Canada鈥檚 Centerra Gold (TSX: CG)聽 that its Kyrgyz subsidiaries have filed for bankruptcy in New York to protect investors and restructure the company, whose Kumtor gold mine was seized by the former soviet nation last month.
The miner鈥檚 units Kumtor Gold Company (KGC) and Kumtor Operating Company (KOC) are seeking protection under Chapter 11 of the US Bankruptcy Code. The court-supervised process provides, among other things, for a worldwide automatic stay of all claims against KGC and KOC, Centerra said.
The Toronto-based miner said it hoped the internationally recognized restructuring process will facilitate potential negotiations with the government of Kyrgyzstan, which is now in full control of Kumtor.
Centerra also noted the ongoing proceedings will not impact any other areas of the company鈥檚 business, including its Mount Milligan copper-gold mine in Canada, the 脰ks眉t gold operation in Turkey and the molybdenum business in North America.
Centerra expects bankruptcy proceedings to prevent further efforts by Kyrgyzstan to strip Kumtor Gold of its assets
The move comes on the heels of the Kyrgyz government聽organizing a press tour to the mine last week, in which it said Kumtor was operating as usual.
鈥淭here are no problems at the Kumtor mine,鈥� Nurdin Usenov, mill manager and acting director of operations . 鈥淎ll departments are working, production targets are being met, there are enough stocks of spare parts, consumables, lubricants and fuel.鈥�
According to a new law passed in mid-May, the Kyrgyz government can take control for up to three months of any company that operates under a concession agreement if that firm violates regulations that damage or put locals and the environment at risk.
The head of a Kyrgyz state commission investigating alleged wrongdoing at the Kumtor mine, Kamchybek Tashiev, the agreement with Centerra Gold had to be revoked on the grounds of 鈥渃orruption鈥� and 鈥渧iolations of safety and environmental regulations.鈥�
At the same time, a Kyrgyz court fined KGC more than $3 billion for allegedly unloading mining waste on glaciers near the mine, 4,000 meters above sea level. A state commission also recently claimed that the KGC owed more than $1 billion in unpaid taxes.
Former Kyrgyz Prime Minister Omurbek Babanov聽was as part of the investigation into corruption linked to the development of Kumtor.
Inside job?
The man who now controls the operation, Tengiz Bolturuk, was one of Kyrgyzstan鈥檚 three appointed representatives on the 11-man board of Centerra directors.
The dual Kyrgyz-Canadian citizen is being sued by the Canadian miner under the premise that he聽conspired to steal聽the asset from the company while he was a聽director.
Bolturuk had gained a reputation as a very hostile colleague in Toronto, two sources familiar with his time on the board .
At home he had been making an impression, too. In a , employees of Kyrgyzaltyn, the state miner that owned the government鈥檚 shares in Centerra, showed discontent with Bolturuk鈥檚 growing involvement in Kumtor鈥檚 operations.
The document claimed he had fired dozen of locals employees and seemed to have positioned himself as the de facto head聽of the mine.
Strategic review
In a , Centerra said it was conducting a 鈥渟trategic review鈥� of its ownership of KGC and KOC.聽
鈥淭he seizure of the mine is based on false information and groundless allegations that undermine everything we have built together,鈥� Scott Perry, Centerra鈥檚 president and CEO to the people of Kyrgyzstan. 鈥淲e fear that the government鈥檚 unjustified action will put thousands of well-paying jobs and the businesses of hundreds of Kyrgyz suppliers at risk.鈥�
Kumtor is the largest of Centerra鈥檚 three gold mines, accounting for over 50% of the company鈥檚 total output.
The operation is also crucial to Kyrgyzstan. It accounts for a fifth of the ex-Soviet country鈥檚 total industrial output and has produced more than 13.2 million ounces of gold between 1997 and the end of 2020. Last year鈥檚 output was slightly over 556,000 ounces.
鈥淭he government has opened the door to what is likely going to be a multi-year degradation of the relationship between Centerra and the Kyrgyz State鈥�
Dalton Baretto, Canaccord Genuity
Arbitration proceedings can take up to ten years and even if the Canadian miner succeeds, there is not guarantee it will be paid the stipulated amount.
Dalton Baretto of Canaccord Genuity said in a May note that he wasn鈥檛 surprised by Kyrgyzstan鈥檚 move.
鈥淲e have been anticipating something like this since President Japarov took power on January 10; however, the speed and breadth of these reforms has caught us off-guard,鈥� he wrote.
The analyst added he believed the government has opened the door to what is likely going to be a multi-year degradation of the relationship between Centerra and the Kyrgyz State.
鈥淲hile Centerra Gold will leverage all available avenues of international trade disputes, we believe these are unlikely to be effective in the long term,鈥� Baretto said.
Kumtor has been the聽focus of a number of disputes聽between the company and聽the Kyrgyz government.
Japarov, who seized power聽after violent riots last October, once campaigned for the nationalization of the mine. After winning January鈥檚 elections and assuming the post, however, he said he no longer considered it necessary.
Kyrgyzstan has a history of popular uprisings and political turmoil, ever since gaining its independence after the collapse of the Soviet Union in 1991. Protesters had ousted two prior PMs in revolutions in 2005 and 2010.
