Cameco Takes $120M Loss on New Kumtor Agreement

The Kyrgyz government plans to nearly double its stake in Centerra Gold (CG-T, CAGDF-O), the operator of the Kumtor gold mine, to 29.3% after months of negotiations with the company and its 53%-owner Cameco (CCO-T, CCJ-N).

The deal will see the government acquire 32.3 million shares, of which 22.3 million will come from Cameco and 10 million in treasury shares from Centerra. This will result in a 4.6% dilution to Centerra shareholders and a one-time pretax loss equal to the market value of the treasury shares. Also, 17.3 million shares will be held in escrow, to be released within four years under certain conditions.

After the transfer, Cameco will own 40.5% of Centerra, but will record a one-time after-tax loss of about $120 million as a result.

Public shareholders will hold the balance of Centerra shares — 30.2%.

Centerra will gain an additional 25 sq. km of land and benefit from a more stable business climate and a simplied tax regime for Kumtor operations, Cameco said in a statement.

The tax rate for Kumtor, which is expected to produce 450,000 oz. gold this year, will be applied at a rate of 11% of gross revenue in 2008, 12% in 2009 and 13% thereafter.

The final agreement between the three parties should be completed within two months.

Last March, a draft bill challenged the legal validity of the Kumtor agreements, proposing additional taxes, retroactive fees and potentially consolidating all gold deposits in Kyrgyztan under one mining company.

Cameco shares were down on the news by 2.15%, or 89, closing at $40.47 on trading volume of 1.1 million shares.

Centerra was up nearly 9%, or 60, at $7.60 on trading volume of 873,000.