Centerra Gold and Kyrgyz authorities got closer to the agreement

Andrey KozhokaruSeptember 07, 2017

Centerra Gold confirmed significant progress in negotiations with Kyrgyzstan and mentioned a number of clauses.

On 6 September, Canada’s investment industry regulator halted trading for Centerra Gold shares, pending important announcement. Latter trading resumed. The main reason for trading halt was publication on the site of Kyrgyz Government of terms of a proposed disputes settlement between parties. Later in the official press release Centerra Gold confirmed significant progress in negotiations with Kyrgyzstan and mentioned a number of clauses.

According to agreements reached, both parties will settle all ongoing disputes in Kyrgyzstan and those on consideration at International Arbitration at Stockholm. Subsidiary Kumtor Gold Company will make lump sum payment of $57m, of which $50m to the new Nature Development Fund and $7m to Cancer Care Support Fund and after 12 months will make another one-time payment of $3m to the Cancer Care Support Fund. Company will pay each year $2.7m to Nature Development Fund, conditional on Kyrgyz government fulfillment of all agreements. The Company will transfer $6m per year to Kumtor’s Reclamation Trust Fund until required sum for reclamation will be reached, subject to a minimum of $69m. Kumtor Gold Company will fulfill all recommendations of ecological independent consultant, which were attracted by the government earlier. Centerra Gold together with Kyrgyz authorities would consider other joint projects on Kyrgyzstan’s territory. All existing agreements of 2009 governing Kumtor project will remain in place.

According to the arrangements of 2009, Kyrgyzstan got 33% of shares of Centerra Gold in exchange for full control of Kumtor mine. Current diluted share of Kyrgyzstan in Centerra Gold is 26.57%. There is no information in press release regarding potential changes in parties’ stakes. Main reason of ongoing conflict is intention of Kyrgyz side to increase its share in Kumtor project, numbers of 50% and 67% were announced earlier.

Company highlights that agreement still to be finalized and has to pass approval procedures on both sides. Moreover, there is no guarantees final agreement will be fully implemented and all of its conditions will be followed.

Our opinion:

Centerra Gold demonstrates good operating and financial results, but dispute with Kyrgyz Government that started in 2012 remains main negative ongoing factor. As we wrote earlier, because of restrictions on financial transactions brought by Kyrgyz authorities on Centerra Gold’s subsidiary, some resolution should follow. We note significant progress reached during the negotiations. However, adhering to conservative approach, we wait for the official announcement of the final agreement and its details in order to evaluate the financial consequences and the future sustainability of the expected deal. We keep our Hold recommendation.