Centerra reluctantly negotiates end to Kumtor strike

The strike at Centerra Gold‘s (CG-T) Kumtor Mine in Kyrgyzstan is over and normal mining operations have resumed.

Centerra ended the work stoppage by reluctantly ceding to the Krygyz government’s insistence that workers be paid a higher premium for working at high altitudes.

Centerra’s investment agreement for Kumtor stipulates that the company pay workers a 1.75% high altitude premium a premium the company was paying. But after reviewing other operations in the country a government commission said the premium should be raised to 2.4%.

Workers at Kumtor took their cue from the commission and stopped work on Dec. 19, demanding the new increase.

“We’ll comply with the decision of the commission to make the payment but we’re doing so under protest,” says John Pearson, Centerra’s director of investor relations. “We did it too mitigate our losses and the losses for the Krygyz Republic. If the mine was shut down it would impact the country as it’s an important part of economy.”

Centerra has entered into international arbitration over the matter, but Pearson says such processes are often lengthy and did not expect a short-term resolution.

The issue underlines the political risk in the Central Asian country, as the government seemed to take positions on both sides of the matter.

While it asked Centerra to postpone its arbitration case back in November and then insisted that it pay the higher premium regardless of its investment agreement, it still labeled the workers strike “illegal” and notified workers they should not stop working.

“The whole political situation in Kyrgyzstan has had some turbulent times,” Pearson says.

The increased labour costs of the higher premium will be roughly $6 million in 2006 Centerra says.

Midday in Toronto on Dec.22 Centerra’s shares were up over 3% or 43 to $13.23 on roughly 45,000 shares.