Kyrgyzstan’s Golden Goose, Kumtor

 
 

Kyrgyzstan’s oscillating with regarding to the country’s relationship with Centerra Gold and the Kumtor mine is perpetual: though the tone sometimes changes, it’s a back and forth which seems to have no end in sight. Furthermore, the various related issues–from the environmental to the political–complicate charting a course forward. Kumtor, without a doubt, is crucial economically. But it also inflamatory among Kyrgyz citizens, has been a hotspot of alleged corruption, and could may cause serious environmental damage. All the while, gold is simply not a profitable as it once was.

Bishkek pushed away from the negotiating table in December–halting talks on the restructuring of the joint project. Centerra Gold, a Canadian mining firm, has been in talks with the Kyrgyz government for more than two years on restructuring the arrangement between the company and the state. Kyrgyzstan presently holds a 32.7 percent stake in Centerra and appoints three members of the company’s Board of Directors. The restructuring plan had generally aimed to swap Kyrgyzstan’s Centerra shares for a 50-50 joint venture.

December’s pullback from negotiations seemed linked to news that Centerra planned on issuing additional shares of the company–which would dilute Kyrgyzstan’s stake slightly, from 32.7 to 32.1 percent. According to Reuters in early February, Kyrgyzstan was mulling the option of suing Centerra over the issue.

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At the same time–in early February–two of the Kyrgyz members of the Centerra board stepped down as pressure mounted. 24.kg reported that Bektur Sagynov, the deputy chairman of the board of Kyrgyzaltyn–Kyrgyzstan’s state-owned mining company which manages the country’s stake in Centerra–said that none of the three Kyrgyz on the Centerra board spoke English fluently. The leader of the Respublika-Ata Jurt party asked,  “Why did they give up such a position, receiving about $200,000 a year? Are they afraid of criminal cases?” (the implication being corruption and negligence). New board members have been identified and vetted according to their “competence in the field of finance, economy, corporate law, the specifics of the mining companies’ work and the English language,” according to Kyrgyzaltyn.

In late February, Centerra released its 2015 end of year report. The company made a profit in 2015, recording earnings of $41.6 million in contrast to 2014’s net loss of $44.1 million. Scott Perry, chief executive officer of Centerra Gold, said in the report’s introduction, “During the year Kumtor once again generated a significant amount of cash; after all capital expenditures and taxes, it generated $158.4 million in 2015.” That optimistic note aside, all is not well at Kumtor. The fall in oil prices, which has led to a momentous fall in the costs of production, masks the fact that gold prices have also fallen. This offset disappears if you look at basic revenue generated from the mine. Per the report’s details, revenue generated from Kumtor in 2015 was 13 percent less than in 2014–the difference amounting to about $90 million (in 2014 revenue for Kumtor stood at $694.6 million, for 2015 it fell to $604.5 million.) If oil prices recover–and that doesn’t look likely in the next year–Kumtor’s celebrated profitability could plummet.

The report mentions Kyrgyzstan’s abandonment of the negotiations, but says “Centerra will continue to engage constructively and in good faith with the Kyrgyz Republic Government to resolve all outstanding matters affecting the Kumtor Project.” And there are several outstanding issues, not the least of which are the mine’s ability to operate. Centerra is waiting on the pending review of its mining plan and renewal of its permits by two Kyrgyz regulatory agencies. The mine was granted an extension in December which allowed it to continue operation, but the next deadline is March 31.

As that deadline approaches, it’s clear negotiations of one kind or another are ongoing. 24.kg reported on March 1 that the Kyrgyz government asked parliament to hold off on considering the “issue of additional shares in Centerra Gold” in deference for ongoing negotiations. This is telling. The issue of permits ought to be linked to the environmental impact and sustainability of the mine, as the two agencies reviewing the mining plans are the Agency for Environment Protection and Forestry and the Agency for Geology and Mineral Resources. As Ryskeldi Satke highlighted in an article for Al Jazeera last month, Kumtor’s environmental impact is a fiery issue among local Kyrgyz. The mine has been the target of several protests over the years, with activists saying the government consistently ignores local concerns.

In reality, the issue of permits has become just another political touchstone in the furor surrounding Kumtor. Kyrgyzstan is hurting economically and Kumtor is still seen as the golden goose.

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