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Uncertainty surrounds Centerra’s main producing asset in 2016

Kumtor, Republic of Kyrgyzstan.

Kumtor, Republic of Kyrgyzstan.

Photo by Centerra Gold

25th February 2016

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Significant uncertainty hangs over Canadian miner Centerra Gold’s flagship Kumtor mine, in the Central Asian Republic of Kyrgyzstan, as the company’s only currently operating mine faces legal and regulatory headwinds this year.

In reporting its fourth-quarter and full-year 2015 financial results late on Wednesday, Centerra stated in regulatory filings that its Kyrgyz subsidiary Kumtor Gold Company (KGC) had on December 25 received a $5.8-billion legal claim filed by the Green Party of Kyrgyzstan, alleging environmental and glacier pollution.

The Kumtor openpit is dissected by the Davidov glacier, which required constant management to keep mining operations continuing safely.

Centerra said that, while it understood the Kyrgyz court had rejected the claim on procedural grounds, the claim by the Green Party related to allegations substantially similar to the claims raised by Kyrgyz regulatory authorities, which were currently before the courts – each of which the company believed were without foundation.

Meanwhile, Kumtor advised that, during December, it had submitted its 2016 mine plan for Kumtor to the State Agency for Environment and Protection and Forestry (SAEPF) for an environmental permit and to the State Agency for Geology and Mineral Resources for industrial safety and subsoil permitting.

To date, the industrial safety permit was issued on December 30; KGC had also received an extension of its permits for maximum allowable emissions and toxic waste disposal until March 31. Centerra expected that the relevant government agencies would consider renewing the permits during their review of the 2016 mine plan.

However, Centerra advised that there remained several other outstanding permits and approvals required from Kyrgyz regulatory authorities including the ‘ecological passport’ and the life-of-mine (LOM) technical plan, which outlined mining plans for the Kumtor LOM.

Centerra said it understood that the regulatory authorities reviewing the permits and approvals had expressed concerns regarding potential conflicts with the Kyrgyz Water Code. The company’s position was that it did not believe that the Water Code was applicable to the Kumtor project.

This was last year also a concern in SAEPF’s review of the 2015 yearly mine plan, which had prompted Centerra to threaten suspending Kumtor mining operations in 2015 and in 2014, while government delayed the approval of the mine plan and permits.

Centerra said Kumtor would continue to work with the applicable Kyrgyz regulatory authorities to obtain the necessary permits and approvals. However, there could be no assurances that such permits and approvals would be issued, or issued in a timely manner.

Should Kumtor be prohibited from moving ice (as a result of the purported application of the Water Code), the entire December 31, 2015 mineral reserves at Kumtor, and Kumtor’s current LOM plan, would be at risk, leading to the operation closing early.

Centerra believed that any disagreement in relation to the application of the Water Code to Kumtor would be subject to international arbitration under the 2009 agreements governing the Kumtor project.

GOVERNMENT NEGOTIATIONS
On December 22, Centerra announced that the Kyrgyz Prime Minister had notified it that government would withdraw from further negotiations regarding the implementation of the heads of agreement (HOA) on restructuring the Kumtor project, inked on January 18, 2014.

Under the HOA, the Bishkek government would receive a 50% interest in the Kumtor project, in exchange for its equity interest in Centerra.

Centerra advised that it would continue to engage constructively and in good faith with the Kyrgyz government to resolve all outstanding matters affecting the Kumtor project, including, among other things: claims made by the general prosecutor relating to a $200-million intercorporate dividend declared and paid by KGC to Centerra in December 2013; claims made by the general prosecutor seeking to invalidate Kumtor’s land-use certificate and to seize certain lands within the Kumtor concession area; and significant environmental claims made by various Kyrgyz State agencies alleging environmental offences and other matters totalling about $473-million, as per the applicable exchange rates when the claims were lodged. Centerra believed that each of these claims was without merit.

However, the negotiation process was last year also hindered by four Ontario court cases by different applicants against the Kyrgyz Republic and Kyrgyzaltyn, the State-owned mining company that owned Centerra equities, each seeking to enforce in Ontario international arbitral awards against the Kyrgyz Republic. This meant that, in two of the cases, Kyrgyz equity in Centerra was restricted and awarded to the claimants, in effect reducing the Kyrgyz government shareholding in Centerra and potentially skewing the fairness of the restructuring deal as contemplated in the HOA.

PROJECT PROGRESS
Meanwhile, Centerra was diversifying its portfolio, and announced early this month that the Mongolian Parliament had passed a resolution giving the green light for Centerra’s 1.6-million-ounce Gatsuurt project to be developed, ending a five-year impasse on the project’s permitting.

Centerra said that it had reached an agreement with the government in October last year, which stipulated that the government would consider taking a 3% special royalty in place of the 34% State ownership interest, in addition to the existing Mongolian mineral royalty and tax regime.

Centerra advised that it now expected to proceed with negotiating definitive agreements (including a deposit development agreement and an investment agreement) with the Mongolian government, after which it would undertake economic and technical studies to update the existing studies on the project, which were completed and published in May 2006.

The company would also undertake an exploration programme, with the aim of expanding the existing resource, and start additional hydrogeological drilling.

Further, work to advance the Öksüt project, in Turkey, was ramping up, with work on detailed engineering and the procurement of contractors and equipment ongoing.

The Turkish Ministry of Environment and Urbanisation approved the Öksüt project’s environmental-impact assessment early in November, paving the way for Centerra to focus on obtaining the necessary land-use and other operational permits. Subject to receiving permits in time, the company expected to begin development of the Öksüt project in the second quarter, with first gold production slated for the third quarter of 2017.

Centerra was also moving ahead with a feasibility study on the Hardrock project, due for completion by the middle of the year, on which it expected to spend about $10.8-million. In the first quarter of 2015, the company announced a partnership with 50/50 JV partner Premier Gold to develop the project, including the Hardrock project located in the Geraldton-Beardmore Greenstone belt, in north-western Ontario.

Centerra also announced that it had entered into an option agreement dated September 8, 2015, with Calibre Mining, whereby Centerra could earn a 51% interest in the 1 200 ha property within the Borosi concessions, Northeast Nicaragua, by spending $3-million in exploration on the property by December 2017. It could subsequently earn a further 19% interest by investing an additional $4-million in exploration on the project over a subsequent two-year term, for a total of 70% interest in the project.

TSX-V-listed Medgold Resources, in July 2015, also granted Centerra the option to earn a 51% interest in its Lagares gold project, in northern Portugal, by spending $3-million over three years.

Q4 RESULTS
For the fourth quarter ended December 31, Centerra reported a net loss of $2.9-million, or $0.01 a share, which included a $27.2-million, or $0.11 a share inventory impairment at the Kumtor mine.

Revenues in the fourth quarter decreased 59% year-on-year to $148.3-million, as a result of 55% fewer ounces sold and an 8% lower average realised gold price.

The lower amount of ounces sold was a reflection of the decrease in gold production in the fourth quarter at both Kumtor and the Boroo (in Mongolia) operations. Mining had ceased at Boroo mine, and production was limited to ounces recovered from secondary heap leaching.

Centerra also declared a $0.04 quarterly dividend.

Centerra’s TSX-listed stock on Thursday gained as much as 5% to change hands at C$7.45 apiece, having grown 16% over the last 12 months.

Centerra’s 2016 gold ouput was expected to range between 480 000 oz and 530 000 oz, with all production expected to come from Kumtor mine.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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