Kyrgyz draft bill contests validity of Centerras Kumtor agreement

Centerra Gold (CG-T) and its 53% owner, Cameco, (CCO-T) have been busy negotiating with the Kyrgyz Republic government over concerns with the Kumtor gold mine for the last several weeks.

A draft bill was passed by the Kyrgyz government yesterday that challenges the legal validity of the Kumtor agreements, proposes the recovery of additional taxes and other retroactive fees from past activities and discusses consolidating all gold deposits, including Kumtor, into one state mining company.

Centerras president and CEO Len Homeniuk said that the company has enjoyed a strong working relationship with the government over the past 15 years.

Any differences that have come up in the past have always been resolved through good faith dialogue, said Homeniuk in a statement.

The draft bill has no legislative effect at this time. The company believes the parliamentary action is meant to put additional pressure on the negotiation process.

According to Centerra, the parliamentarian who sponsored the draft bill told a Kyrgyz newspaper that the Kumtor mine would not be nationalized because it would result in litigation and penalties. Centerra can continue to develop the project but a new contract must be signed.

The last agreements were signed in 2004 and the International Finance Corporation and the European Bank for Reconstruction and Development were involved. Centerra said its confident in the validity of the agreements and noted that such disputes are subject to resolution by international arbitration.

Centerra estimates the Kumtor mine will produce about 450,000 oz. gold in 2007 and the company is spending $15 million on exploration.

Centerra shares dropped 39 to $10.60 in Toronto today and Cameco was down 87 to $45.91.