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How much will Centerra Gold pay under new agreement with Kyrgyzstan?

Government announced a significant improvement of position of Kyrgyzstan in the final version of the new strategic agreement with the Canadian gold mining company Centerra Gold Inc.

The Cabinet of Ministers has managed to agree on additional payments of $ 63 million in 2017-2026 (according to the current operational life of Kumtor mine). If in 2017 there was an agreement on $ 87 million, then, in the end, the amount increased almost 1.7 times, having reached $ 150 million.

About strategic agreement

To understand the conditions under which Kyrgyzstan and Centerra will cooperate, we need to recall the details of the previous agreement signed between the Government and the investor.

In September 2017, after long negotiations with the Canadian partner, the former Cabinet of Ministers of Kyrgyzstan has managed to achieve certain benefits under Kumtor project. The parties signed a strategic agreement, which was based on environmental, health of the nation and future of the mine issues.

Thus, under the agreement, Centerra assumed the obligation of one-time allocation of $ 50 million for establishment of the Nature Development Fund and, over the next 10 years, transfer $ 2.7 million to it annually until the end of the mine’s operational life.

As for healthcare, the investor decided to finance purchase of modern equipment for cancer patients. Centerra has allocated $ 10 million for it, $7 million of which had been transferred back in 2017.

In February 2019, Kyrgyzstan selected a winner of the tender — an Estonian company, with which it signed a contract for supply of two linear accelerators. The head of the Ministry of Health Cosmosbek Cholponbaev promised that a list of patients for radiological therapy could be drawn up starting from 2020.

Finally, the third important point of the September 2017 agreement concerned resumption of the two-year mine exploration program, for which the investor has allocated $ 18 million in 2018.

The parties did not have any disagreements on this issue. Subsoil exploration is necessary, because the operational life of the mine and the whole country directly depends on this after 2026, when the available subsoil assets will be exhausted.

Extra money without obligations

After approval of the new Cabinet, the government of Mukhammedkaly Abylgaziev decided to carefully study the agreement. Negotiations with the Canadian partner resumed. And, at first glance, the parties could not come to an agreement in any way — time has been passing, and the deadline for implementation of the strategic agreement has been repeatedly postponed.

In August 2019, after a visit of Centerra’s representatives, the Cabinet’s statement put everything in its place. The Government told on what terms, in addition to the existing agreements, Kyrgyzstan was ready to continue cooperation with the largest partner.

The Cabinet of Ministers of Mukhammedkaly Abylgaziev has managed to agree to increase funding of projects in Kyrgyzstan by other $ 63 million. At the same time, according to the head of the Government, Kyrgyzstan «has not undertaken any additional obligations.»

The company increased the annual environment protection payment of $ 2.7 million (in addition to a one-time payment of $ 50 million to the Nature Development Fund) by $ 1 million. As a result, the total amount of deductions in 2017-2026 should reach $ 37 million.

During 2019, Centerra will also pay the rest $ 3 million for support of the oncology service in Kyrgyzstan.

A new key point in the agreement is financing of the Social Partnership for Regional Development Fund.

The Government told what this organization would do; decision on its creation has been signed by Mukhammedkaly Abylgaziev.

The fund will support and finance events and projects aimed at creation of conditions for development of ecotourism. Particular attention will be paid to investment projects, support and opening of new regional enterprises oriented to export, innovative technologies, renewable energy sources, agricultural processing and assembly production.

In 2019-2020, the company undertakes to transfer $ 10 million to the regional fund.

In addition, Kumtor will make annual contributions in the amount of 0.4 percent of its total annual income. As a result, this amount will reach about $ 30 million in 2019-2026.

The final point is exploration. Given the positive results of exploration work and successful negotiations with the government, the Board of Directors of Centerra decided to invest additional $ 6 million in the exploration of mineral resources in 2019.

As a result, the total amount of investments under the two-year exploration program will be $ 24 million.

This is a substantial amount even for Kumtor — the maximum investment in exploration was in 2005 — $ 14.6 million. In case of good exploration results, it will be possible to extend the life of the mine by several years.

This means that Kumtor and more than 600 of its contractors will continue to provide the basis for the industry and exports of Kyrgyzstan, its workers will not lose their jobs, and, possibly, even new ones will appear.

If we sum up all the main additional payments, the benefit of Kyrgyzstan from the strategic agreement with the Canadian investor will be over $ 150 million, over $ 77 million of which, including $ 7 million for the Oncology Development Fund, will be received until the end of 2019.

What funds’ money will be spent on

At a recent meeting on new agreements with Centerra Gold, Mukhammedkaliy Abylgaziev said that the Government would ensure open and transparent work of the funds created under the strategic agreement and efficient use of the allocated funds.

The funds will operate exclusively in the interests of citizens, environmental protection and regional development with involvement of deputies of the Parliament, representatives of public institutions and experts as observers.

The head of government also paid special attention to the fact that significant funds were for the first time allocated for environment protection measures over 22-year history of Kumtor mine.

It is important that all the new payments are additional.

As a result of 2018, payments of Kumtor in Kyrgyzstan (including taxes, payments for refining and to local suppliers of goods and services, payments for infrastructure, charity, etc.) have exceeded $ 301 million. They have reached $ 60.6 million in the first half of 2019.

In total, during the period of company’s operation from 1994 to 2018, its payments in Kyrgyzstan have exceeded $ 3,774 billion.

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