Centerra Gold Says Kyrgyz Resolution on Mine Not Binding

Centerra Gold Inc., owner of the Kumtor mine in Kyrgyzstan, said it believes a Kyrgyz parliamentary resolution calling for changes to the agreements governing the project isn’t legally binding.

The resolution issued today called for the creation of a state commission to review a parliamentary report on Kumtor and initiate revisions to 2009 agreements for the project, Centerra said in a statement. The resolution also called on the government to revoke decrees and licenses in relation to the project, the Toronto-based company said.

“Any discussions of the Kumtor project must take into account existing legal obligations and binding commitments,” Centerra Chief Executive Officer Ian Atkinson said in the statement. The company believes the findings of a June 18 parliamentary report are without merit, Atkinson said.

Centerra produced about 583,156 ounces of gold at Kumtor last year, according to a statement Feb. 23. That’s about 91 percent of the company’s total gold output, which also includes production from the Boroo gold mine in Mongolia.

The Kyrgyz Parliament voted to reject an alternative resolution that called for the government to take steps toward nationalization of the Kumtor project, Centerra said.

Centerra fell 1.7 percent to C$9.88 at the close in Toronto. The shares dropped 26 percent on June 22, the most in three years, after the company said the parliamentary report alleged that Centerra’s operations in Kyrgyzstan had caused environmental damage.

Buying Opportunity

“We still see this as a buying opportunity and do not think Centerra will face any renegotiation of terms, though talks may extend for a few months,” Trevor Turnbull, an analyst at Scotiabank in Toronto, said in a note today. “We expect a steady rebound following the nationalization scare.”

In April 2009, Centerra and then-majority shareholder Cameco Corp. agreed to give the Kyrgyz government an increased share in Centerra as part of a settlement to end legal disputes threatening the Kumtor project. The agreement resolved back-tax obligations, set a new tax rate and settled a clash over the size of the project’s exploration and development concessions, Centerra said at the time.

Centerra said March 27 that production at Kumtor would be lower this year because ice movement would delay access to a high-grade zone. The mine may produce 390,000 to 410,000 ounces of gold, compared with a previous forecast of 575,000 to 625,000 ounces.

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