Centerra slides on Kumtor probe (July 20, 2005)

Shares in Centerra Gold (CG-T) were off 75, or nearly 4%, at $19 in late afternoon trading in Toronto on July 20, after the company said that the Kyrgyz Republic’s interim government has requested further information as part of an ongoing criminal investigation involving the restructuring of the Kumtor gold mine.

The Attorney General’s office requested documents from Centerra and its subsidiary Kumtor Operating Company as part of a criminal investigation into alleged abuses of power by officers of the Kyrgyz government, state-owned Kyrgyzaltyn JSC (which owns 15.7% of Centerra), Kumtor Gold Company and Kumtor Operating Company.

The investigation is based on previous parliamentary resolutions opposing and challenging the Kumtor agreements and the legality of the restructuring. Kumtor’s restructuring in 2004 was accompanied by the formation of Centerra, which was spun out of Cameco (CCO-T), the world’s largest uranium producer.

Centerra says it is cooperating with the investigation, and that it is not aware of any basis for any allegation of criminal conduct. The company also says that a report released by an inquiry set up by the interim government to examine the former President’s assets did not include any allegations against Centerra or its Kyrgyz subsidiaries.

The company says it remains completely confident in the validity of its restructuring agreements with the government, and that any disputes concerning such agreements are subject to resolution by international arbitration.

Meanwhile, the mine continues to function normally, but the company says it cannot make any assurances the mine will not be affected by the political situation in the country.

In March, former Kyrgyz President Askar Akayev was brought down by a coup after fraudulent parliamentary elections and replaced with Kurmanbek Bakiev. Bakiev easily won the country’s presidential elections on July 10. Centera says that prior to his election, Bakiev stated several times that the Kyrgyz Republic would honour its agreements with foreign investors.

Mining at Kumtor was scaled back for four days earlier this year after citizen protests leading up to the Feb. 27 parliamentary elections blocked access to the mine. The protests blocking access to Kumtor, in the town of Tyup, broke up on the day before the election, and transport of employees and goods resumed.