I Business Review I
“Statements by Kyrgyz officials since the government’s illegal seizure of the Kumtor Mine indicate that they are departing from the approved mine plan in ways that will cause irreversible damage. Based on recent reports, the government has also failed to adequately protect the mine’s infrastructure from flooding and other threats and may be facing production difficulties. Their actions, and threatened actions in pursuit of short-term profits at the expense of sustainability, place the long-term viability of the Kumtor Mine at grave risk and compromise the safety and livelihoods of its employees.”
Chief Operating Officer,
Centerra Gold Inc.
Canadian Gold mining giant, Centerra Gold Inc. recently filed an application requesting urgent interim measures in its international arbitration against the government of the Kyrgyz Republic and Kyrgyzaltyn JSC, the state-owned gold refining monopoly and Centerra’s largest shareholder, to address critical operational and safety problems at the Kumtor Mine.
Through its application, Centerra is seeking to prevent the Kyrgyz Republic and Kyrgyzaltyn JSC from causing irreparable damage to the mine, destroying its integrity, value, and long-term viability. As previously disclosed, Centerra initiated binding arbitration against the Kyrgyz government in response to actions taken against the Company’s wholly-owned subsidiary Kumtor Gold Company, to expropriate the Kumtor Mine under the guise of “external management” and strip KGC of its assets.
Dan Desjardins, the Chief Operating Officer of Centerra who managed the Kumtor Mine for five years as the President of KGC until January 2020, said: “Statements by Kyrgyz officials since the government’s illegal seizure of the Kumtor Mine indicate that they are departing from the approved mine plan in ways that will cause irreversible damage. Based on recent reports, the government has also failed to adequately protect the mine’s infrastructure from flooding and other threats and may be facing production difficulties. Their actions, and threatened actions in pursuit of short-term profits at the expense of sustainability, place the long-term viability of the Kumtor Mine at grave risk and compromise the safety and livelihoods of its employees.”
Centerra is seeking immediate relief pending a final award in the arbitration in form of:
- An order directing the Kyrgyz Republic to refrain from deviating from the government-approved 2021 Kumtor Mine Plan and to provide Centerra with regular reports on the mine’s operations;
- An order directing the Kyrgyz Republic and Kyrgyzaltyn JSC to refrain from transferring any Centerra shares or KGC assets without a prompt accounting and payment of profits that otherwise would have been payable to the Company into an escrow account; and
- An order directing the Kyrgyz Republic and Kyrgyzaltyn JSC to refrain from interfering with the arbitration process, including through spurious fines, tax claims, and legal proceedings, and intimidating or threatening Centerra’s employees and agents.
Under applicable investment agreements, Centerra’s claims will be adjudicated in arbitration proceedings to be held in Stockholm, Sweden, and conducted under the rules of the United Nations Commission on International Trade Law (UNCITRAL). For the process, the Permanent Court of Arbitration (PCA) has appointed The Rt. Hon. Lord Hoffmann as the sole arbitrator of the matters in dispute and the governing law of the arbitration is the law of the State of New York and of England.
Centerra’s application states that the Kyrgyz government and its agents are jeopardizing the Kumtor Mine itself and Centerra’s ability to receive any award at the conclusion of the arbitration as a result of the following egregious acts of mismanagement:
- Maximizing Short-Term Output in Pursuit of a Quick Profit Will Reduce the Life of the Mine
The company states that for more than 20 years, Centerra, through KGC, successfully operated the Kumtor Mine by following carefully designed mine plans that had been approved by successive governments of the Kyrgyz Republic. Since the government seized the mine on the weekend of May 15 and 16 2021, the government-appointed mine managers appear to be departing from the mine plan, apparently to extract quick profits by mining only high-grade ore. This could make it infeasible to obtain the full value of the gold from the mine, materially reducing the total output over the life of the mine. Prior to the mine’s illegal seizure, Centerra had planned to invest US$2 billion to extend the life of the mine by five years to 2031.
- Improper Operation of Specialized Water Pumps Could Destabilize and Collapse the Pit Wall
Beginning in about 2015, as the pit depth increased, Centerra management invested more than US$10 million to build a highly specialized pump system to keep glacial meltwater from entering the mining pit areas and similarly specialized pump systems to remove any water that enters the pit. Based on photographic evidence, the government-imposed management does not appear to be operating those pumps effectively. Large amounts of water can be seen streaming down the walls of the mine and glacial meltwater is accumulating in the bottom of the pit well beyond normal levels. The mine cannot operate effectively if water collects at the bottom of the pit, because that is where the highest-grade ore is mined. Allowing large amounts of glacial meltwater to flow down the pit walls also destabilizes the walls and can cause them to collapse.
- Transitioning to Underground Mining Risks Irreversible Damage
The Kyrgyz government-appointed external management has publicly stated that it plans to reconfigure the Kumtor Mine from an open pit to an underground mine. KGC previously engaged a mining contractor to study and develop underground mining at the site, and after extensive work, the company determined that it was not geologically and economically viable. The pursuit of an underground mining plan risks causing irreversible damage to Centerra’s longstanding investment in the open pit mine.
Centerra Gold Inc. is a Canadian-based gold mining company focused on operating, developing, exploring and acquiring gold properties in North America, Asia and other markets worldwide. Centerra operates two mines, the Mount Milligan Mine in British Columbia, Canada and the Öksüt Mine in Turkey, and its Molybdenum Business Unit in the United States. The Company owns the Kumtor Mine in the Kyrgyz Republic, which is currently not under the Company’s control. Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG and on the New York Stock Exchange (NYSE) under the symbol CGAU. The Company is based in Toronto, Ontario, Canada.