Centerra agreement on hold

An investment agreement reached between Centerra Gold (CG-T, CAGDF-O) and the Kyrgyz government is on hold as the body needed to stamp its approval is no more.

President Kurmanbek Bakiyev dissolved parliament on Oct. 22, putting a question mark on when the deal with Centerra — regarding the Kumtor gold project — will be ratified.

The action came just hours after the results of a national referendum on a new constitution came in, with nearly 75% of voters in favour.

“It’s an emerging democracy so there will be things like this that you have to deal with along the way,” says Centerra’s director of investor relations, John Pearson. “Time will tell how it will all play out.”

The agreement, announced at the end of August, would grow Kumtor’s concession area by over 250 sq. km and stabilize tax rates at 13% after 2009. The company would pay a rate of 11% in 2008 and 12% in 2009.

The deal would also give the government 32.3 million shares of Centerra, which would come from its parent company Cameco (CCO-T, CCJ-N). Centerra would then issue 10 million new shares to Cameco.

The share movement would cut Cameco’s roughly 53% interest in Centerra down to 40%, while the government would own 29%, and 30% would remain in other shareholders’ hands.

Although Pearson says the government assured the company that it would bring the agreement before parliament in early September, the matter was not voted on before the body was dissolved.

The agreement is set to expire at the end of October and Pearson says it isn’t yet clear if missing the deadline will affect the deal.

“The government is in total agreement with us,” Pearson says. “This is just a postponement or a delay in the approval.”

Bakiyev has had a tumultuous relationship with parliament since he came to power in 2005. There had been calls for its dissolution before, as many of its members were said to have been elected in rigged votes.

In a speech made just after dissolving parliament, Bakiyev accused parliamentarians of being more concerned with expanding their own authority than doing what was good for the country.

While results show that some three-quarters of voters approved the new constitution, The New York Times reported that independent monitors found voting irregularities.

The new constitution was written in an attempt to stop fighting between the executive and legislative branches of the government and to better distribute power. To do so, it will up the number of seats in parliament to 90 from 75.

After signing the constitutional amendments into law, Bakiyev set new parliamentary elections for Dec. 16.

In Toronto on news of the delay, Centerra shares were off 3% or 34 to $11.68 on volume of roughly 430,000 shares traded.