Centerra Gold Inc. (TSX: CG) announces today that the Company and its Kyrgyz subsidiaries Kumtor Gold Company and Kumtor Operating Company have entered into a comprehensive settlement agreement with the Government of the Kyrgyz Republic on behalf of the Kyrgyz Republic.
Highlights of the Strategic Agreement
Scott Perry, Centerra Gold’s Chief Executive Officer commented, “First and foremost, this agreement is a comprehensive resolution to all of the outstanding matters affecting the Kumtor Project. Our arrangement provides for the lifting of all restrictions on the freedom of movement of KGC employees as well as the restrictions on the ability of Kumtor to distribute funds to Centerra. The agreement also provides business certainty for future mining operations at the Kumtor Project, as it preserves all rights of the Company, KGC and KOC under the Kumtor Project Agreements and, in order to receive full payment, requires continued compliance by the Government with a number of conditions precedent that are designed to protect Centerra, KGC and KOC. Lastly, this agreement represents a symbol of commitment from Centerra and the Kyrgyz Republic Government, a commitment not only to stability for foreign investment in the Kyrgyz Republic but a commitment to the environment, health and wellbeing of the citizens of Kyrgyzstan.”
Sapar Isakov, Prime Minister of the Kyrgyz Republic commented, “We are pleased to have worked together with Kumtor and the Company to reach a solution regarding the Kumtor Project. It is encouraging to see the Company’s commitment to the environment with the establishment and funding of a new Nature Development Fund. This new fund will help finance environmental conservation and nature preservation projects throughout Kyrgyzstan going forward. Additionally, the Company has strengthened its social responsibility by committing to fund a new Cancer Care Support Fund with contributions up to US$10 million and to provide stronger annual contributions to the environment and to Kumtor’s existing reclamation trust fund. With the resolution of all the outstanding matters regarding the Kumtor Project we have established a new beneficial relationship with our country’s largest enterprise and can look forward to a climate of economic stability which will encourage further foreign investment to grow our economy.”
Consideration by Centerra’s Board of Directors
A Special Committee comprised of independent directors of Centerra has overseen the negotiation of, and entry into, the Strategic Agreement, and has recommended that Centerra’s Board of Directors approve the Strategic Agreement and the transactions contemplated thereby. Upon taking into account the recommendation of the Special Committee and such other factors as it considered relevant, the Board of Directors of the Company unanimously approved the Strategic Agreement and the transactions contemplated thereby.
Further Details of the Strategic Agreement
Under the Strategic Agreement, KGC has committed to making contributions to (i) a new, government-administered Nature Development Fund established for the purpose of financing environmental conservation projects and nature preservation in the Kyrgyz Republic, consisting of a one-time lump sum payment of US$50 million and ongoing annual payments of US$2.7 million, which annual payments are conditional on the Government continuing to comply with all conditions precedent under the Strategic Agreement, (ii) a new, government-administered Cancer Care Support Fund to be established for the purpose of funding cancer treatment, research, support and outreach in the Kyrgyz Republic, including a one-time lump sum payment of US$7 million and within 12 months of closing a further one-time payment of US$3 million, and (iii) the acceleration of payments to Kumtor’s Reclamation Trust Fund in the amount of US$6 million a year until the total amount contributed by KGC to the Reclamation Trust Fund (which currently holds approximately US$26.3 million) reaches the total reclamation cost for the Kumtor Project determined in accordance with the existing Reclamation Trust Deed (subject to a minimum total reclamation cost of US$69 million), which annual payments are conditional on continued operation of the Kumtor Mine by KGC and KOC with all necessary permits and no expropriation-related action being taken on the part of the Government.
The Parties will also negotiate in good faith to amend and restate the existing Reclamation Trust Deed to: (i) provide for the accelerated Reclamation Trust Fund payments described above, (ii) require that such funds be held in highly liquid, safe US dollar-denominated short-term securities (such as obligations of the United States government), provided that, subject to the agreement of the Parties, no less than 20% of the funds shall be invested in highly liquid securities backed by the full faith and credit of the Kyrgyz Republic; and (iii) to establish a supervisory board to oversee such investments.
KGC has also agreed to take certain specified actions in respect of the recommendations previously made by the Government’s environmental consultant, Amec Foster Wheeler, most of which have already been fully implemented.
The releases of liability and all payments are subject to a range of initial conditions precedent designed to protect Centerra, KGC and KOC, including (i) the approval by the Government of various outstanding items, including the Kumtor life-of-mine (LOM) plan, official reserves report and the tailings dam expansion, (ii) compliance by the Government with its obligations under the Kumtor Project Agreements, (iii) continued operation of the Kumtor Mine by KGC and KOC with all necessary permits, (iv) no expropriatory action having been taken by the Government, and (v) termination of the environmental disputes and the civil and criminal proceedings instigated by the Kyrgyz General Prosecutor’s Office on terms satisfactory to Centerra.
Centerra is continuing to work closely with the Government to expeditiously satisfy the conditions precedent to the Strategic Agreement, which are expected to be completed in the fourth quarter of 2017.
Centerra Gold Inc. is a Canadian-based gold mining company focused on operating, developing, exploring and acquiring gold properties in North America, Asia and other markets worldwide. Centerra operates two flagship assets, the Kumtor Mine in the Kyrgyz Republic and the Mount Milligan Mine in British Columbia, Canada and is the largest Western-based gold producer in Central Asia. Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is based in Toronto, Ontario, Canada.
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