Centerra Gold recently provided an update on Kyrgyz Republic legal proceedings and restrictive measures imposed by Kyrgyz Republic courts and state authorities on Centerra’s Kyrgyz Republic subsidiaries and senior management personnel. Centerra believes such measures, together with other actions taken by Kyrgyz courts and state authorities, are clear breaches of the agreements governing the Kumtor project and, in aggregate, threaten to deprive Centerra of its fundamental rights to exercise effective management control over, and enjoy the economic benefits of ownership of, the Kumtor project. As previously announced, Centerra has initiated international arbitration proceedings to challenge the Kyrgyz Republic’s claims and actions. The company is also evaluating the full range of additional options for responding to the actions of Kyrgyz Republic courts and state authorities.
On June 3, the Bishkek Interdistrict Court held a hearing in respect of the claim made by the Kyrgyz Republic State Agency for Environmental Protection and Forestry (SAEPF) alleging that Kumtor owes additional environmental pollution fees of $220 million. The court did not issue a decision on the merits of the claim itself. However, at the request of SAEPF, the court granted an interim order against Kumtor Gold Co. (KGC), Centerra’s subsidiary to secure SAEPF’s claim.
Although the company has not received an official version of the interdistrict court’s order, it said it understands that it prohibits KGC from taking any actions relating to certain financial transactions including, transferring property or assets, declaring or paying dividends or making loans. The injunction is effective immediately. Centerra said the court’s decision is a clear violation of the fundamental investment protections contained in the 2009 agreements governing the Kumtor project. KGC will appeal the interdistrict court’s order to higher courts in the Kyrgyz Republic and will add the dispute to the international arbitration proceeding against the Kyrgyz Republic.
In addition, the company reported that a new criminal case has been opened by the Kyrgyz Republic General Prosecutor’s Office (GPO) against unnamed KGC managers alleging that such managers engaged in transactions that deprived Kumtor of its assets or otherwise abused their authority, causing damage to the Kyrgyz Republic. Specifically, the case appears to be focused on the commercial reasonableness of certain of KGC’s commercial transactions and in particular, the purchase of goods and supplies in the normal course of its business operations and the expenses relating to the relocation of the Kumtor project’s camp in 2014 and 2015. Further to such investigation, the GPO has carried out searches of KGC’s offices and seized documents and records. The company and KGC strongly dispute the allegation that any such commercial transactions or the actions of KGC managers were in any way improper. The company and KGC will challenge the actions of the GPO in the courts of the Kyrgyz Republic as well as in international arbitration.
Centerra also reported that, upon the instruction of the GPO, several of KGC’s senior expatriate managers have been advised by the Kyrgyz Republic border service that they will not be permitted, for the time being, to leave the Kyrgyz Republic. The company understands that such restrictions relate to the ongoing criminal cases previously reported on by the company. Centerra and KGC are providing assistance to affected individuals to challenge the basis of the GPO’s instructions and to obtain appropriate consular assistance.
