Gold Fields not as lucky as Centerra in Kyrgyzstan (April 23, 2010)

Investors hoping for a smooth transition of governments in Kyrgyzstan were disappointed by word that Gold Fields (GFI-N, GOF-L) had run into trouble in the Central Asian country.

On April 13 the South African-based miner announced that villagers had taken over a camp that was home to the company’s geologist. Gold Fields said it was suspending operations in the country for the time being, but said development in the country remained part of its future plans.

The company’s foray into Kyrgyzstan came by way of a joint-venture signed with London-based but Russian managed Orsu Metals (OSU-T, OSU-L) back in December of 2008. The deal allows Gold Fields to earn up to a 70% stake in Orsu’s Talas licence area which sits in the north-west of Kyrgyzstan.

But just as news of the villagers aggressiveness was sending shivers down the spines of investors Kyrgyzstan’s new leader, Roza Otunbayeva, sought to calm nerves by meeting with foreign investor executives in the country and assuring them that her government would ensure that they could continue to operate.

“We will help make sure that all our large investors work without disruptions,” Otunbayeva was reported by Reuters as saying at the meeting. “We will make sure our tax services work for the business and not against the business.”

Otunbayeva came to power after a President Kurmanbek Bakiyev was overthrown by a violent uprising on April 7. Bakiyev was seen as corrupt, while the over-throwers are seen as having the implicit support of Russia. Russia grew disenfranchised with Bakiyev for his playing off both Russian and U.S. interests in the country while lining his own pockets.

Despite Bakiyev’s drastic fall in public opinion the new interim government has not had an easy time instilling law and order as rival clans and ethnic groups continue to grapple for power.

The situation has led to blockades and seizures that have shut down many businesses in Kalas, the part of the country where Gold Fields was operating.

But Toronto-based Centerra  Gold (CG-T) has been shielded from such unrest thanks to geography. The company’s Kumtor mine sits on the other side of the country from Gold Fields and Orsu’s Talas properties.

Kumtor is situated 420 km by road southeast of Bishkek, which is situated in the north central part of the country, while Talas lies to the west.

The Talas region is also noteworthy for its being the place where the uprising against Bakiyev first began; it quickly spread to the capital.

Centerra’s vice president of investor relations, John Pearson, says operations at Kumtor have been undisrupted by the change in rulers.

Pearson also says the company has not had to increase security in light of the unrest.

“We’ve obviously maintained what we have,” Pearson says. He also added the company has had no problems with moving supplies in and out of the mine.

Centerra also has offices in the capital of Bishkek and Pearson says reports from those offices tell of a greater police presence in recent days.

“Things are coming back to some normalcy,” Pearson says. “The markets are now open and it’s fairly quiet in the streets. There are probably pockets of gangs and unrest but overall life is returning to normal.”

As for what Centerra’s relationship is with the fledgling new government, Pearson would only confirm that the company has been in contact with the new government, but he gave no details as to the nature of those talks.

“They’ve got their hands full,” he explains. “They have to get things under control, but we are in contact with them.”

Another point that has perhaps protected Centerra is the importance of Kumtor to the impoverished country’s economy. Centerra is the largest tax payer in the country and the government has a 33% stake in the gold rich mine, which brings considerable cash flows into its coffers.