Centerra Gold comments on Kumtor takeover speculation

By Peter Kennedy

Centerra Gold Inc. [CG-TSX] said Thursday April 26 that in response to market speculation, it has released a statement regarding an unsolicited offer from Chaarat Gold Holdings Ltd., which recently offered to acquire Centerra’s Kumtor gold mine in the Kyrgyz Republic.

Chaarat [CGH-AIM] is an exploration and development company with assets in the Kyrgyz Republic. Chaarat said the acquisition would form part of a proposed three-way transaction between Chaarat, Centerra and the Kyrgyz state consortium, Kyrgyzaltyn OJSC. Centerra said it received the offer in March 2018.

However, in a statement released on Thursday, Centerra said it promptly communicated to Chaarat’s advisers that it has no interest in the transaction proposed by Chaarat.

“In recent meetings with the Kyrgyz Republic Government, senior Kyrgyz Republic officials have confirmed to Centerra that the government  is also not interested in pursuing the transaction proposed by Chaarat,” Centerra said.

Centerra operates two flagship assets. They are the Kumtor gold mine 350 km south of Bishkek, in the Kyrgyz Republic and the Mount Milligan copper-gold mine, 145 km northwest of Prince George, British Columbia. The company is the largest Western-based gold producer in central Asia.

In 2017, Kumtor exceeded its revised production guidance by producing 562,749 ounces of gold at an all-in sustaining cost of US $698/oz, generating $188 million of free cash flow. The mine has a history of 21 years of uninterrupted profitable production, and has more than 4 million ounces remaining in open pit reserves which should be extracted at low cost. On top of that is an additional 3.4 million ounces of inferred resources at 7.3 g/t gold. Overall, the company produced 785,316 ounces of gold in 2017.

Under its offer, Chaarat proposed that it and Kyrgyzaltyn would acquire Kumtor from Centerra in an arrangement that would give Chaarat ownership of Kumtor’s common equity, as well as management of the mine; while Kyrgyzaltyn would own Kumtor’s preferred equity and be entitled to 50% of the economic benefits from the mine

As part of the deal, Chaarat said it planned to invest up to $600 million in two other projects in the country’s mining sector over the next five to seven years.

Centerra noted in its statement that the Kumtor Mine is held through Centerra’s wholly-owned, direct subsidiary, Kumtor Gold Company CJSC, and the transaction proposed by Chaarat could not occur without the participation of both Centerra and the Kyrgyz Republic Government.

On Thursday, Centerra Gold shares rose 0.89% or $0.07 to $7.95. The 52-week range is $9.35 and $5.90.

Last week, Centerra released an update on a strategic agreement with the government of the Kyrgyz Republic that aims to end a lengthy environmental dispute over its Kumtor gold mine.

The agreement, reached in September 2017, would end mutual lawsuits, drop all environmental claims, halt court proceedings and allow Centerra to transfer funds from the country that had been frozen by the Kyrgyz Republic.

In an update released April 20, 2018, Centerra said it and the Kyrgyz government have agreed to extend the deadline for all conditions to be met under the strategic agreement until May 31, 2018. The original deadline was today.

In an investment report, Scotiabank noted that most of the final conditions have already been satisfied. For example, the government has issued all permits and terminated all environmental claims against Centerra.

As a result, the extension is viewed as a response to the recent dismissal of the current government following a vote of no confidence. The extension allows a new government to be formed that can conclude discussions with Centerra, Scotiabank said.

In any case, Centerra will not make its final $53 million lump sum payment until all of the conditions of the strategic agreement are met.

Centerra has said its understands that Parliament is in the process of appointing a new government and that Prime Minister Sapar Isakov and other government officials will continue in their roles until a new government is formed.

However, it also warned that while the strategic agreement provides a pathway for the resolution of all outstanding matters affecting the Kumtor Project, there are no assurances that all of the conditions precedent to the completion of the settlement contained in the strategic agreement will be satisfied.

“The inability to successfully resolve all such matters, whether through the strategic agreement or otherwise could have a material adverse impact on the company’s future cash flows, earnings, results of operations and financial conditions,” Centerra said.