Things not looking good for western mining companies in Kyrgyzstan
As Oxus Gold and now Centerra Gold can now attest, doing business with the Kyrgyz Government is no stroll in the park for western mining companies.
Author: Dorothy Kosich
Posted: Wednesday , 28 Mar 2007
RENO, NV -
Western gold mining companies, including Toronto's Centerra Gold and London's Oxus Gold, find themselves under increasing official pressure in the Kyrgyz Republic.
Earlier this month, London-based Oxus Gold (LSE: OXS) announced that it has agreed in principle to sell its interests for up to $80 million in the Norox Mining Company, which owns 66.67% of Talas Gold Mining in Kyrgyzstan to the KazakhGold Group.
Oxus has invested $63 million on the Jerooy gold project operated by Talas Gold, including the construction of a processing plant which is 80% complete. However, project construction was suspended in February after the government revoked the license for Talas.
In September 2006, local police forcibly occupied warehouse and other properties owned by Oxus.
Meanwhile Centerra Gold (TSX:CG) has sustained disruptions in production due to disputes with the Kyrgyz Government. Last week members of the Kyrgyz Republic Parliament began questioning the legitimacy of Centerra's Kumtor gold mine, the largest gold mine in Central Asia operated by a Western mining company. Some legislators suggested that changing the deal might help resolve the country's external debt problem. Centerra is owned 53% by Cameco Corporation (TSX: CCO) (NYSE: CCJ).
On Monday the Parliament voted to accept draft legislation for further deliberation with respect to Kumtor and other mineral deposits. In a news release, Centerra said the bill "challenges the validity of Kumtor agreements, proposes recovery of additional taxes and other amounts relating to past mining activities. The measure would also consolidate all gold deposits, including Kumtor, into one state-owned mining company.
However, the parliamentarian who had sponsored the legislature told the news media that "We are not going to nationalize the Kumtor mine. We are aware that an extreme measure like nationalization would entail litigation and penalties. Therefore, the company developing the Kumtor deposit may continue its operation but a new contract has been signed."
Centerra confirmed Monday that it had been in negotiations with the Kyrgyz Republic officials for several weeks to address Parliament's concerns as well as further stabilize the operational environment for Kumtor. In a statement, Centerra said, "We expect the draft bill to be the subject of extensive discussion and parliamentary procedure before being considered for further approval, if at all. It has no legislative effect at this time."
Len Homeniuk, Centerra President and CEO, said that the company is relying on a 15-year working relationship with the government to support constructive dialog to resolve concerns.
Nevertheless, the Economist Intelligence Unit asserted that there is a change in the Kyrgyz business environment. "Overall investor interest does not appear to have diminished as a result of these conflicts, but there has been a shift in the origins of foreign direct investment as there are currently more Russian and Kazakh companies interested in the country than ones from Europe or the U.S. ...However, investors from the Commonwealth of Independent States are not completely free from harassment," according to the Economist.
Ironically, despite the aforementioned incidents involving gold mining companies, the Kyrgyz Republic has set a goal of attracting $66 million in foreign investment this year. |
