Centerra Gold posts loss, Kyrgyzstan's parliament exerts more pressure

The Kyrgyzstan parliament has given the government three months to renegotiate the terms of a financial agreement signed with Canadian miner Centerra Gold (TSX:CG) in 2009, or cancel it unilaterally if no compromise is reached, reports Reuters.

The news comes only a day after the Toronto-based firm posted a net loss of $68 million or $0.29 per share for the fourth quarter of 2012, as a direct consequence of spending $180.7 million for the de-recognition of its Kumtor mine expansion, as announced last November. (*)

The results are substantially worse than those published by the gold miner in the same period the year before, when it logged net earnings of $79.4 million or $0.34 per common share.

At the heart of Centerra’s troubles in the Kyrgyz Republic lays a study divulged last year, which accused the company of damaging the environment and stealing the country's riches. Shortly after the Kyrgyzstan government cancelled a ruling that gave Centerra surface rights at Kumtor, as requested by a parliamentary commission, and charged the firm with a $152 million fine.

But the company has insisted independent experts have previously determined that the Kumtor mine project had "no materially significant" environmental issues, decrying as "exaggerated" and "without foundation" the damages claim from the central Asian country.

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.

The gold firm thought most of its problems were resolved a few years ago, when it inked a contract that established tax terms for Kumtor and gave the Kyrgyz government a 33% stake in Centerra. But recent comments from local authorities imply the country wants to renegotiate the terms of the miner’s license for Kumtor, shows it remains a contentious topic in the Central Asian country.

Centerra Gold is a significant 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 Canadian miner has been the subject of several recent research reports. Analysts at RBC Capital restated a “sector perform” rating on the company’s shares in a research note to investors on Tuesday. They now have an $11 price target on the stock. And analysts at Scotiabank cut their price target on shares of Centerra Gold from $20 to $17 in a research note to investors on Friday, Jan. 25. They now have an “outperform” rating on the stock.

Image by  Konstanttin/Shutterstock.com

(*) A previous version of this article wrongly stated that the Q4 loss was a result of Centerra having to invest $180.7 million for the de-recognition of its Kumtor mine. The company clarified that expense was a one-time accounting charge related to the expansion of Kumtor, announced last November. According to Centerra, lower margins were mainly due to reduced production forecast for Kumtor.

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