Kyrgyzstan ignores legal challenge to push mine auction forward

By bne IntelliNews April 8, 2013

bne -

Bishkek plans to push ahead with the sale of the rights to Jerooy, Kyrgyzstan's second largest gold deposit, in May, despite a $400m claim from Kazakhstan's Visor Holding against withdrawal of its licence for the deposit.

On April 5, the Kyrgyz government announced that bids to develop the field will be accepted until May 10. A $300m starting price has been set, according to announcements in official newspapers.

With reserves of 80-100 tonnes of gold, Jerooy is Kyrgyzstan's second largest gold deposit after Kumtor, which itself is at the centre of a long-winded tussle between the government and international investors. In January, Kyrgyzstan's Economy Minister Temir Sariev estimated the value of Jerooy's reserves at around $5bn, based on a world gold price of $1,700 per ounce.

The field was discovered when Kyrgyzstan was still part of the Soviet Union but has not yet been developed. Bishkek hopes that by auctioning off the field it will raise funds both from the sale and revenue from production.

However, Kazakhstan's Visor Holding, which previously held a licence to develop the field, has filed a $400m claim against the Kyrgyz government. Visor filed an arbitration request with the Washington-based International Centre for Settlement of Investment Disputes (ICSID) in March, saying Bishkek illegally appropriated its licence.

Visor held a 60% stake in Jerooyaltyn, a joint venture with Kyrgyzstan's state owned Kyrgyzaltyn, whose licence to develop Jerooy was confiscated in 2010. The Kyrgyz authorities cited the company's failure to kick off production as the reason for the withdrawal.

An unnamed Visor Holding manager claims to Reuters that the company made investments worth tens of millions of dollars in Jerooy before the licence was "improperly revoked". His company told the newswire in an email that the potential winner of the proposed auction will obtain a mining licence only, and "will still face numerous obstacles in the form of property rights related to development of the project".

Pushing aside the threats from the Kazakh company, Kyrgyz officials insist they will go ahead with the auction. The head of the state geology agency, Ilimbai Chunuyev, calls Visor's claim "sheer blackmail". However, coming on top of the vicious fight between Bishkek and Canada's Centerra Gold over Kumtor, the ongoing controversy is likely to further deter potential investors worried by rising resource nationalism in the country.

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