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The attorney general’s office requested documents from Centerra and its subsidiary Kumtor Operating Co. as part of a criminal investigation into alleged abuses of power by officers of the Kyrgyz government, state-owned Kyrgyzaltyn JSC (which owns 15.7% of Centerra), Kumtor Gold Co. and Kumtor Operating Co.
The investigation is based on previous parliamentary resolutions opposing and challenging the Kumtor agreements and the legality of the restructuring. Kumtor’s restructuring in 2004 was accompanied by the formation of Centerra, which was spun out of
Centerra says it is co-operating with the investigation, and that it is not aware of any basis for any allegation of criminal conduct. The company also says that a report released by an inquiry set up by the interim government to examine the former President’s assets did not include any allegations against Centerra or its Kyrgyz subsidiaries.
Centerra says it remains completely confident in the validity of its restructuring agreements with the government, and that any disputes concerning such agreements are subject to resolution by international arbitration.
Meanwhile, the mine continues to function normally, but the company cannot make any assurances the mine will not be affected by the political situation in the country.
In March, former Kyrgyz President Askar Akayev was ousted by a coup after fraudulent parliamentary elections, and replaced with Kurmanbek Bakiev. Bakiev easily won the country’s presidential elections on July 10. Centerra says that prior to his election, Bakiev stated several times that the Kyrgyz Republic would honour its agreements with foreign investors.
“As the new government becomes established, we expect there will be less political uncertainty related to the Kumtor project,” the company said in a statement.
Mining at Kumtor was scaled back for four days earlier this year after citizen protests leading up to the February parliamentary elections blocked access to the mine. The protests blocking access to Kumtor, in the town of Tyup, broke up the day before the election, and transport of employees and goods resumed.
In other news, Centerra says it will file normal-course objections to tax assessments recently issued by the Kyrgyz tax authorities. The assessments arise from routine tax and customs inspections, and would result in a tax obligation of US$5 million accompanied by the denial of operating loss carry-forwards with a tax effect of US$12 million spread over the three years, beginning in 2005.
Centerra describes the tax inspection as relating to 2003, with the exception of the profit tax return, which covers the years 1997 through 2003. The customs inspections cover the years 2000 to 2004.
The company insists it has strong legal arguments to support its objections and does not expect the final result to be a material amount to the company.
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