Kyrgyzstan loses more Centerra Gold shares in arbitration award

By bne IntelliNews March 6, 2015

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The Kyrgyz government's drive to strike a better deal with Canadian mining group Centerra Gold over the country’s largest gold mine received another setback, when a Canadian court enforced an arbitration award by seizing millions of state-owned Centerra Gold shares.

The Ontario Supreme Court ordered the seizure of more than 6.5mn Centerra Gold shares worth $20.5mn in order to enforce an October 2014 decision by the International Arbitration Court in Paris. The Paris court granted Latvian oligarch Valeri Belokon a $16.5mn award in compensation for the expropriation of Manas Bank, a Kyrgyz bank he founded in 2008, on money laundering charges in 2010. As the Kyrgyz government failed to pay the award, Belokon moved against assets Kyrgyzstan holds abroad, specifically Centerra Gold shares, as allowed by international arbitration conventions, and the Canadian court eventually upheld the arbitration award.

The decision, reported by Latvian media on March 3, came amid intense negotiations between the Kyrgyz government and Centerra Gold to restructure the Kumtor mine's ownership. Before the ruling, Kyrgyzstan, via state mining firm Kyrgyzaltyn, held over 77mn shares in Centerra Gold, which represented a 32.7% stake in the company’s capital. The government now wants to swap that stake in Centerra Gold, which is also developing mining projects in Mongolia, for half of a newly established joint venture that will be in charge of running only Kyrgyz operations. Yet Centerra Gold itself warned earlier in February that the ongoing arbitration cases may prevent any deal from happening.

“If the Kyrgyz Republic does not succeed in overturning the Stans arbitration award in the Russian courts and Kyrgyzaltyn is unsuccessful in the Sistem Appeal, Centerra expects that Stans would likely succeed in enforcing the Stans arbitration award in Ontario and in seizing a sufficient number of the Centerra shares held by Kyrgyzaltyn to satisfy the Stans arbitration award,” Centerra wrote in its year-end results statements.  “If Stans ultimately seizes such shares, Kyrgyzaltyn would no longer hold a sufficient number of Centerra shares to contribute to the restructuring transaction such that it could receive 50% of a new Kumtor joint venture.”

Canadian mining firm Stans Energy has asked the Ontario Supreme Court to enforce an $118.2mn arbitration award the company was granted by a Russian court for the loss of a rare earth mining licence in Kyrgyzstan. A final decision is still pending, but the court issued a preventive ruling that de facto freezes 47mn of Centerra Gold shares owned by Kyrgyzaltyn. Additional 3.5mn shares were seized in 2013 to compensate Turkish company Sistem for the expropriation of a hotel the company built and used to run.

The Belokon award now raises the amount of shares either seized or temporarily frozen to over 57mn, which represent 74.2% of Kyrgyzstan's total Centerra Gold shares. That leaves the Kyrgyz government with little space to renegotiate a deal over Kumtor, unless it agrees to settle the enforced arbitration awards.







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