Uncertainty Remains on Centerra’s Kumtor Operation
Posted by Cheryl Rutledge on 7/14/2015 11:20:32 AM
By Alexander Collen, Taylor Jackson and Kenneth P. Green
Following almost two years of negotiations with the Kyrgyz government, Canadian miner Centerra Gold has received assurance that the Kumtor operation will be allowed to operate more smoothly. Prime Minister Bakyt Asanov said that authorities must allow the operation to go forward while fully protecting the country’s resources, environment and industrial safety standards.
Centerra says the mine is expected to produce between 470,000 and 520,000 ounces of gold at an all-in sustaining cost of $819-$908 an ounce. The mine, located near the Chinese border, accounts for approximately 60 percent of the nation’s industrial output.
Earlier this year, rumours were circulating that the mine would be nationalized. The government denied the rumours but did say they wanted more representation on the company’s board. According to a Parliament member in the ruling coalition, the government “does not trust” Centerra’s current management. The Kyrgyz government currently owns a 32.7 percent stake in Centerra and has been insisting against the company’s offer to swap the ownership stake for a 50 percent joint venture agreement that would control the Kumtor operation.
In addition to the recent uncertainty regarding ownership, Kyrgyzstan’s environmental protection agency had requested a month’s extension to the 4th of July to study and evaluate the project’s viability. The reason for the extension is that Kumtor Gold’s plan to replace ice masses that stop the Davydov glacier from sliding into the pit are allegedly against the Water Code of Kyrgyzstan. Since then, the mine has been cleared to continue pending further review at the end of 2015.
The mine has been a source of political tension in the impoverished country. These events potentially highlight the relative instability of policy in Kyrgyzstan. Given the mine’s significance within the Kyrgyz economy, the negative impact that uncertainty has on investment in the Kumtor operation may have national implications.
The Fraser Institute’s 2014 Annual Survey of Mining Companies found that Kyrgyzstan ranked 93rd of 122 jurisdictions on the Policy Perception Index (a measure of the extent to which government policy attracts investment, according to the executives surveyed). The survey found that 29 percent of respondents were strongly deterred by uncertainty regarding the administration, interpretation and enforcement of existing regulations, while an additional 29 percent of respondents indicated they would not invest in Kyrgyzstan for this reason.
The mine’s environmental review also brings to light the underlying uncertainty concerning environmental regulations in Kyrgyzstan, with 31 percent of respondents in the same survey indicating that this was a strong deterrent to investment, while six percent of respondents indicated that they would not invest in the region as a result of uncertainty in environmental policy.
The Kyrgyz government’s willingness to allow operations at Kumtor to proceed, in conjunction with the recent environmental approval, may be positive indicators for the operation’s long-term viability. Perhaps these measures will increase the region’s overall investment attractiveness and lead to a positive impact on the local economy.