Official Commentary of Kumtor Gold Company CJSC on claims made by the State Agency for Environmental Protection and Forestry under the Government of the Kyrgyz republic

published: 27 May 2016

In response to the news release issued by the State Agency for Environmental Protection and Forestry (SAEPF) on May 2, 2016, and published by some media organizations to the effect that relevant permits may not be provided, Kumtor Gold Company JSC deems it necessary to give explanations on a number of claims indicated in the Agency’s news release.

On April 28, 2016, the State Agency for Environmental Protection and Forestry (SAEPF) issued a notice to KGC requesting the delivery of certain information and taking of certain measures before SAEPF will issue its environmental expertise on the Kumtor 2016 Special Mine Plan. KGC has reviewed the requests in great detail and has concluded that there is no basis under Kyrgyz Republic legislation for KGC to provide such information, and/or for SAEPF to require such information as a pre-condition to issuing its environmental permits. Furthermore, the notice from SAEPF contradicts its own previous correspondence to KGC where it confirmed that it has all required information to carry out its environmental expertise.

Following are KGC’s responses to each of SAEPF’s commentaries.

On recommendations provided by AMEC Earth and Environmental (UK) Ltd (“AMEК”).
AMEC was engaged by the Kyrgyz Republic government in connection with the restructuring discussions for the Kumtor project which ultimately resulted in a Heads of Agreement being signed in January 2014 (“HOA”). In the HOA, Centerra agrees to discuss with AMEC and the Kyrgyz Republic government the recommendations of the AMEC report and to attempt to find an agreed basis for implementing such recommendations following the closing of the HOA transaction. However, the Kyrgyz Republic government withdrew from the Kumtor restructuring negotiations in December 2015 and therefore the HOA is no longer relevant. Despite this, KGC has already taken, and continues to take, significant steps to implement many of the AMEC recommendations. This shows KGC’s continuing commitment to good international mining practices, and its willingness to continue a constructive co-operative relationship with the Kyrgyz Republic government. To be clear, however, Kumtor has no legal obligation or commitment to implement any of the AMEC recommendations. Nevertheless, in spite of the fact that the restructuring process has not been completed for the Kumtor Project, KGC has made considerable efforts to implement most of the recommendations.

Pollution Risk Study
KGC arranged for this internal study to be completing, notwithstanding the fact that the parties were still negotiating the Kumtor restructuring and the HOA. The study, the 2015 Update of Human Health and Ecological Risk Assessment – Kumtor Mine Site, was completed by Arcadis Canada Inc., an independent consultant. KGC points out that the report was undertaken to review the potential consequences to the environment and humans from routine operations at the Kumtor mine. The report concluded that no chemical toxicity risks were identified for humans, and that chemical toxicity risks for terrestrial species and aquatic species were assessed at minimal or low risk, respectively.

Reclamation Matters
SAEPF refers in its news release of May 2, 2016, to three matters relating to reclamation at the Kumtor project: (i) filing a reclamation design for the Kumtor mine; (ii) accumulation of financial assets for reclamation in a Kyrgyz Republic financial institute; and (iii) replenishment of reclamation funds for 2016. KGC disagrees with each allegation or statement.

(i) filing a reclamation design for the Kumtor mine
KGC is not required to file at this time a reclamation design in accordance with Article 47 of the Law on Subsoil Resources. First of all, it is necessary to note that Article 47 does not provide any time requirement for filing of a technical design for reclamation – it merely states that reclamation of land shall be carried out in accordance with a technical design. Secondly, the Restated Investment Agreement entered into between the Kyrgyz Republic Government, Centerra Gold and KGC for the Kumtor project expressly requires KGC to file conceptual closure plans every three years, and a final closure plan at least 24 months prior to the scheduled reclamation date. The most recent conceptual closure plan for the Kumtor project was developed in 2013, and KGC is currently developing a new conceptual closure plan to be completed by the end of 2016.

(ii) Reclamation Funds in a Kyrgyz Republic Financial Institution
SAEPF’s statement that KGC has taken no measure to accumulate financial assets in the Kyrgyz Republic is not correct. KGC has been in discussions with various Kyrgyz Republic governmental authorities since 2011 regarding the movement of Kumtor reclamation funds from the United Kingdom to the Kyrgyz Republic. KGC has written on numerous occasions to various government officials and agencies, including then Kyrgyz Republic Prime Minister Satybaldiev, then Minister of Economy Mr. T.A. Sariev, then head of the Natural Resources Policy Department, Mr. Almaz Alimbekov, and then Ministry of Economy Deputy Minister S. Mukanbetov regarding the transfer and the necessary steps to be taken. Furthermore, on April 23, 2013, KGC provided draft documentation to Mr. Sariev and copied Mr. Almaz Alimbekov. KGC followed up in writing on July 16, 2013, July 23, 2013, October 1, 2013, December 6, 2013 and March 6, 2014. Despite these repeated attempts to follow-up with those individuals tasked by the Kyrgyz Republic Prime Minister with the transfer of the reclamation funds, it appears that no action was taken by these governmental officials and no response has been received to date by KGC.

(iii) Deposits to Kumtor Reclamation Fund
The statement that KGC has not deposited funds into the reclamation fund for 2016 is not correct. KGC transfers funds to the reclamation trust on an annual basis. The most recent transfer was done on March 29, 2016, in the amount of approximately US$3 million.

Monitoring of Bottom Sediments
SAEPF states in its news release that “bottom sediments [at the Kumtor river] are not monitored”. For our part, KGC deems it necessary to explain that monitoring of bottom sediments at the Kumtor river was reviewed by AMEC in its report. AMEC noted in its report that “there are no current sediment quality standards or guidelines in Kyrgyzstan,” and that the main concern raised by Kyrgyz authorities was not the current situation but a longer term upward trend in metal concentrations of the Kumtor river sediment. Following its review, AMEC concluded that this concern was “not justified because the release of (dissolved) metals from the Kumtor operations is very small, so that a major increase of adsorption of metals to river sediments is not expected.” Accordingly, the Government’s own independent environmental consultant did not view this as a key risk area at the Kumtor project. Nonetheless, KGC accepts understandingly that the issue raises special concern from SAEPF and willing to conduct a package of measure for research and analysis of sediments jointly with state bodies of the Kyrgyz Republic.

The Kumtor project is governed by an investment agreement and related agreements dated June 6, 2009 (collectively the “Kumtor Project Agreements”) which provides for (among other things) a fixed tax and payments regime for the Kumtor project. The Kumtor Project Agreements were approved by all relevant Kyrgyz Republic government authorities in 2009, including the Kyrgyz Republic government and parliament, are the subject matter of a legal opinion issued by the Kyrgyz Republic Ministry of Justice and a positive decision by the Kyrgyz Republic Constitutional Court. Any discussion regarding the Kumtor project will take into account such legal obligations under the Kumtor Project Agreements.