) continues to be under pressure in the Kyrgyz Republic as its subsidiary Kumtor Operating Company CJSC received a claim from the environmental authority for about $315 million relating to alleged environmental damages at is flagship Kumtor project.

In a statement release Thursday, the gold producer acknowledged the country’s parliament has set a three-month deadline for the government to revise the deal with Centerra, which dates back to 2009.

If the parties cannot agree on mutually acceptable terms within such three month time period, the Parliament instructs the Government to take certain actions with respect to the Kumtor Project, including among other things, to:

  1. i.  invalidate the legislation enacted by Parliament in 2009 approving the Kumtor Project Agreements, and to unilaterally terminate the Kumtor Project Agreements;
  2. ii.            invalidate the legislation enacted by Parliament in 2009 amending the Kyrgyz Republic Tax Code (which provides for the tax regime set out in the Kumtor Project Agreements);
  3. iii.           confiscate land plots in connection with the adoption of Government Decree, "On abolition of the Government Decree on allocation of lands to Kumtor Gold Company CJSC dated March 25, 2010", approved by the Government Decree dated July 5, 2012. (This March 25, 2010 Decree granted Kumtor surface rights in relation to the Kumtor Project. See Centerra's news release dated July 6, 2012.); and authorize the State Inspectorate Office for Environmental and Technical Safety ("SIETS") to take measures to have Kumtor Operating Company pay fines and other charges for violations of environmental, mining and geological and subsoil legislation. (See Centerra's new release dated December 14, 2012 and February 20, 2013 for information on significant claims received from SIETS on alleged environmental violations for an aggregate total of approximately $152 million.)

Centerra’s market capitalization has been cut in half since the Kyrgyz government announced last year it would review the mining deal. The country’s administration yielded to pressures from legislators who wanted Centerra’s rights over Kumtor revoked.

Kumtor has operated without major interruptions since 1997, though political unrest has been a recurrent issue for Centerra Gold in Kyrgyzstan. The company has dealt with multiple nationalization concerns, a taxation evasion probe, an international arbitration case, and two revolutions.

Centerra Gold is a major employer and taxpayer in Kyrgyzstan and a key contributor to its economy. In fact, the Kumtor open pit gold mine accounts for 60% of the nation's industrial output and, according to the company, it is the largest gold mine operated in central Asia by a Western-based company.

The full text for Centerra’s response to yesterday’s Kyrgyz Republic’s decision is here.



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