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Centerra Gold and Kyrgyzstan: time for a marriage counsellor Add to ...

To the naked eye, the dirt has nary a fleck of gold. About 17,000 tonnes of ore a day are dumped into vats of cyanide and other chemicals that chew up the rock. For every tonne of ore it mills (about the weight of a classic VW bug), the mine produces some 3.3 grams of gold (about the weight of a teaspoon of sugar). “It’s a mature open-pit mine,” explains Michael Fischer, president of Kumtor Operating Co. “We’ve got to dig more waste out to get to the gold.”

Nothing that looks remotely like gold is visible until the pour: Inside a cinder-block room, men in silvery, head-to-toe bodysuits tip a cauldron to send molten liquid cascading into three loaf pans. Each resulting brick, shiny and pockmarked, weighs between 15 and 25 kilos, and can be worth over $1-million at today’s prices, though it’s only gold doré—75 per cent to 80 per cent gold and 15 per cent to 20 per cent silver. Every few weeks, a couple dozen of the bricks get trucked to a state-run smelter, where they’re refined into 99.9999 per cent gold.

Security at the mine is predictably tight. In the pour room, a no-nonsense guard in a Muslim prayer cap uses a hand-held metal detector to sweep all who exit, paying special attention to boots. At the entry gate to the mine, visitors and workers alike get searched and X-rayed: no gold going out, no booze coming in.

Beyond the snow-covered expanse surrounding Kumtor, Kyrgyzstan’s landscape rises and falls in rugged peaks—a barren terrain that’s made it all the harder to overcome poverty and underdevelopment. For the Soviets, Kyrgyzstan was a source of raw supplies—minerals, meat and vegetables—too remote to infuse with industry. Ethnic Kyrgyz have long been nomadic herders, and some families still take their animals from one alpine pasture to another as the seasons change, summering in yurts and producing batches of kumys, a fermented mare’s milk.

Even in Soviet times, few had made it up to the plateau where Kumtor now operates, save for a handful of mad geologists. They were looking for uranium: A few valleys over, a mine was already fuelling the Soviet nuclear program. In 1978, the geologists unearthed gold instead, but the site was too remote and the gold too fine to extract. It lay untouched for nearly 20 years.

It was the uranium that first drew a young Canadian company to this hinterland of hinterlands in 1992, one year after the Soviet collapse and Kyrgyzstan’s unexpected independence. Saskatoon-based Cameco had been born only four years earlier during the privatization of two Crown corporations not known for taking risks: Eldorado Nuclear Ltd. and Saskatchewan Mining Development Corp. Some Kyrgyz officials asked, the story goes, if Cameco was interested in gold. Five years later, the mine opened as a joint venture, with Cameco holding one-third of Kumtor Gold Co. (KGC).

With gold valued under $300 an ounce in the late 1990s, the mine took years to become profitable; Kyrgyzstan, run since independence by a Russian-educated physicist named Askar Akayev, insisted on restructuring the joint venture. Under the new deal, signed in late 2003, ownership of KGC and the Kumtor Operating Co., plus all of Cameco’s gold interests in Mongolia (acquired in 2002), went to the newly christened Centerra Gold, Inc., which was listed on the TSX in June, 2004. Cameco wound up with 54 per cent of Centerra, and the Kyrgyz, who quickly sold off about $85-million worth of their 33 per cent stake, were left with 15.7 per cent.

But by spring, 2005, Akayev had been swept away by mass protests dubbed the “Tulip Revolution,” and Centerra would soon come up against a more formidable dealmaker.

In 2007, when the new president, Kurmanbek Bakiyev, started calling for another new Kumtor agreement, no one knew that he, too, would be kicked out of office. Unlike Akayev’s relatively bloodless ouster, Bakiyev’s, in 2010, came at the cost of some 90 lives—overwhelmingly civilian protesters who were shot by security forces in Bishkek. As chaos swept the streets, looters rampaged in Bakiyev’s once—white headquarters, sheets of A4 paper raining down from broken windows in the charred façade.

Bakiyev—who fled to Belarus—was widely hated in Kyrgyzstan for running the country like a private piggy bank, installing relatives in lucrative, high-level positions. In 2009, the year the third Kumtor deal was finally reached with his administration, Kyrgyzstan ranked 162nd of 180 on Transparency International’s Corruption Perceptions Index. This, however, did not cast Kumtor as a victim of Bakiyev’s in the public eye; on the contrary, it fuelled the perception that Centerra had been in cahoots with a vilified regime.

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