US court rules Kyrgyzstan in contempt for pushing ahead with local legal action against Kumtor Gold

US court rules Kyrgyzstan in contempt for pushing ahead with local legal action against Kumtor Gold
Kyrgyzstan's populist Japarov administration has seized control of the mine high up in the Tian Shan mountains near the Chinese border. / Centerra Gold.
By bne IntelIiNews July 23, 2021

The US Bankruptcy Court has ruled that the government of Kyrgyzstan is in contempt of court for continuing with its local legal action against Kumtor Gold Company (KGC), a subsidiary of Toronto-based and NYSE-listed Centerra Gold. The latter controlled the country’s flagship gold mine, Kumtor, until the populist Japarov administration seized it in May.

The Kyrgyz government resurrected several previously settled alleged tax and environmental complaints in relation to Kumtor gold mine prior to the seizure.

The tactics deployed by strongman President Sadyr Japarov to wrestle the mine from Centerra’s hands have been especially aggressive and have shocked foreign investors. So much so that the British government, with a cold eye on the fact that UK-based BlackRock Investment Management holds a 10.6% stake in Centerra, in late May lined up with the Canadians in warning Kyrgyzstan that measures that “negatively impact trade and foreign direct investment will further undermine already fragile economic livelihoods of the Kyrgyz people”. The International Monetary Fund (IMF) in June called for a “speedy and transparent” resolution to the dispute between Kyrgyzstan and Centerra  over the Kumtor gold mine.

In an order issued on July 20, judge Lisa Beckerman held that the Kyrgyz Republic was in contempt of court for violating US bankruptcy rules when it took legal action against KGC in the Kyrgyz Republic earlier this month, reported.

“I am ruling that there is a violation of the automatic stay by the Kyrgyz Republic,” she reportedly said in a 115-page transcript of KGC’s emergency motion to enforce the automatic stay of prosecution globally, previously afforded to the company by the same court.

‘Infringement of Chapter 11 rights’

Beckerman was also reported to have noted in her ruling that “the proceedings that are going before the courts in the Kyrgyz Republic do appear to have an impact on the automatic stay that’s in place here and do appear to be violative of it in numerous respects”, adding that the injunction in the Kyrgyz court “infringes” on KGC’s rights to take specific actions during the Chapter 11 proceedings.

Centerra, meanwhile, recently also named state monopoly gold refiner and Centerra’s largest shareholder, Kyrgyzaltyn, as a respondent.

According to the amended notice of arbitration, Kyrgyzaltyn conspired with the Kyrgyz government to seize control of the mine—located in the Tian Shan mountains more than 4,000m (14,000ft) above sea level and 60 kilometres from the Chinese border—using the guise of temporary ‘external management’. It appears to be continuing to act at the government’s instruction in terms of the Kumtor operation and its shareholding in Centerra, the company has alleged.

External manager ‘conspired’

Since the seizure of the mine, Centerra’s Kyrgyz subsidiaries have filed for Chapter 11 protection. Centerra has also sued the new external manager of the mine, alleging that while he served as a director, he conspired to steal the asset from the company.

Centerra said at the time, KGC and the Kumtor Operating Company were solvent, with total assets above $1.1bn and no external bank debt.

The mine 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. Centerra gave guidance in January that Kumtor would this yer produce 470,000 to 510,000 ounces gold.