Kyrgyzstan ready to back out of Centerra Gold deal

By bne IntelliNews April 10, 2015

bne IntelliNews -

 

The chances of a long-awaited agreement over restructuring the ownership of Kyrgyzstan’s flagship gold mine Kumtor dramatically shrank on April 9 when Prime Minister Djoomart Otorbaev said that a deal is not in the interest of the country any more.

“Now I do not believe that the creation of a joint venture would meet the interests of the country,” news website Dispatchnewsdesk.com quoted Otorbaev as saying during a press conference. “Yes, a year ago I was a supporter of the joint venture, but now I do not believe that it is in the interests of Kyrgyzstan. We change our opinion, based on the actual situation. And that is why now I do not agree on a joint venture," said the prime minister.

Kyrgyzstan, via state mining firm Kyrgyzaltyn, holds a 32.7% stake in Centerra Gold, which fully owns the Kumtor mine. Under pressure from both the opposition and a popular backlash against the mine's foreign ownership, the government has been seeking a better deal for the country for months. President Almazbek Atambayev struck a non-binding agreement with Centerra Gold for the restructuring of Kumtor in January 2014. According to the deal, the state will swap its 32.7% stake in Centerra Gold, which is also developing mining projects in Mongolia, for half of a newly established 50-50 joint venture that will be in charge of running only Kyrgyz operations. 

Yet the negotiations between the government and Centerra Gold turned sour when the latter sharply reviewed downwards the mine’s estimated reserves. The Canadian company cut the mine’s proven and probable reserves to 6.1mn ounces at the end of 2014, from 8.5mn ounces at the end of 2013, after introducing a new resource model and updating the mine design, the company said in a statement earlier this year. The new reserve estimates cast a shadow on the overall profitability of the whole deal.

“We expected to get $2.24bn and it turns out to be $742mn less,” Otorbaev said.

The government has now proposed to increase the number of its representatives sitting on the Centerra Gold’s board of directors – currently, it has three of 11 directors - instead of seeking a joint venture. In the meantime, opposition parties are still calling for a complete nationalisation of the mine and will likely make it a key topic of their platforms in the run-up to  the autumn elections.

 

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