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Wednesday August 20 2:26 PM EDT
Kazakstan Goldfields contests contract termination
NEW YORK, Aug 20 (Reuter) - Canadian-based gold producer Kazakstan Goldfields Corp (KGFC) (KGFC.CD) has instructed legal counsel in Kazakstan to begin an arbitration process, after the Kazakstan government's Department of State Property terminated the company's right to manage production at three gold mines in the state.
``The company also intends to pursue any other remedies available to it, particularly to preserve the considerable financial investment it has made in these properties,'' KGFC chairman Thomas Griffis said in a statement.
KGFC, through its 75 percent ownership of the Kazakstan entity, Gold Pool Joint Venture, manages and operates JSC Kakhaltyn, which owns the Aksu, Jolimber and Bestobe mines in Kazakstan.
The Montreal-listed Central Asia Goldfields Corp (CGZ.M), a company related to KGFC, holds the remaining 25% carried interest in Gold Pool. Recently the Kazakstan Department for State Property notified KGFC it had unilaterally terminated the KGFC management contract over Gold Pool and JSC Kazakhaltyn, saying KGFC had suspended operations at the three mines and gold production had ceased.
``As specifically permitted under the management contract, KGFC has temporarily suspended operations at the three mines since their present economic viability has been strained by high local smelting and refining costs (in excess of $110 per ounce), frequent power shortages and the inability of a local smelter to process more than 25 percent of the company's concentrate - all events of force majeure which in the company's view would not lead to a breach of the terms of the management contract,'' Griffis said.
Under the terms of the management contract dated March 10, 1996 between Gold Pool and the Department of State Property, the company agreed to assess the operations of nine former mines owned by JSC Kazakhaltyn and stabilize only the economic mines, Griffis said.
KGFC was to fund the stabilization of the operations and retain the revenues from gold production. As well KGFC was granted the right to purchase the state-owned enterprise JSC Kazakhaltyn from the Kazakstan government upon an investment of about US$20 million.
On April 4, 1997, after investing the required amount in the business,
KGFC advised the Department of State Property that it intended to exercise its purchase option and presented a business plan for an 18 month investment of up to US$70 million for mine refurbishment and a gold processing facility to replace reliance on the local smelter.
But ``the government has stated that it requires Gold Pool to restart the presently uneconomic mines and complete its proposed capital investment prior to advancing to direct ownership under the privatization process,'' Griffis said.
Earlier on May 4, 1997 the State Property Committee assured KGFC in writing that it viewed the company as fully in compliance with its obligations under the management contract.
``Over the past month however all requests for governmental meetings made directly and through KGFC counsel in Kazakstan have met with no response,'' Griffis said.
``Nevertheless KGFC will continue to seek meetings with the appropriate government officials in order that the outstanding issues may be resolved,'' he said.
``The privatization and attendant equity and debt financing required to bring the mines into a state of economic operation, by moving forward with the planned on-site carbon-in-leach processing system, will continue to be pursued by KGFC,'' Griffis said.
KFGC currently has 34,883,134 common shares issued and outstanding and
13,678,887 common shares issued in Central Asia Goldfields Corp.
KGFC trades on the Canadian dealing network. |
