MAC: Mines and Communities

Centerra and Kyrgyzstan - apparently - reach agreement on Kumtor

Published by MAC on 2013-12-28
Source: Reuters,, IWPR, EurasiaNet

Centerra Gold drafts deal with Kyrgyzstan on Kumtor mine


26 December 2013

Centerra Gold Inc said it had agreed with Kyrgyzstan to swap the government's 32.7 percent stake in the Canadian miner for half of the Kumtor gold mine, in a deal that could end a long-drawn argument over the mine's ownership.

The draft deal is broadly similar to a previous agreement that the Kyrgyz parliament rejected, so it is not immediately clear whether the latest terms would win legislative approval.

Talks have taken place amid riots and opposition calls to nationalize Kumtor, which accounted for 12 percent of Kyrgyzstan's gross domestic product in 2011.

Kyrgyz parliament has demanded that the country hold 67 percent in a joint venture to run the mine, a major foreign-currency earner for the Central Asian nation.

The Kyrgyz government delivered the new draft agreement to parliament on Monday for its consideration, Centerra said in a statement.

Centerra and Kyrgyzstan reach agreement on Kumtor

Cecilia Jamasmie

24 December 2013

Canada's Centerra Gold and the Kyrgyz Republic have finally reached a non-binding agreement over a joint venture to run the Asian country's largest gold mine, Kumtor.

Under the pact, said the company Tuesday, Kyrgyzaltyn would exchange its 32.7% equity interest in Centerra for a 50% stake in a joint venture that would own the Kumtor Project. The deal replaces a Memorandum of Understanding signed in September, which was later rejected by the country's parliament.

The document, sent to the parliament Monday evening, recognizes as valid a contract signed in 2009 between the country and the Toronto-based company, saying it would remain in full force and effect, including the tax regime set out in such agreements.

The draft deal is quite similar to the agreement rejected three months ago, so it is not clear whether it would win legislative approval this time.

Opponents to the project are already making waves. Local news agency 24, quotes an expert calling lawmakers to, once again, reject the non-binding pact on the grounds of unaddressed environmental concerns.

"If a new tailing dump is not installed on Kumtor now, the gold mine will have to stop operating in five to six years," Maksat Mamyrkanov was quoted as saying.

According to him, the construction of a new tailing would cost about $70 million, amount he deems excessive, but necessary. "Otherwise Kyrgyzstan will be half-responsible for all the [environmental] violations," he added.

Despite endless political turmoil, Centerra has successfully operated the Kumtor mine since 1997. The Canadian miner is a significant employer and taxpayer in the country and a key contributor to the Kyrgyz economy.

In fact, the Kumtor open pit gold mine accounts for 60% of the nation's industrial output and, according to the company, it is the largest gold mine operated in Central Asia by a Western-based company.

The Kumtor mine output is expected to almost double this year to as much as 600,000 ounces, according to Centerra.

Calls for mine to be renationalised are cover for many interests

By Timur Toktonaliev

Central Asia RCA Issue 722 (as published by Institute of War and Peace Reporting)

19 December 2013

Kyrgyzstan's largest gold mine has long been a controversial subject, and especially so over the last year as the authorities have tried to bat away calls for its re-nationalisation.

The Kumtor gold question just keeps coming back, however, and some analysts believe this is because it offers such good opportunities for politicians to make a name for themselves without having to consider the consequences.

Foreign management of the Kumtor mine, the country's most lucrative asset, has always been a focus for nationalist outrage.

Canada's Centerra group has operated the mine since 1997, but it is the present contract issued in 2009 that angers those politicians who argue that the firm got an over-generous tax arrangement.

Last year, a parliamentary commission headed by a member of the nationalist Ata Jurt party suggested revoking the contract altogether. This left the government in an uncomfortable position. It would not wish to seem less patriotic than its opponents, yet it was acutely aware that redrafting - or worse, annulling - contracts was not the best way to attract investors, and that in any case it could not run the mine on its own. And as Centerra pointed out, the Kyrgyz state was already a 33 per cent shareholder in the parent company, and was thus earning dividends as well as taxes.

In spring this year, the government took the bull by the horns and set up a commission which it tasked with revising the contract in consultation with Centerra.

After months of discussion, and amid continuing opposition calls for complete nationalisation and angry protests near the mine site in northeast Kyrgyzstan, the government agreed terms with the Canadians this September.

The deal amounted to a restructuring of company ownership whereby state gold company Kyrgyzaltyn would exchange its 33 per cent stake in the parent company Centerra for 50 per cent of a new joint venture.

Kyrgyz officials insisted they got the best terms possible. But it was not over. The proposed deal went before parliament, which promptly rejected it. A majority insisted that Kyrgyzstan should have a 67 per cent share in the joint venture, and sent the document back to the government with a deadline of December 23 to sort it out.

The government has been under immense pressure, with deputies threatening to force its resignation. President Almazbek Atambaev has dismissed those campaigning against the deal as populists.

It seems unlikely that Centerra would agree to further significant changes at this point. But Prime Minister Jantoroo Satybaldiev has had little option but to try, even though he says his team faces an impossible task.

On December 4, the prime minister met Centerra's president and chief executive, Ian Atkinson. According to Justice Minister Almambet Shykmamatov, quoted by local media, the company refused to budge on the ownership percentage.

"Our proposal that Kyrgyzstan should own 67 per cent of Kumtor [joint venture] alarmed them," Shykmamatov said.

Centerra says it is already contributing 5.5 per cent of Kyrgyzstan's gross domestic product, plus 300 million US dollars in taxes, payments to local suppliers and other expenditure. It argues that its shareholders will not allow it to accept disadvantageous terms and has warned that it will take the dispute to international arbitration if need be.


Analysts in Kyrgyzstan say the dispute has been exploited by various forces ranging from parties both in opposition and in the ruling coalition, to organised crime groups hoping to extort money from a foreign investor.

"It's always very beneficial to stay in the public eye by making statements about a pressing matter like Kumtor," Medet Tiulegenov, a politics lecturer at the American University in Central Asia, told IWPR."It's easy for [parties] in parliament to portray themselves as the ones who care about the people and defend the interests of the public and the country, while shifting responsibility onto the government."

Nadira Narmatova, a parliamentarian from the Ata-Jurt party which has pressed for re-nationalisation rather than renegotiation, denied the campaign was a cynical political move.

"We raised this issue because of the economic situation that people are in," she told IWPR. "It's being politicised by others - we aren't involved in that."

While the president and prime minister have made their positions clear, Tiulegenov noted that parts of the governing coalition they represented had shifted stance. As long as the Kumtor issue was being championed by their Ata-Jurt opponents, they steered well clear of it, but a series of protests in northeast Kyrgyzstan prompted them to act.

In November, Omurbek Tekebaev, party leader of coalition member Ata Meken, made the surprising announcement that he was working on a bill to nationalise Kumtor. It was the first time he had made a public statement on the mine controversy.

In an interview for IWPR, Tekebaev rejected accusations that he had taken up a populist cause, insisting that he had always wanted the nation to benefit from its natural resources. He went on to criticise the prime minister's handling of recent negotiations.

"The government is not fulfilling parliament's request, which had unanimous backing," he said. "Instead, it is trying to sabotage it and put up resistance. It's pursuing the same line of argument advanced by Centerra."

The backdrop to the high-level discussions is a series of demonstrations in Issykkul region. In incidents in May, June and August protester blocked a highway leading to the mine and clashed with police. In October, the same thing happened again, and this time the protesters briefly held hostage government negotiator Emil Kaptagaev hostage.

Two men identified as leaders of the August protest were later charged with trying to extort three million dollars from Centerra. Video footage showed Ermek Junushbaev and Bakhtiar Kurmanov threatening further grassroots action unless the company paid up. Prime Minister Satybaldiev described them as "a crime group".


Experts say the dispute has many facets. For some politicians, campaigning on Kumtor is a way of building popular support with an eye on the 2015 parliamentary election. For others, it is a stick with which to beat both president and prime minister.

Finally, there is the prospect of personal gain if it becomes possible to carve up Kumtor's assets and top jobs. This autumn, the Anti-Corruption Public Initiative, a Kyrgyz NGO, asked stock exchange regulators in Canada to look into what it suspected was an attempt at insider trading. It believed that officials with advance warning of the final terms of the deal could benefit by publicly attacking Centerra, driving down the share price, and buying up stock up.

Advocates of nationalisation are unclear on how they envisage the gold mine being be run in a scenario where Centerra departed, taking its funds and technical expertise with it.

IWPR asked Narmatova to comment on the issue, but she said only that this was a matter for the government to worry about.

Economist Iskender Sharsheev points out that if it happened, the government would not simply be able to assume immediate control of Kumtor. There was likely to be a protracted legal battle and a massive compensation claim, during which time the gold mine would be shut down.

Then there is the loss of over 2,500 local jobs, the contracts lost by local supply and service companies, and above all the damage done to an already investment-starved economy by the summary ejection of a major foreign partner.

"This is being blown out of proportion by political groups which say that if Kumtor is nationalised, everyone will benefit. That isn't true," economist Iskender Sharsheev said.

For the current government, it is a no-win situation, according to Tiulegenov.

"If it [Kumtor] is nationalised, parliament will see the government as the loser. If it manages to retain the 50-50 terms, parliament will still portray it as the losing side," he said.

Timur Toktonaliev is an IWPR contributor in Bishkek.

Centerra may take Kyrgyzstan to arbitration in gold dispute

Alessandra Prentice


17 December 2013

Moscow - Canada's Centerra Gold said on Monday it would consider taking Kyrgyzstan to arbitration if the company cannot reach an agreement with the government, a potential escalation of a bitter row over the country's largest gold mine.

The Toronto-listed firm is under pressure from the Kyrgyz parliament, which demands the state hold 67 percent in a proposed joint venture to run the Kumtor mine, a major foreign-currency earner for the Central Asian nation of 5.5 million.

Negotiations have taken place against a backdrop of riots and opposition calls to nationalise Kumtor, which accounted for 12 percent of Kyrgyzstan's gross domestic product in 2011.

Centerra is actively working with the Kyrgyz government to reach an agreement, but would seek arbitration were talks to fail, Chief Executive Ian Atkinson told Reuters during a visit to Moscow.

"Under our 2009 agreements we do have the right to go through arbitration. The government's well aware of that and been advised of it not just by ourselves but also by their own legal advisers," said Atkinson, who is flying to the Kyrgyz capital Bishkek this week to continue talks.

"If parliament does make a decision to denounce the agreements or nationalise the mine, we've got to work in the best interests of all Centerra's shareholders and that is an avenue that we have to look at and take quite seriously."

In September, the government and Centerra signed a memorandum of understanding, paving the way for Kyrgyzstan to swap its 32.7 percent stake in the Canadian firm for 50 percent in a venture that would own Kumtor.

But in October, the legislature voted to tear up the deal and seek control over the planned venture. It gave the cabinet until Dec. 23 to report on its talks with Centerra.

Kyrgyz President Almazbek Atambayev said on Monday the order to seek 67 percent for the state in the Kumtor venture was "obviously unachievable".

If Kyrgyzstan were to withdraw from the current agreement, prompting legal action, the current 33-67 percent split in Centerra's favour would remain in place while any case is heard before the courts, Atambayev said.

"This would take five to 10 years and would inflict huge damage on Kyrgyzstan," Atambayev told reporters in Bishkek.

The president ruled out nationalising Kumtor, saying the country could face a lawsuit amounting to billions of dollars if the mine were taken under state control.

Regional Instability

Atkinson expressed hope that a negotiated resolution would be found.

"We've been operating since 1997, we've gone through four presidents and numerous prime ministers - we've always continued operations and through dialogue found a constructive way to get our challenges resolved," he said.

Centerra has had no further production shutdowns in Kyrgyzstan since May, when it suspended work at Kumtor after villagers blocked the only road to the mine, Atkinson said, maintaining the firm's output forecast for 2013.

In July, Centerra Gold raised its annual consolidated gold production outlook to a range of 615,000 to 675,000 ounces from its previous range of 605,000 to 660,000 ounces, compared with 387,076 ounces produced in 2012.

He warned of the dangers facing Kyrgyzstan if parliament were to wrest back control of Centerra's Kyrgyz interests.

"There have been threats to denounce the agreements and potentially nationalise the operation - this would increase the instability in the region," Atkinson said.

Kyrgyzstan files ecology damage lawsuit against Centerra

Olga Dzyubenko


6 December 2013

Biskek - Kyrgyzstan is suing Canada's Centerra Gold for 15 billion soms ($304 million) over what the government says is ecological damage, marking a new twist in a bitter row with the investor running the largest Kyrgyz gold mine.

The state environmental protection and forestry agency said in a statement that it had filed the lawsuit at an economic court in the Kyrgyz capital Bishkek, saying Centerra Gold had ignored its earlier request for voluntary compensation.

It said the alleged ecological damage included "emissions of pollutants and waste dumps". It said its claim referred to the company's operations between 1996 and 2011.

"We rejected these claims at the beginning of this year, and our position has not changed since then," said a spokesman for the Kumtor Operating Company (KOC), the Centerra subsidiary that runs the Kumtor mine in the Tien Shan mountains.

Centerra Gold had said earlier that it viewed the government's claim as exaggerated and unfounded.

"The company disagrees with these charges and plans to give explanations on this matter in the nearest time," the KOC spokesman said.

The Toronto-listed miner, a major foreign-currency earner for the Central Asian nation of 5.5 million, is already under pressure from the Kyrgyz parliament, which demands the state hold 67 percent in a proposed joint venture to run the mine.

In September, the government and Centerra Gold signed a memorandum of understanding, paving the way for Kyrgyzstan to swap its 32.7 percent stake in the Canadian firm for 50 percent in a venture that would own Kumtor.

But in October the legislature voted to tear up the document and seek control over the planned venture. It gave the cabinet until Dec. 23 to report on its talks with Centerra Gold on setting up the venture.

The Kumtor mine, bisected by a glacier 4,000 metres (13,000 feet) above sea level, is the largest gold mine in Central Asia operated by a Western company. It is the industrial centerpiece of the fragile Kyrgyz economy, alone contributing 12 percent of gross domestic product in 2011.

Kyrgyzstan's GDP shrank by 0.9 percent last year, after Centerra Gold reduced output at Kumtor by 40 percent as a result of ice movement in the pit.

In July, Centerra Gold raised its annual consolidated gold production outlook to a range of 615,000 to 675,000 ounces from its previous range of 605,000 to 660,000 ounces, compared with 387,076 ounces produced in 2012. (Reporting by Olga Dzyubenko; Writing by Dmitry Solovyov; Editing by Dale Hudson)

Off-Radar Gold Mine Sustains Kyrgyz Mountain Village

By Asel Kalybekova

EurasiaNet, via IPS

4 December 2013

BISHKEK - A generation after independence from the Soviet Union, most villages in Kyrgyzstan are ramshackle, broken places, scenes of hopelessness and despair. Able young people leave - for Bishkek, the capital, or for menial jobs in Russia. But thanks to a secret gold mine, one little mountain hamlet is different.

Soviet geologists found the gold vein in remote Naryn Province in the 1940s, villagers say. But the gold was never tapped until economic collapse in the 1990s forced the village's "wild geologists," as they call themselves, to explore.

"Without it, our village would vanish in crime and theft," says one miner, an agronomist by training. "It used to be a very criminal place before people started working at the mine. One wouldn't even leave a broom in the backyard."

Though it's illegal, villagers say about 60 percent of local men work regularly at the mine, and it supports the entire community of approximately 3,000. With other work opportunities scant - and with gold mining increasingly contentious and politicised in Kyrgyzstan - villagers are cautious. They would only speak with on condition of strict anonymity, insisting even the name of the village not appear in print.

Another miner, who has been working at the open-pit mine for more than 10 years, says the gold helped him and his wife, a schoolteacher, raise three children and build a modest home. Now his son is studying geology in Bishkek, intending to continue his father's work. With deeply wrinkled hands he points at the mountain: "Everything I have today is because of this mine."

The miner, who asked to be called Bakyt, makes the three-hour trek up to the pit about once every other month with four or five colleagues in a jeep packed with warm clothes, tents, and food they can cook on a portable gas stove - meat, rice, and vegetables. "It needs to be high-calorie food, because it's very hard labour," he says.

On trips lasting up to a month, the miners look for quartz and pyrite - two indications of gold. "Once we see small pieces of gold glittering, we start digging with pickaxes and hoes," Bakyt says.

The miners sort promising rocks into 50-kilo burlap sacks and return home to a jerry-built refinery. One machine crushes the stones into powder; several electric sieves wash away the dust, leaving the heavier gold on the bottom. Even hidden in a garage, the machines make so much noise they can be heard outside. But it seems everyone in the village has an economic stake in the process, and thus an incentive to keep the secret.

The gold dust contains gold, silver, iron, and pyrite. The pyrite is burned away with highly corrosive nitric acid in a process that might frighten health inspectors: Outside, in an open field, with no goggles or other protection, the miners mix the acid and powder in a stainless-steel dish and step back as they burn.

"We ... put the dish against the wind, in order not to inhale the smoke," says Bakyt, describing it first as "black, then yellow. At the end, it turns white and stops. That's how we know it's done."

Nitric acid is available, illegally, in Bishkek for about five dollars per litre. The amateur chemists remove iron with the help of magnets. Eventually, they say, the gold dust is about 83-85 percent gold and about 15 percent silver. This compound is sold to one of several middlemen in the village at an agreed four to five-dollar discount off world market price, per gramme, because of the silver.

Villagers keep a close eye on market price fluctuations with the help of mobile Internet connections.

Those not directly involved in the mining also benefit, explains a member of the elected local council. Shops in the village are well stocked and several men hire themselves out as drivers to ferry miners to the site. Unlike many Kyrgyz villages, where most young men have migrated away to search for work, few are eager to leave. Some who left in the 1990s have even returned.

The mine "benefits these people and the whole village. Everyone is doing what they can to get by," the official says. "Plus, gold miners contribute money to social events. There's both an economic and social impact."

The economic benefits may trickle down illicitly to local officials, too - a phenomenon widespread in Kyrgyzstan and throughout the former Soviet Union. One villager said police sometimes stop vehicles on a road from the mine, demanding a "toll" of 300 som (about six dollars) per bag of stones. (Each vehicle returning from the mine carries up to 10 bags.)

Asked if the miners have the technical expertise to handle and store chemicals like nitric acid, the council member says locals are more careful than foreign investors because "they live here." Foreign companies are often faulted in the local press for environmental breaches - in some cases justly, in others not.

He says villagers have tried to get permission to operate the mine legally, but never heard back from Bishkek. Now, with parliament considering nationalising the country's only significant gold mine, Canadian-owned Kumtor, the villagers are afraid to ask again. "I don't believe the government will listen to us, they will just ban mining," the council member says.

The off-the-radar mine was contested in the not-too-distant past. In 2011, Kyrgyzaltyn, the state-run gold company, tried to sell it to a Chinese firm, according to Radio Azattyk. The decision seems to have been put on hold after villagers protested in the provincial capital, Naryn.

"This is theft. It cannot be allowed and should be prosecuted by the local government," said Kadyrbek Kaketaev, recently retired as deputy director of the State Geology Agency.

But villagers have no intention of stopping.

"We don't care whether it's winter or summer, we are there the whole year," says one miner. The mine doesn't make him rich, but gives him something rare in rural Kyrgyzstan - a comfortable life. It's also risky, he explains: Some missions return home empty-handed and rack up debt. But a successful trip can gross around 2,000 dollars.

"We have gold fever and will never be healed. We will do this all our lives," says Bakyt.

Editor's note: Asel Kalybekova is a freelance reporter based in Kyrgyzstan. This story originally appeared on

Hundreds attack Aussie miner offices in Kyrgyzstan

Cecilia Jamasmie

18 October 2013

A group of roughly 200 opponents to leaving Kyrgyzstan's riches in foreign hands, attacked Friday the local office of Z-Explorer, a subsidiary of Australian Manas Resources.

Z-Explorer spokesperson, Jyldyz Akmatova, told Reuters an enraged crowd intercepted a bulldozer on its way to the firm's Shambesai deposit, moving later to the miner's office in a nearby town.

She added the mob proceeded to loot the place, trashing office equipment and burning documents.

The aggression comes after Manas Resources announced Monday that drilling at Shambesai was scheduled to begin later this quarter.

Violence against miners is nothing new to those operating or with exploration projects in Kyrgyzstan. For over a year, riots over ownership of the country's flagship venture, Centerra Gold' Kumtor gold deposit have clouded mining companies plans in the Central Asian country.

Last month, the Canadian miner was finally able to reach a memorandum of understanding with Kyrgyz authorities, which could pave the way for joint ownership of Kumtor, and lead to the resolution of the long-standing dispute.

The Toronto-based firm is a significant employer and taxpayer in the country and a key contributor to the Kyrgyz economy, which is expected to grow strongly this year and in 2014, mainly thanks to growing gold output from Kumtor, according to the International Monetary Fund's latest report.

Home | About Us | Companies | Countries | Minerals | Contact Us
© Mines and Communities 2013. Web site by Zippy Info