Centerra Gold shares down 31% on legal update

Centerra Gold Inc. [CG-TSX; CAGDF-OTC] shares tumbled Friday May 7 after the company said it has become aware of a number of legal and political developments in the Kyrgyz Republic, which may impact the company’s ownership of the Kumtor mine and its rights under the 2009 restated project agreements which govern the mine.

The shares reacted by falling 31% or $3.70 to $8.28 on volume of 2.47 million. That compares to the 52-week range of $19.59 and $10.65.

The company said it understands that a law has been passed by the Kyrgyz Republic Parliament which would enable the Kyrgyz Republic government to impose “external management” on companies in the Kyrgyz Republic operating under concession agreements.

The law was proposed, passed three readings and was adopted by parliament in a single day. It will now be referred to the President of the Kyrgyz Republic for signature. The sponsor of the law, Mr. Akylbek Japarov, notes that the only project operating under a concession agreement in the Kyrgyz Republic is the Kumtor mine.

The company says it understands that this newly adopted law on external management would apply in circumstances where Kumtor Gold Co. (KGC) violates certain Kyrgyz laws relating to safety and thereby creates an immediate threat to the life of health of people:

• Prohibits KGC’s managers from managing the mine (or face criminal sanctions).
• Enables the Prime Minister of the Kyrgyz Republic to appoint an external manager to take control of all management activities at KGC, including its bank accounts.

The Kumtor mine is one of two flagship assets in the Centerra Gold portfolio. The other is the Mt. Milligan Mine 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.

Kumtor is the largest gold mine operated in Central Asia by a Western-based company. Mining operations are carried out using conventional open-pit mining methods. Since 1997 it has produced over 13.2 million ounces of gold to the end of 2020.

The Kyrgyz Republic, via Kyrgyzaltyn JSC, is Centerra’s largest shareholder with 77.4 million shares, worth about $772 million.

In 2020, Kumtor’s gold production was 556,136 ounces, compared to 600,201 ounces in 2019. The decrease was primarily due to lower process plant head grade and lower gold recoveries coming from stockpiled ore. The mine currently has 2,823 full-time employees on the payroll.

Centerra said in a press release that Japarov is the Chairman of the Kyrgyz Republic State Commission, which was formed in February 2021 to review the activities of the Kumtor mine and is expected to report its findings shortly.

The company said it is aware of other draft laws and decrees in the Kyrgyz Republic which seek to undermine the 2009 restated Kumtor project agreements and the tax and fiscal regime under which the Kumtor mine has operated since 2009.

It is unclear whether such drafts have progressed past the proposal stage, the company said.

It went on to say that in March 2021, four Kyrgyz Republic private citizens commenced a civil claim against KGC requesting that KGC’s past practise of placing waste rock on glaciers be determined to be illegal. This week, the claimants have recently amended their claim to demand of US$3 billion in environmental damages in favour of the Kyrgyz Republic.