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Centerra Gold hit with lawsuit over rights violations at Kyrgyzstan mine

Kumtor was the largest of Centerra’s three gold mines, accounting for over 50% of the company’s total 2020 output. (Image courtesy of Centerra Gold.)

Kyrgyzstan is suing Canada’s Centerra Gold (TSX: CG) over alleged cyber-security and employee rights violations at its formerly owned Kumtor gold mine, in the latest chapter of an ongoing dispute between the parties over the expropriated asset.

The legal challenge claims that Centerra has blocked user and administrator access to Kumtor’s computers since May 2021, shortly before the government appointed a temporary external manager at the mine.

The Toronto-based miner and the Kyrgyz government have clashed over financial and environmental issues related to the mine for years. Their standoff took a turn for the worse in May, when the nation took control of the mine, alleging that Centerra was running it in a dangerous way for both the environment and nearby communities.

“Once again, it appears that the Kyrgyz government is trying to divert attention from the fact that it sent secret police to seize the Kumtor gold mine,” a spokesperson for Centerra Gold said in an emailed statement.  

“As we have said previously, when government authorities confiscated computers and passwords of individual Kumtor employees, Centerra’s global IT systems restricted user access to preserve the integrity of the organization’s global IT infrastructure and its confidential information. The mine’s safety systems were not impacted,” he noted.

The company responded by suing former director Tengiz Bolturuk, a dual Canadian and Kyrgyz citizen. Centerra says the former board member secretly co-operated with Canadian and US lawyers, as well as with the government of Kyrgyzstan to stage the mine expropriation.

In late August, the miner said it had obtained photographic evidence that there are at least 40 meters of water at the bottom of the Kumtor gold mine  and “abnormally” large amounts running down the pit walls, which it said could lead to catastrophic events.

Kumtor was the largest of Centerra’s gold mines, contributing with more than 50% of the company’s total output.

The operation is also crucial to Kyrgyzstan. The mine accounts for a fifth of the ex-Soviet country’s total industrial output and has produced more than 13.2 million ounces of gold between 1997 and the end of 2020. Last year’s output was slightly over 556,000 ounces.

Former President interrogated

The country is also in the midst of an investigation into alleged bribes paid by Centerra Gold to top Kyrgyz officials to obtain permits for Kumtor.

Local media reported on Wednesday that ousted first president of independent Kyrgyzstan, Askar Akaev, was brought to capital city Bishkek for the second time since August for questioning in connection with the probe into possible corruption around the mine.

The country’s Committee for National Security (UKMK) believes that Centerra paid bribes to top Kyrgyz officials, including Akaev, and two other former presidents.

The company denies the accusations and has branded the expropriation of Kumtor “wrongful and illegal.”

It has also expressed concerns about the lack of transparency of the operations at the mine since the government took control of it.

Centerra says Kumtor has underperformed the 2021 mine plan for June through September by 24%. That means the operation’s current management poured about KGS 6.2 billion ($73.5 million) less gold, based on the average gold price for the period.

At a parliamentary session on Monday, Kyrgyz Finance Minister Almaz Baketaev was unable to answer a lawmaker’s question on the amount of gold produced at Kumtor while under government control, as well as to where and for what price that gold has been sold, Radio Free Europe reported.

Local media also reported on Wednesday that, based on data provided by the country’s Ministry of Finance, revenues from the mine have decreased by KGS 2,620 billion (almost $31m), or by 27.2% so far this year, compared to 2020.

Kyrgyz Prime Minister Akylbek Japarov told reporters that he has visited the mine every month since May and that “everything is going according to plan.”

(With files from Reuters)