Court ruling comes down on Centerra

Centerra Gold (CG-T) had its share price hammered after a court ruling against it coincided with the departure of two key members of its management.

In Toronto on June 17 Centerra shares were off 27% or $1.72 to $4.77 on roughly 1.7 million shares traded. Its shares had been trading above the $10 mark as recently as May 20.

Cameco (CCO-T), Centerra’s majority owner, saw its shares fall off as well down $1.03 to $38.12 on roughly 1.9 million shares traded.

A Kyrgyz court said it was cancelling three licenses connected to the Kumtor gold project held by Centerra because the government that had originally issued them wasn’t in compliance with the law.

The court’s ruling is set to take effect in 30 days.

But the government is at odds with the court and says it will challenge the decision. It’s lobbying on behalf of Centerra is tied to a recent agreement reached between the two bodies.

Centerra thought it was heading towards calmer waters when it reached a deal with the government last summer that would have doubled the government’s stake in Centerra to about 30% in exchange for a fixed tax rate and a larger licence area.

The increase was to come from a decline in Cameco’s stake to 41% from 53%.

But the deadline for ratifying the agreement came and went earlier this month leaving the company’s status in the country up in the air.

The court ruling would appear to come down on the side of a parliamentary committee that is known to be pushing for an even a larger stake in Centerra and higher taxes.

Resigning chief executive Len Homeniuk and chief financial officer David Petroff were both with Centerra since its IPO in 2004. Homeniuk will be replaced by Stephen Lang while Jeffrey Parr, the former vice president of finance, will take Petroff’s place.

The two inherit a company in desperate need of a new strategy. While Centerra also operates the Boroo mine in Mongolia, Kumtor was its flagship property.

The mine represents 4% of Kyrgyzstan’s gross domestic product and is slated to turn between 580,000 and 620,000 oz. of gold this year.

“The board of Centerra Gold plans to take this opportunity to carefully review the strategic direction of the company in order to assure its future growth,” Patrick James, chairman of Centerra said in a statement.

Difficulties at Kumtor are not new. The mine suffered production losses due to a pit wall failure two years ago and also has had to deal with labour issues that had hampered production in the past.

Against the flow of negative news and downward pressure on its stock Centerra issued a second press release on the day assuring investors operations at Kumtor were continuing uninterrupted.

The company says the court ruling invalidates mining licenses covering the southwest area and Sarytor areas and the exploration license covering all of the Kumtor deposits, but that Kumtor ore mining operations are “not affected by the order and gold production continues uninterrupted.”

The company also says it has re-started international arbitration and expects to meet with arbitrators on June 23.

Centerra was not immediately available for comment.