Centerra Gold Inc. (Centerra) understands from recent media reports that the Kyrgyz Republic General Prosecutor’s Office intends to review the agreements governing the Kumtor project. Centerra believes that it is important for its position on this matter to be clear so as to avoid any misinformation or misunderstanding.
The 2004 agreements governing the Kumtor project arose out of a comprehensive restructuring of the ownership of the Kumtor mine. During that process, the Kyrgyz Republic was represented by independent, international financial and legal advisers. International financial institutions such as the European Bank for Reconstruction and Development and the International Finance Corporation also played a central role in that restructuring.
The 2004 project agreements were superseded by the 2009 restated project agreements. As part of the 2009 restructuring and as a comprehensive settlement of all outstanding issues affecting the Kumtor project, Kyrgyzaltyn received over 43 million shares of Centerra which more than doubled its shareholding from approximately 16% to over 32%. The 2009 agreements also provided for a comprehensive tax regime for the Kumtor project under which the Kyrgyz Republic receives a very beneficial 14% gross proceeds tax on gold sales from the Kumtor project. The 2009 restated project agreements were negotiated by the Kyrgyz Republic’s authorized representatives and international legal experts and were approved by the Kyrgyz Republic Parliament, Constitutional Court and Ministry of Justice and are disclosed in full on the public record. The agreements provide that all disputes relating to the Kumtor project are subject to international arbitration.
Since 2009 and in reliance on the guarantees contained in the 2009 restated project agreements, Kumtor Gold Company (KGC) has invested over US$1.7 billion of capital in the Kumtor project and contributed over US$875 million in taxes and payments to the Kyrgyz Republic budget. In addition, following the signing of the 2009 restated project agreements, the value of Kyrgyzaltyn’s share interest in Centerra increased significantly:
– In October 2008, it had a market value of approximately US$29 million;
– In December 2009, shortly after the signing of the restated project agreements, it had a market value of over US$1 billion.
During the discussions relating to the proposed 2014 Heads of Agreement restructuring, the Kyrgyz Republic Government and Kyrgyzaltyn JSC retained DLA Piper LLP, an international law firm, and PricewaterhouseCoopers LLP, an international accounting and financial advisory firm, to assist them. Despite a thorough review by such advisers of the 2009 restated project agreements, no basis for challenging the legality of the agreements was ever identified and communicated to Centerra or KGC.
Centerra and KGC have always complied with the agreements governing the Kumtor project, Kyrgyz and international anti-corruption laws and their own strict, internal anti-corruption policies. In addition, Centerra and KGC have repeatedly requested from the Kyrgyz Republic authorities information or evidence to substantiate claims of improper behavior but have never received any such information or evidence.
Disputes relating to certain matters governed by the 2009 restated project agreements are now before international arbitration proceedings and we welcome the review by the independent arbitrator of all such matters. Centerra expects the arbitrator to confirm that the 2009 restated project agreements are legally valid and binding obligations of the Kyrgyz Republic.