TORONTO, Cananda – Centerra Gold Inc. (TSX:CG), the Kyrgyz government and the state-owned Kyrgyzaltyn JSC have reached a preliminary agreement on a new ownership structure for the Kumtor gold mining operation.
Under the latest proposal, the three parties have agreed to new minimum funds that will be spent on local community projects, procurements in the Kyrgyz Repubic and other new provisions while retaining core items of a previous deal.
The Krygyz state company would continue plans to exchange its one-third interest in Centerra for 50 per cent of a joint venture that will own Kumtor.
But Kyrgyzaltyn JSC will now also have the right to increase its share of the Kumtor project to 67 per cent at market rates. The state-owned company will also be able buy additional Centerra shares at agreed-upon prices within three years of the restructuring.
Centerra would own the other half of Kumtor and manage the operation which is a major economic driver for the former Soviet republic and for the Toronto-based mining company.
Shares of Centerra gained 32 cents or eight per cent to trade at C$4.29 on the Toronto Stock Exchange at mid-morning, on a shortened trading day ahead of the Christmas and Boxing Day holidays.
The deal is subject to approval by the Kyrgyz Republic’s parliament, which rejected an earlier agreement that was reached in September.
Centerra says the most recent three-way deal retains most of the main terms of the earlier understanding, including that the joint venture’s board would have equal members from Centerra and Kyrgyzaltyn.
In addition, several provisions have been added including:
— Centerra will continue to own about US$200 million of mobile mining equipment and lease it to the joint venture for 10 years.
— In light of the equipment agreement, Centerra will no longer receive a $100 million dividend distribution from Kyrgyzaltyn.
— The joint venture will commit to spend at least $2 million a year in community development projects, and up to an amount equal to two per cent of the prior year’s free cash flow.
— The joint venture will also increase the amount spent on local procurement in the Kyrgyz Republic by a total of $100 million over the life of the mine.