Centerra’s Kyrgyz units seek bankruptcy protection over Kumtor mine expropriation

Kumtor accounts for a fifth of the ex-Soviet country’s total industrial output. (Image courtesy of Centerra Gold.)

Canada’s Centerra Gold (TSX: CG) announced late on Monday that its Kyrgyz subsidiaries have filed for bankruptcy in New York to protect investors and restructure the company, whose Kumtor gold mine was seized by the former soviet nation last month.

The miner’s units Kumtor Gold Company (KGC) and Kumtor Operating Company (KOC) are seeking protection under Chapter 11 of the US Bankruptcy Code. The court-supervised process provides, among other things, for a worldwide automatic stay of all claims against KGC and KOC, Centerra said.

The Toronto-based miner said it hoped the internationally recognized restructuring process will facilitate potential negotiations with the government of Kyrgyzstan, which is now in full control of Kumtor.

Centerra also noted the ongoing proceedings will not impact any other areas of the company’s business, including its Mount Milligan copper-gold mine in Canada, the Öksüt gold operation in Turkey and the molybdenum business in North America.

Centerra expects bankruptcy proceedings to prevent further efforts by Kyrgyzstan to strip Kumtor Gold of its assets

The move comes on the heels of the Kyrgyz government organizing a press tour to the mine last week, in which it said Kumtor was operating as usual.

“There are no problems at the Kumtor mine,” Nurdin Usenov, mill manager and acting director of operations told reporters. “All departments are working, production targets are being met, there are enough stocks of spare parts, consumables, lubricants and fuel.”

According to a new law passed in mid-May, the Kyrgyz government can take control for up to three months of any company that operates under a concession agreement if that firm violates regulations that damage or put locals and the environment at risk.

The head of a Kyrgyz state commission investigating alleged wrongdoing at the Kumtor mine, Kamchybek Tashiev, said on May 17 the agreement with Centerra Gold had to be revoked on the grounds of “corruption” and “violations of safety and environmental regulations.”

At the same time, a Kyrgyz court fined KGC more than $3 billion for allegedly unloading mining waste on glaciers near the mine, 4,000 meters above sea level. A state commission also recently claimed that the KGC owed more than $1 billion in unpaid taxes.

Former Kyrgyz Prime Minister Omurbek Babanov was detained on Monday as part of the investigation into corruption linked to the development of Kumtor.

Inside job?

The man who now controls the operation, Tengiz Bolturuk, was one of Kyrgyzstan’s three appointed representatives on the 11-man board of Centerra directors.

The dual Kyrgyz-Canadian citizen is being sued by the Canadian miner under the premise that he conspired to steal the asset from the company while he was a director.

Centerra sues ex director over Kumtor mine expropriation
Tengiz Bolturuk. (Image: Linkedin profile.)

Bolturuk had gained a reputation as a very hostile colleague in Toronto, two sources familiar with his time on the board told Eurasianet.

At home he had been making an impression, too. In a letter published in Kyrgyz media, employees of Kyrgyzaltyn, the state miner that owned the government’s shares in Centerra, showed discontent with Bolturuk’s growing involvement in Kumtor’s operations.

The document claimed he had fired dozen of locals employees and seemed to have positioned himself as the de facto head of the mine.

Strategic review

In a conference call on Tuesday, Centerra said it was conducting a “strategic review” of its ownership of KGC and KOC. 

“The seizure of the mine is based on false information and groundless allegations that undermine everything we have built together,” Scott Perry, Centerra’s president and CEO said in an open letter to the people of Kyrgyzstan. “We fear that the government’s unjustified action will put thousands of well-paying jobs and the businesses of hundreds of Kyrgyz suppliers at risk.”

Kumtor is the largest of Centerra’s three gold mines, accounting for over 50% of the company’s total output.

The operation is also crucial to Kyrgyzstan. It 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.

“The government has opened the door to what is likely going to be a multi-year degradation of the relationship between Centerra and the Kyrgyz State”

Dalton Baretto, Canaccord Genuity

Arbitration proceedings can take up to ten years and even if the Canadian miner succeeds, there is not guarantee it will be paid the stipulated amount.

Dalton Baretto of Canaccord Genuity said in a May note that he wasn’t surprised by Kyrgyzstan’s move.

“We have been anticipating something like this since President Japarov took power on January 10; however, the speed and breadth of these reforms has caught us off-guard,” he wrote.

The analyst added he believed the government has opened the door to what is likely going to be a multi-year degradation of the relationship between Centerra and the Kyrgyz State.

“While Centerra Gold will leverage all available avenues of international trade disputes, we believe these are unlikely to be effective in the long term,” Baretto said.

Kumtor has been the focus of a number of disputes between the company and the Kyrgyz government.

Japarov, who seized power after violent riots last October, once campaigned for the nationalization of the mine. After winning January’s elections and assuming the post, however, he said he no longer considered it necessary.

Kyrgyzstan has a history of popular uprisings and political turmoil, ever since gaining its independence after the collapse of the Soviet Union in 1991. Protesters had ousted two prior PMs in revolutions in 2005 and 2010.

Centerra’s Kyrgyz units seek bankruptcy protection over Kumtor mine expropriation
Press tour to the Kumtor mine held on May 28, 2021. (Image courtesy of Kumtor Gold Company.)

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