The government seizes control of the Kumtor mine (above) in mid-May and Centerra Gold is no longer operating the mine. (Photo: Centerra Gold)

Centerra Gold Inc. took additional actions to protect the interests of the company in response to what it called the “unjustified” seizure of the Kumtor mine by the Government of the Kyrgyz Republic. The company said its actions are designed to preserve the value of Centerra’s wholly owned subsidiaries that own and operate the Kumtor mine, Kumtor Gold Co. (KGC) and Kumtor Operating Co. (KOC) and prevent any further efforts by the Kyrgyz Government to strip KGC of its assets or dispose of the Kumtor mine in violation of its investment agreements with the company.

On May 6, the Kyrgyz Parliament passed a resolution, instructing the government to install “external management” at the Kumtor mine. The government seized control of the mine in mid-May after sending government authorities to the mine, KGC’s office in Bishkek, and the homes of several KGC employees.

KGC and KOC filed in the Southern District of New York under Chapter 11 of the federal U.S. Bankruptcy Code. The court-supervised process provides, among other things, for a worldwide automatic stay of all claims against KGC and KOC. Centerra said it hopes that this internationally recognized, orderly restructuring process will facilitate potential negotiations with the Kyrgyz Government. The Chapter 11 proceeding will not impact any other areas of the company’s business, including the Mount Milligan Mine in Canada, the Öksüt Mine in Turkey and the molybdenum business in North America.

The company is also conducting a strategic review related to its ownership of KGC and KOC that will consider alternatives available to enhance value to Centerra’s stakeholders in light of recent events involving the Kumtor mine.

“We have repeatedly asked the Kyrgyz Government to discuss its concerns with us, yet it has refused to engage with us in any way,” Centerra President and CEO Scott Perry said. “While we remain willing and available to hold a constructive dialogue with the Kyrgyz authorities, we will continue to use all available legal and financial means to protect the interests of Centerra and its stakeholders from the government’s concerted and premeditated effort to take control of the Kumtor Mine.”

He added that the company would continue to pursue arbitration to enforce the agreements the company has with the Kyrgyz Republic that give Centerra, KGC and KOC the right to own and operate the mine. “Those agreements are governed by New York law, and we expect the U.S. court proceedings will serve to further protect Centerra’s interests under their terms pending a restructuring or other resolution of the dispute,” he said.

 The restructuring proceeding initiated by KGC and KOC will not impact Centerra’s other operations and businesses. KGC and KOC are currently solvent, with total assets, including the Kumtor mine, in excess of US$1.1 billion and no external bank debt.

Statements by government officials and actions taken indicate that the government and others, including the state-owned entity Kyrgyzaltyn JSC, intend to use spurious environmental and tax claims being asserted against KGC to place KGC into some form of insolvency proceeding in the Kyrgyz Republic and potentially strip KGC of its assets, according to the company.

“KGC’s operations and activities have always carefully adhered to agreements with the Kyrgyz Government and applicable laws, including with regard to the environment, safety and taxation,” Perry said. “We strongly believe that the government’s claims are entirely without merit and a pretext for a cloaked form of nationalization of the Kumtor Mine without compensation. While these claims have not been asserted against Centerra itself, the actions of the Kyrgyz Government and others have compelled us to take steps to preserve the value of KGC and KOC for all our stakeholders and shine a light on the true intentions of the Kyrgyz Government and those acting in concert with it.”