Kumtor is the biggest gold mine in Kyrgyzstan that has been working since 1991. The government of Kyrgyzstan now owns 100% of the mine. The country and Kyrgyzaltyn, a national entity responsible for the gold production, have taken the mine under full control and are going to keep the revenue the mine had generated since May 15, 2021. Moreover, the government will take control over the soil reclaiming fund of $53 million.
«The only owner of Kumtor is now Kyrgyzstan,» said President Sadyr Japarov on April 4, right after a ceremony of signing an agreement with Centerra Gold Inc., a Canadian company that previously owned the mine. This document has drawn a line under the conflict between the Canadian investor and the government of Kyrgyzstan that initiated a process of reclaiming control over Kumtor last year.
The ceremony of signing the agreement with the Canadians looked like a triumph for the small country. President Japarov even addressed the nation at the ceremony. But there is no surprise why Kyrgyz officials are so enthusiastic about the issue: Kumtor is the biggest gold mine in Kyrgyzstan and the government now owns 100% of the mine for the first time in its history from 1991.
Golden apple of discord
In 1991 former President of Kyrgyzstan Askar Akayev approved the initiative to create a new company Seabeco-Kyrgyzstan. The first CEO of the company was Boris Birshtein, founder of the Canadian company Seabeco; he owned a 33% share of the joint venture. However, the company was forced to close when it faced accusations of fraud and money laundering.
In 1992, Cameco Corporation, another company from Canada, joined the project. The two sides established Kumtor Gold Company (KGC) where the Kyrgyz government through Kyrgyzaltyn owned 67%. In 2003, Canadians suggested combining the assets of KGC and Cameco in a new company, Centerra Gold Inc. As a result, the share of Kyrgyzstan in Centerra dropped to 33%. In 2004, after the IPO of the company, the Kyrgyz share declined even further and reached 15.66%. Even though the country did its best to reconsider that agreement, it was only able to get 26% by 2021.
In January 2021, the new President of Kyrgyzstan SadyrJaparov initiated another round of examination of the situation with Kumtor. Moreover, the expert community always tried to draw the attention of Kyrgyz society toward the lack of transparency and corruption at Kumtor. In February 2021, the government established a special commission to investigate the activities of Centerra Gold. The commission found many violations of environmental law. In May 2021, Kyrgyz authorities demanded the Canadian company pay $4.2 billion in penalties. On May 17, the government went into the company’s administration. The Canadians called this move a corporate raid and filed a complaint to the international court.
On September 12, 2021, the London Bullion Market Association (LBMA) blocked Kyrgyzaltyn from membership. After that Kyrgyzstan and Centerra Gold Inc. resumed negotiations and reached an out-of-court settlement.
Division of property
On April 4, 2022, the two sides signed an agreement that requires the government of Kyrgyzstan and the Canadian investors to make an exchange of shares between Kyrgyzaltyn and Centerra Gold Inc. Kyrgyzaltyn is going to obtain 100% of the shares of KGC while giving away 26% of shares in Centerra Gold Inc. As of April 1, 2022, this share was estimated at $778 million.
The country and Kyrgyzaltyn, a national entity responsible for the gold production, have taken the mine under full control and are going to keep the revenue the mine has generated since May 15, 2021. Moreover, the government will take control over the soil reclaiming fund of $53 million.
In addition, Centerra Gold Inc. should pay $50 million for the purpose of preserving the natural resources of Kyrgyzstan. They also have to pay $11.1 million in favor of Kyrgyzaltyn.
According to the agreement, both sides must drop all claims and objections concerning the case.
«This is a nationalization of the mine. However, this happened in a civilized manner with no extra payments. Otherwise, Kyrgyzstan would pay about $2 billion,» said Eldar Tajibayev, head of the mining and smelting union of Kyrgyzstan.
As President Japarov noted, some people tried to cast this conflict as a barbaric raid of the company. «But we succeeded in negotiations and have protected our national interests,» he said. According to the president, the Kumtor case is just the beginning of the stable development of the country, as Kyrgyzstan is still open to foreign investments.
Mars Sariev, an expert from Open Policy Institute in Kyrgyzstan said last year that Russia might be interested in joining the Kumtor project. At least, Russia is already involved in the Djerui project, the second biggest gold mine in Kyrgyzstan. However, there were no anti-Russian sanctions last year.
In turn, Сenterra Gold Inc. has found another target for investments. In late February 2022, the company closed a deal with Gemfield Resources LLC. worth $206.5 million. The new project of the Canadian investor includes three mines in the U.S.: Gemfield, Goldfield Main and McMahon Ridge.