Centerra drops as Kyrgyz gov’t reviews Kumtor

Centerra Gold (CG-T) plunged more than 30% as the Kyrgyz parliament debated the fate of the company’s Kumtor gold project in Kyrgyzstan on Friday, while investors worried about the possibility of Centerra losing its mining licence.

After tumbling $4.12 to a new low of $7.66 per share, the stock moved up slightly to close at $8.71.   

Centerra said the country’s lawmakers are discussing a report prepared by a commission headed by opposition deputy Sadyr Zhaparov, which makes several accusations against Centerra’s subsidiary, Kumtor, which runs the open-pit mine, including causing irreparable environmental damage.  

In a statement, the Centerra’s president and CEO Ian Atkinson said the company is yet to complete a detailed review of the 300-page-plus report. “Judging from its summary conclusions, however, Centerra believes that the report’s findings are without merit.”   

BMO analyst Andrew Breichmanas wrote in a brief note to clients the other allegations brought against Kumtor as reported by local media include international fraud and the threatening of national security, while suggestions such as jailing the company’s management, nationalizing the mine, and seeking payments for damages have been made.

“[The] Kumtor project is just an international fraud and its board must be arrested,” a local news agency quoted Zhaparov saying in the Friday session.

The company said at the time it won’t comment on the likely outcome of the current deliberations but denies any wrongdoing.

The Kumtor open pit mine, which has been operating since 1997, is 33% held by the government through state-owned gold company Kyrgzaltyn.

The mine has generated US$1.9 billion for the impoverished country’s economy since coming online, including US$620 million in taxes.

Last year, Kumtor accounted for about 12% of the country’s GDP, 26% of industrial output, and 51% of national exports, said Breichmanas.

But, some of the deputies opposing Kumtor’s license argue the state should seek greater benefits from the mine, which between 1997 and the end of 2011 produced more than 8.4 million oz. gold.

However, it has been reported that it’s unlikely the government will nationalize Kumtor given that under the 2009 agreement signed with Centerra and Kumtor it would have to buy the stake that it doesn’t already own at current market prices.

Also some analysts point out that the government doesn’t possess the technical expertise or capital to the operate Kumtor, which is technically demanding and requires additional investments to continue to generate profits.

This year, Centerra plans to spend US$370 million to expand the open pit and develop underground operations at Kumtor, which sits nearly 4,000 metres above sea level.

The company’s prized asset is roughly 350 km southeast of the capital Bishkek, and about 60 km north of China’s border.

“Based only on news of the report and parliament deliberations, the value of the country’s 77.4 million share equity investment has already been reduced by approximately US$300 million,” noted Breichmanas.

In March, Centerra predicted Kumtor to produce 390,000 to 410,000 oz. this year, down previously from 575,000 to 625,000 oz. due to greater ice movement in the pit.