More headaches for Centerra at Kumtor

The tough times at the world-class Kumtor gold mine in the Kyrgyz Republic continue for Centerra Gold (CG-T).

Earlier this year the talk was of nationalization. Instead a state commission was established to examine both the operations at the site and the latest agreement signed between the company and the government in 2009.

Now a state agency in the country says Centerra owes $152 million for environmental damages.

The claim was issued by the Kyrgyz State Inspectorate Office for Environmental and Technical Safety (SEITS) which says the violations are connected to the placement of waste rock on waste dumps, the use of water resources, emissions, and damages to land resources during initial construction.

SEITS is also demanding that actions be taken to correct the alleged violations.

The merit of those claims, and the weight that SEITS can put behind them, however, is yet to be determined.

Centerra calls the claims exaggerated or without foundation and points to the fact that all of the supposedly violating activities have been approved by the Kyrgyz authorities on an annual basis.

Additionally the project’s environmental performance has been subjected to systemic audits and investigations by Kyrgyz authorities and international experts — the latest being an independent expert review that found no materially significant environmental issues. That report was issued in October of this year.

Further complicating the matter is that as part of its 2009 agreement, the Kyrgyz government fully released Kumtor in respect of all prior claims, including environmental matters, and provided a complete list of all taxes and payments to be made, including a fixed environmental charge.

“Accordingly, no other tax, duties, or other obligations are to be paid to the Kyrgyz Republic, however they may be characterized,” Centerra says.

The next thing to watch will be the government’s reaction, as SEITS is continuing its work and is expected to report to the government shortly and to then to the Kyrgyz Parliament in early 2013.

The 2009 agreement mandated that the project receive and maintain all the licenses and permits that are “needed or convenient” for the operation of the project and that the Kyrgyz government use its best efforts to reverse or annul any actions of public officials which conflict with the rights that the agreement gave to the project.

The term “public officials” would include state agencies such as SEITS.

Centerra says it will be meeting with senior Kyrgyz government officials to discuss the claims soon.

In Toronto on Dec. 14, the company’s shares were unfazed by the news as they climbed 10% to $8.89 on 553,000 shares traded.