Kumtor is the largest non-state employer and taxpayer in Kyrgyzstan and represents some 10% of its overall GDP makes up 25% of its industry and contributes 50% of export earnings. (Image courtesy of )
An between the Kyrgyz Republic and Canada鈥檚 Centerra Gold (TSX:CG) took a turn for the worse Tuesday, as President Almazbek Atambayev ordered state prosecutors to review the legality of agreements signed with the company in 2003-2004 and 2009.
The move comes barely two weeks after the Toronto-based firm, which operates Kyrgyzstan鈥檚 biggest gold mine, Kumtor, decided to take the impasse with the Central Asian country .
鈥淧eople need to know why Kumtor, which was to become the pride of Kyrgyzstan and the largest investment project, is in fact perceived by the people as 鈥榯he biggest scam鈥�,鈥� Atambayev said in comments .
The main bone of contention seems to be the ownership structure of Kumtor mine, Kyrgyzstan鈥檚 largest private sector employer and taxpayer and Centerra鈥檚 main gold producing mine.
In 2003, Cameco 鈥� Centerra鈥檚 former parent company 鈥� inked a deal with state miner Kyrgyzaltyn in which the latter traded its two-thirds stake in Kumtor for about a third of the newly formed Centerra.
Kumtor, which was to become the pride of Kyrgyzstan and the largest investment project, is in fact perceived as 鈥渢he biggest scam鈥� in the country鈥檚 history聽鈥斅燩resident Almazbek Atambayev.
Such agreement was revised in 2009 and replaced by with a new pact that increased taxes and other fees as well as restored Kyrgyzaltyn鈥檚 one-third stake in Centerra, a stake that had been sold down.
In 2013, prosecutors charged 10 former government officials with corruption over the 2003 deal.
Centerra has denied any wrong-doing and allegations of involvement in corruption haven鈥檛 been proven in court.
It has also noted it considers the latest actions by the Kyrgyz authorities as 鈥渃lear breaches of the agreements鈥� that govern Kumtor, the largest open-pit gold mine in the region, responsible for more than 10% of Kyrgyzstan鈥檚 GDP.
Centerra once suggested a 50/50 joint venture, but former prime minister Joomart Otorbayev聽said last year that聽. Rumours pointing to an聽聽quickly spread out after that, but were聽later聽.
Otorbayev resigned later that month after failing to clinch the restructuring deal. His successor, Temir Sariyev,聽聽would be among his priorities.
In April, Kyrgyz prosecutors and other state law enforcement agencies raided Centerra鈥檚 office in Bishkek, the capital of Kyrgyzstan. (Image courtesy of )
Adding confusion to the matter, the State National Security Committee, or GKNB, issued a press release this week mixing the Kyrgyz government鈥檚 battle against Kumtor with investigations into former politicians charged of plotting a coup in 2010 against then President Kurmanbek Bakiyev.
鈥淚nvestigators do not rule out the possibility that efforts to destabilize the situation in the country in March and May were connected with the government鈥檚 active investigations into corruption schemes at the Kumtor project,鈥� the statement said .
Centerra, which sits on more than $500 million in cash, is actively diversifying away from Kumtor as the risks associated with the operation have proved a drag on the company鈥檚 market valuation.
The firm has been using the cash generated by Kumtor to develop projects in Mongolia, Turkey and Canada, with the goal of becoming a 1 million ounce per year producer over the next few years.
The company is yet to receive a new license from the government required to continue operating the mine beyond June 30.
Kumtor has produced around 10 million ounces since inception and remaining reserves are 5.6 million ounces.