No light at end of tun­nel yet for Cen­terra, Kyr­gyz

Toronto gold miner de­lays set­tle­ment with of­fi­cials over le­gal, green dis­putes

Edmonton Journal - - FINANCIAL POST - GABRIEL FRIED­MAN Fi­nan­cial Post gfried­man@na­tion­al­post.com Twit­ter.com/GabeFriedz

Cen­terra Gold Inc.’s con­flicts with po­lit­i­cal lead­ers in the Kyr­gyz Repub­lic, a moun­tain­ous for­mer Soviet state where its flag­ship gold mine is lo­cated, con­tinue to rear their head.

Last Septem­ber, the Toron­to­based gold com­pany said it had reached a set­tle­ment to re­solve en­vi­ron­men­tal, le­gal and other dis­putes with Kyr­gyz au­thor­i­ties, but it has twice ex­tended its dead­line to fi­nal­ize the deal, with a tar­get date now set for June 22.

On Tues­day, a Kyr­gyz news sta­tion re­ported that the coun­try’s prime min­is­ter, who took over in April, is study­ing the set­tle­ment anew and also wants a par­lia­men­tary re­view.

The predica­ment comes at a time when Cen­terra is bat­tling a U.K. listed ex­plo­ration com­pany’s ef­forts to pur­chase the flag­ship mine, known as Kum­tor, through a cam­paign that plays to pop­ulist sen­ti­ment by promis­ing to re-in­vest cash from the mine back into the Kyr­gyz Repub­lic.

By con­trast, Cen­terra chief ex­ec­u­tive Scott Perry has stressed that his com­pany is us­ing its cash flows — Kum­tor pro­duced 563,000 ounces of gold in 2017, about 70 per cent of the com­pany’s to­tal — to build mines out­side of the Kyr­gyz Repub­lic in Bri­tish Columbia and Turkey.

“That’s re­ally our the­sis and our touch­stone,” Perry told share­hold­ers in May. “As we cre­ate more di­ver­sity, as we have more sources of prob­a­ble pro­duc­tion, we think that’s go­ing to re­sult in a very favourable re­cal­i­bra­tion of our geopo­lit­i­cal risk pro­file, which in turn should re­ally res­onate in the com­pany’s val­u­a­tion mul­ti­ples.”

John Pearson, a spokesman for Cen­terra Gold, said Wed­nes­day that fi­nal­iza­tion of the set­tle­ment has been de­layed be­cause the com­pany is wait­ing for the Kyr­gyz gov­ern­ment to close an un­spec­i­fied crim­i­nal in­ves­ti­ga­tion and for a few land use per­mits to be granted.

“We con­tinue to work to close the agree­ment,” he said.

Perry trav­elled to the Kyr­gyz Repub­lic to meet the new prime min­is­ter and dis­cuss the com­pre­hen­sive set­tle­ment, ac­cord­ing to Pearson.

Un­der the agree­ment an­nounced last Septem­ber, Cen­terra did not ad­mit any wrong­do­ing but agreed to make a one-time $50-mil­lion pay­ment plus on­go­ing pay­ments of $2.7 mil­lion to a na­ture fund and to pay for a $7-mil­lion can­cer care fund.

Mean­while, the Kyr­gyz gov­ern­ment agreed to drop all en­vi­ron­men­tal claims against the com­pany and to ter­mi­nate a court or­der that re­stricted the Cen­terra sub­sidiary that op­er­ates the mine from trans­fer­ring cash to the par­ent com­pany.

The for­mer prime min­is­ter Sa­par Isakov, who bro­kered the set­tle­ment with Cen­terra, was ousted in April and has sub­se­quently been ar­rested and de­tained on cor­rup­tion charges.

Ac­cord­ing to a news re­port on Tues­day from Ra­dio Azat­tak, trans­lated from Cyril­lic, some mem­bers of par­lia­ment re­sented that they had not been con­sulted on the set­tle­ment and be­lieved they had lost in the dis­pute to Cen­terra.

In April, Cen­terra an­nounced that it had re­jected an of­fer from the Lon­don-listed Chaarat Gold Hold­ings Ltd. to pur­chase Kum­tor mine.

Ac­cord­ing to the pro­posed terms of the of­fer, Chaarat would pay $400 mil­lion in cash to Cen­terra, al­though it hasn’t dis­closed the source of its fi­nanc­ing yet.

Mean­while, shares of Cen­terra held by the Kyr­gyz Repub­lic, es­ti­mated to be worth around $400 mil­lion, would re­vert to Cen­terra, and be ex­changed for prefer­able shares in Chaarat, which en­ti­tle it to re­ceive 50 per cent of the mine’s free cash flows.

“We re­ally want this to be a trans­par­ent trans­ac­tion and fully sup­ported on the Kyr­gyz side,” Artem Volynets, a Chaarat direc­tor, said in an in­ter­view with the Fi­nan­cial Post in April.

Volynets, who served be­tween 2010 and 2013 as chief ex­ec­u­tive of En+, the hold­ing com­pany of Rus­sian bil­lion­aire Oleg Deri­paska, said the min­ing mar­ket has been strat­i­fied be­tween com­pa­nies that own as­sets in ju­ris­dic­tions that are safe and those that are risky. Be­cause Cen­terra holds both it never trades at a value equal to its peers, he said.

On this point, Perry may agree. In an in­ter­view with Fi­nan­cial Post in March, he said, “In terms of Kum­tor in Kyr­gyzs­tan, it is not deemed to be a top-tier ju­ris­dic­tion. The mar­ket just never as­cribes full value to those as­sets.”

Cen­terra was trad­ing down 2.3 per cent on the Toronto stock mar­ket Wed­nes­day.

Volynets also said he’s con­vinced that a pub­lic de­bate will en­sue and the takeover of Kum­tor will hap­pen.

Fi­nan­cial an­a­lysts that cover Cen­terra have been less pos­i­tive about the Chaarat deal. Last week, Cana­dian Im­pe­rial Bank of Com­merce an­a­lysts wrote that the of­fer was not good enough even though it would re­duce Cen­terra’s geopo­lit­i­cal risk pro­file.

“The sale of Kum­tor is fore­cast to sig­nif­i­cantly re­duce Cen­terra’s (free cash flows), which is re­quired to sup­port the new devel­op­ment projects,” the CIBC an­a­lysts wrote.

VYACHESLAV OSELEDKO/AFP/GETTYIMAGES FILES

A truck moves along a road near Cen­terra’s Kum­tor gold mine, which was the tar­get of Lon­don-listed Chaarat’s takeover bid that Cen­terra had re­jected in April. The Toronto-based gold com­pany is also stuck in con­flicts with Kyr­gyz au­thor­i­ties re­lated to en­vi­ron­men­tal, le­gal and other is­sues.

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