Toronto’s Centerra Gold Inc. says it is willing to sell its giant Kumtor gold mine to the Kyrgyzstan government, after initially ruling out a sale of the mine to anyone after the former Soviet Republic nationalized the asset last month.
The mid-tier gold producer has been in crisis mode after the landlocked Kyrgyz Republic in central Asia seized control of its wholly owned mine in mid-May, citing alleged environmental infractions and tax fraud by Centerra. In the aftermath, the company launched an international arbitration suit against the Kyrgyz government, accused a former director of conspiring to steal the asset and moved to stop Kyrgyzstan from selling the government’s equity stake in the company.
On Tuesday, Centerra doubled down on its legal manoeuvres, saying its Kyrgyz subsidiaries were launching Chapter 11 bankruptcy protection proceedings in a New York court. Scott Perry, the chief executive officer of Centerra, said in a conference call with analysts on Tuesday the proceedings are necessary because it appears that Kyrgyzstan is set to strip Centerra of any claim to the mine.
Winning an injunction in the U.S. court could see Centerra gain back some control over the fate of the asset.
Located 350 kilometres southeast of the Kyrgyz capital of Bishkek, Kumtor is the largest gold mine operated by a Western gold company in central Asia. Since starting up in the 1990s, Kumtor has produced more than 13 million ounces of gold, and is the single biggest contributor to GDP in the country. Originally owned by Canadian uranium company Cameco Corp, Centerra’s ownership dates from 2004.
Shortly after Kumtor was nationalized last month, Mr. Perry said he wasn’t interested in selling the mine because historically it had been so profitable for Centerra, adding that the best course of action was to fight to win back the asset.
But Centerra reversed course on Tuesday, saying it had launched a strategic review of Kumtor that could see the mine sold to a third party. When asked by an analyst if the company would consider selling the asset to Kyrgyzstan, Mr. Perry said it would, and added that “any opportunity to surface or daylight value for our stakeholders will be duly considered.”
While there are doubts Centerra can obtain a fair price for Kumtor in the current environment, some analysts applaud the company’s move to seemingly make the best of a bad situation. “Centerra is doing everything right in view of the Kyrgyz government and the country [is] doing everything wrong,” said John Tumazos, mining analyst with Very Independent Research LLC. “It takes time for these bandit governments to figure out there are benefits to conforming to international law.”
Mr. Tumazos believes Centerra will ultimately be able to sell Kumtor for about half its true value, which would equate to proceeds of about US$2.5-billon. He foresees Centerra unloading the asset to a regional buyer, such as a mining company in Uzbekistan, Kazakhstan or Russia – entities that are likely to have a more cordial relationship with the Kyrgyz government.
Since Centerra has no debt, it is also well positioned to pay its shareholders a special dividend with proceeds from a sale, Mr. Tumazos added.
Centerra has only been approached once before for a takeover of Kumtor. In 2018, London-listed Chaarat Gold Holdings Ltd. proposed buying the mine, but Centerra didn’t engage, because the proposal made little financial sense. At the time, Chaarat’s market capitalization was only about a tenth of Centerra’s, and there were concerns over whether the offer was legitimate.
If Centerra is successful in selling Kumtor, the company’s DNA will dramatically change. Centerra would suddenly find itself without its biggest and most profitable asset, a mine it has owned and operated for 17 years. In the most recent quarter, Kumtor accounted for more than half of the company’s gold production.
Centerra also operates the Mount Milligan mine in British Columbia and the Oksut mine in Turkey, which only started production last year.
While shares in Centerra initially lost about 30 per cent of their value after Kyrgyzstan moved in on Kumtor, the stock has since recovered about half of the lost ground. On Tuesday, the shares climbed 1.4 per cent in trading on the Toronto Stock Exchange to close at $9.92 apiece.
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