This is an interesting article on Centerra's positionBY: HENRY LAZENBY
Updated 3 hours agoTORONTO (miningweekly.com) – The outcomes of two ongoing court cases in Russia andOntario could potentially have a significant impact on the restructuring negotiations between Canadian miner Centerra Gold and the Kyrgyz Republic government over the ownership of the Kumtorgold mine.
Centerra’s president and CEO Ian Atkinson this week said that despite ongoing negotiations towards a definitive agreement, based on the heads of agreement (HoA) signed on January 18, the outcomes of the litigation could in both cases result in awards being satisfied against State-owned miner Kyrgyzaltyn JSC’s 32.7% equity interest in Centerra.
According to the HoA a potential restructuring transaction would hinge upon Kyrgyzaltyn exchanging its 32.7% equity interest in Centerra for a 50% interest in a joint venture (JV) company that would own and operate theKumtor mine.
However, should the Kyrgyz Republic fail to overturn a recent Ontario award and Kyrgyzaltyn fail to successfully challenge a determination that the Kyrgyz Republic beneficially owned Centerra shares held by Kyrgyzaltyn, the Kyrgyz State miner would not have adequate equity in Centarra to make a fair exchange for a 50% stake in Kumtor.
“In such circumstances, the restructuring of the Kumtorproject according to the HoA would be impossible,” Atkinson told Mining Weekly Online in an interview.
Early this month, Centerra was served with an order from the Ontario Superior Court of Justice in favour of Stans Energy Corp, which prohibited Kyrgyzaltyn from, among other things, selling, disposing or exchanging 47-million shares of the 77.4-million shares it held in Centerra.
Stans also served Centerra with a notice of application to the Ontario Superior Court that sought to enforce a June 30, arbitral award, obtained by Stans against the Kyrgyz Republic from the arbitration tribunal of the Moscow Chamber of Commerce, for about $118-million.
The Stans application sought, among other things, an order declaring that the Kyrgyz Republic had a beneficial interest in all of the shares in Centerra held by Kyrgyzaltyn and that monies, interest, dividends and other rights of Kyrgyzaltyn in the stock of Centerra may be seized in order to satisfy the Stans arbitration award.
Atkinson said that the company understood that the Kyrgyz Republic was appealing the Stans arbitration award to the Russian courts in Moscow.
In a separate proceeding, Kyrgyzaltyn had appealed to the Ontario Court of Appeal the decision of the Ontario Superior Court in the Sistem Muhenkislik Insaat Sanayi Tiacaret SA matter, which found that the Kyrgyz Republic indeed did have a beneficial interest in the Centerra shares held by Kyrgyzaltyn.
Atkinson explained that should the Kyrgyz Republic not succeed in overturning the Stans arbitration award in the Russian courts and Kyrgyzaltyn was unsuccessful in the Sistem appeal, Centerra expected that Stans would likely succeed in enforcing the Stans arbitration award in Ontario, and in seizing a sufficient number of the Centerra shares held by Kyrgyzaltyn to satisfy the Stans arbitration award.
“If Stans ultimately seizes such shares, Kyrgyzaltyn would no longer hold a sufficient number of Centerra shares to contribute to the HoA restructuring transaction such that it could receive 50% of a new Kumtor joint venture. In such circumstances, the company believes that the restructuring of the Kumtorproject according to the HoA would be impossible,” he said.
Centerra's Kumtor openpit mine had faced several setbacks since the project started in 1994, including threats of nationalisation, riots and since last year, a $300-million ecological damages lawsuit. The mine contributes about 10% of the Kyrgyz Republic's gross domestic product.
MONGOLIA MATTERS
Meanwhile, Centerra reported that it continued discussions with the Mongolian government regarding developing itsGatsuurtgold property, located near the company’s active Boroo mine.
The Gatsuurtproject, also in Mongolia, remained under care-and-maintenance owing to continued delays in permitting resulting from the Water and Forest Law, which prohibits mining and exploration activities in water basin and forest areas. Atkinson noted the government had realised the restrictive nature of the legislation on mine-licence holders, and had initiated efforts to revise the legislation.
Gatsuurt had been included on a list of mineral deposits of ‘strategic importance’ for the Mongolian government to consider. Centerra was hopeful that parliament would approve the list this year, opening the door for it to resumeexploration on the property.
Parliament and/or any relevant committees of Parliament were expected to consider this matter further in the current quarter. Should the Mongolian Parliament ultimately approve this designation, it would have the effect of excluding theGatsuurt deposit from the Mongolian Water and Forest Law and would allow government to acquire up to a 34% interest in Gatsuurt.
Atkinson noted that the terms of any such participation were currently unclear and would be determined through negotiations with the Mongolian government.
The company noted that should the project not be designated as a project of strategic importance, or if the Water and Forest Law was not substantially changed or annulled, mineral reserves at Gatsuurt might have to be reclassified as mineral resources and the company might be required to write-off about $37.5-million related to the investment inGatsuurt and about $38.7-million of costs that remained capitalised for the Boroo mill and other surface structures.
These amounts represented the capitalised costs at September 30, associated with its investment in Gatsuurt and Boroo, where Gatsuurt ore was planned to be milled.
Toronto-based Centerra on Wednesday reported a wider third-quarter net loss of $3.2-million, or $0.01 a share, from $1.8-million, or $0.01, in the year-ago period.
I like the part that concludes Stan's will follow the precedence already set, and Ian feels that the Kygryz's will have nothing left to offer in a joint venture! I found it quite reassuring. jmo