‘Ottawa’ Centerra Dispute Escalates as Executives Barred From Leaving Kyrgyzstan
TORONTO — The dispute between Centerra Gold Inc. and Kyrgyzstan has escalated to disturbing levels, with the Kyrgyz launching a new criminal probe and barring several of the miner’s employees from leaving the country.
The move is the latest salvo in an ongoing cat-and-mouse battle involving the prized Kumtor gold mine. Toronto-based Centerra raised the stakes a week ago when it launched an international arbitration case against the Kyrgyz government, and the state is now answering with force.
“Retaliation by Kyrgyz authorities is not unexpected, but suggests that a negotiated settlement, as achieved in previous disputes, may be unattainable,” BMO Capital Markets analyst Andrew Breichmanas said in a note, which he titled “Well, That Escalated Quickly.”
Centerra announced Monday that the Kyrgyz general prosecutor’s office has launched a criminal case over allegations that certain company managers abused their authority and engaged in commercial transactions that harmed the state. Centerra’s office in Bishkek, the capital of Kyrgyzstan, was raided and documents were seized for the second time since April. The company has denied any wrongdoing.
The individuals under investigation were not named, but Centerra noted that “several” of its top expat managers in Kyrgyzstan have been barred from leaving the country.
“We haven’t been provided a list (of who is under investigation),” said John Pearson, Centerra’s vice-president of investor relations.
Centerra also got slapped with a court order intended to limit its financial transactions. It is part of a separate legal case in which a state environmental authority is demanding US$220 million in pollution fees.
The court order has no serious impact on the company, as it can continue to operate the Kumtor mine and collect revenue from gold sales. But regardless, these recent developments put extreme pressure on Centerra as it tries to reach a solution to the long-running dispute.
The central issue involves ownership of the Kumtor mine. Centerra and the government signed a binding investment agreement in 2009 that established tax terms for Kumtor and gave the government a 32.7 per cent stake in Centerra. But Kyrgyzstan wants a new deal, and has been trying to pressure the miner into accepting new terms. Negotiations broke down late last year.
Over the past several weeks, the dispute has escalated far faster than most onlookers expected.
“It’s really a bad scene,” said Len Homeniuk, Centerra’s former chief executive, who left the firm in 2008. Homeniuk was arrested and detained in Bulgaria for nearly three months last year because of this dispute.
“When companies choose to fight with countries, in my view that’s a losing battle.”
He expressed concern for the Centerra employees barred from leaving Kyrgyzstan, and said the company should be trying to engage in discussions with the government rather than fighting an arbitration battle.
The last time Centerra launched an arbitration case was in 2008. That proved to be a catalyst for some serious negotiations, and the two sides hammered out a deal the following year.
When companies choose to fight with countries, in my view that’s a losing battle.
Centerra is hoping for a similar result this time around. However, this dispute appears to be far more serious and both sides are entrenched in their positions.
Despite the toxic feud, the Kumtor mine continues to operate well. It has run with minimal interruption since opening in 1997.
However, one potential hurdle is looming at the end of this month. Centerra is still waiting on an environmental approval for its mine plan, and if it is not received by June 30, the mine may be forced to halt production.