Centerra adds biggest shareholder to arbitration claim

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Centerra Gold Inc. [CG-TSX, CAGDF-OTC] has added state-owned gold refiner, Kyrgyzaltan JSC to its international arbitration claims stemming from the expropriation of its Kumtor gold mine in the Kyrgyz Republic.

Kumtor is the largest gold mine operated in Central Asia by a Western-based company.

Centerra asserts that Kyrgyzaltan acted in concert with the state to seize its operation in violation of longstanding investment agreements and it seeks to hold both parties responsible for its losses. Kyrgyzaltan holds 77.4 million shares of Centerra, representing the Kyrgyz government’s 26% stake.

The share certificates held by Kyrgyzaltan carry a conspicuous statement referencing that they are subject to the terms of the 2009 shareholder agreement with Centerra and may not be pledged or sold, or transferred unless in accordance with the shareholder agreement.

In an investment report, Scotiabank said this may provide legal means to cancel the Kyrgyz government’s shares held by Kyrgyzaltan if Centerra prevails in the upcoming binding arbitration under the United Nations Commission on International Trade Law.

The company asked the Hague-based Permanent Court of Arbitration to promptly designate an appointing authority to select an arbitrator that will conduct the hearing in Stockholm, Sweden under the governing laws of New York.

Among other relief, Centerra’s amended notice of arbitration seeks to hold the Kyrgyz government and Kyrgyzaltan responsible for any and all losses and damages that result from their co-ordinated campaign to seize the gold mine in violation of longstanding investment agreements and without compensation to Centerra.

The amended notice asserts that Kyrgyzaltan conspired with the Kyrgyz government to take control of the mine under the guise of temporary “external management” and continues to act at the behest of the government with regard to the operation of Kumtor and its shareholding in Centerra.

“Rather than honor its commitment to arbitrate any disputes in a transparent manner in a neutral forum, the government and those acting in concert with it have proceeded to expropriate the Kumtor Mine, placing Centerra’s investment and the livelihoods of thousands of Kyrgyz workers at risk,” said Centerra President and CEO Scott Perry.

“Centerra would much prefer to resolve this dispute in constructive dialogue with the Kyrgyz authorities, but their repeated refusal to engage leaves us no choice but to seek effective remedies through arbitration and other legal means.’’

The Kumtor mine is one of two flagship assets in the Centerra Gold portfolio. The other is the Mt. Milligan Mine, which is located in British Columbia. The company’s portfolio also includes the Oksut Gold project in Turkey and the late stage Kemess development project in B.C.

On Thursday, Centerra shares eased 2.5% or 24 cents to $9.39 on volume of 293,270. The shares are trading in a 52-week range of $19.59 and $8.21.


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