Kumtor watchdog recommends Kyrgyz citizen be named president of Centerra
BISHKEK. Dec 26 (Interfax) - The state commission inspecting the activities of Kumtor Operating Company (KOC), the subsidiary of Canadian gold miner Centerra Gold Inc. that is mining Kyrgyzstan's largest gold deposit, Kumtor, is recommending that the country's government seek to have a citizen of Kyrgyzstan appointed president of Centerra in 2015.
This was discussed at closing meeting of the commission in Bishkek on Tuesday, when a report was presented on the commissions work and recommendations were made to the government on changing the 2009 agreement on the development of Kumtor.
Kyrgyzstan is the largest shareholder of Centerra Gold, holding a 32.7% stake through wholly state owned Kyrgyzaltyn. Kyrgyzstan has three representatives on the board of directors of Centerra, which is listed in Toronto.
The commission recommended that Kyrgyzstan increase its representation on Centerra's board to four of the 12 seats in proportion to its stake in the company.
The commission also recommended that the government raise the issue of forming a single management company for the Kumtor project by merging KOC, which handles operations, and Kumtor Gold Company, which handles general economic planning and management.
From July to December of this year KOC was scrutinized by a special state commission set up at the request of members of Kyrgyzstan's parliament. The commission studies the company's compliance with the law and economic and mining regulations. The final report was approved on Tuesday, and will now be submitted to the government and parliament.
It was reported earlier that, according to the preliminary results of the inspection, all agreements to develop Kumtor were not beneficial to the country's interests.
Three agreements on Kumtor have been signed over the past 20 years. Under the first agreement (1992-1993), lawyers were unhappy with the parties' participation in decision making. Despite the fact that Kyrgyzstan owned two thirds of the shares in the project, important decisions were made by at least four fifths of shareholder votes, in other words only with the approval of the minority shareholder at the time, Canada's Cameco. In addition, Cameco simultaneously received income from the development of Kumtor and benefited from providing subordinated loans to the project at interest rates that were far above the market.
The main criticisms concern the "restructuring" of the first agreement in 2003-2004, as a result of which Kyrgyzstan lost its controlling stake in the project and received only a 15.66% stake in Centerra Gold, to which Cameco transferred all of its gold assets. In this transfer, the potential of Kumtor was, Kyrgyzstan believes, clearly understated while that of other deposits - Boroo and Gatsuurt in Mongolia and Ren in the United States - was inflated, although Centerra earned and continues to earn the largest part of its revenues from the Kyrgyz deposit.
The last revision of the agreement in 2009 improved Kyrgyzstan's position, giving it 32.75% of shares in Centerra, but this essentially happened in exchange for the expansion of the area of the deposit by 26,000 hectares, including an increase in the concession area by 16,000 hectares.
The commission also believes that KOC should lose its tax breaks and be subject to general taxation under the country's Tax Code.
KOC management said in an official letter that the commission's report contains many unmerited accusations that are mostly based on inaccurate information and conjecture.
