It has often been dubbed a test case of Kyrgyzstan’s credibility towards foreign investors on one side and towards its population to reassure that those investors will be prevented to abuse the country’s position. The Kumtor gold mine in the northeast of the country, though, remains a source of income for Kyrgyzstan that is hard to overlook. A compromise reached late last year is expected to be consolidated under the new cabinet which advocates a realistic policy.

In late December last year, with a convincing majority consisting of members of the ruling coalition (though not all of them) and a handful of converted opposition members, the Kyrgyz Parliament outvoted the proposal to nationalise the country’s largest money-maker and instead opt for a reconciliation plan which consists of the creation of a joint venture for the world’s second-largest gold mine Kumtor, near the south bank of Lake Issyk-Kul in the northeast of Kyrgyzstan – following with some precisions the compromise offered by present-day owner of the mine, Centerra of Canada, in which the Kyrgyz state gold mining company Kyrgyzaltyn is the largest single share holder with a stake of 32.7 per cent.

“The non-binding agreement was reached in late December, and if completed, would reorganize the ownership of the politically sensitive Kumtor project, which accounted for 12% of Kyrgyzstan’s gross domestic product in 2011,” the e-newsreel Proactive Investors reported after the news broke. “Under the latest proposal, the Krygyz state company would continue plans to exchange its one-third interest in Centerra for 50% of a joint venture that will own Kumtor. But the Krygyz company will now also have the right to increase its share of the project to 67% at market rates, and will be able to buy additional Centerra shares at agreed-upon prices within three years of the restructuring.”

“Political tension”

A final agreement accompanied by the share transfer and founding of the news joint venture, which in contrast to the current formula will operate under Kyrgyz law, should be realised by early summer. “Kyrgyzstan’s parliament on Thursday gave the government up to four months to finalise a draft deal with Canada’s Centerra Gold on forming a 50-50 joint venture to run the country’s Kumtor gold mine,” Reuters reported on the evening of February 6. “Kumtor, hidden in the Tien Shan mountains near the border with China, has long been a source of political tension in the impoverished Central Asian nation, including facing calls for nationalisation. The government has withstood opposition pressure, rejecting any talk of nationalisation or unilateral repeal of financial agreements with Kumtor operator Centerra. But it has sought ways for Kyrgyzstan to reap higher revenues from the mine. […] The draft project, agreed with the Canadian investor in December, proposes to swap Kyrgyzstan’s 32.7 percent stake in Centerra for half of the Kumtor gold mine, Centerra’s core asset. Centerra had a market capitalisation at Wednesday’s close of US$949 million. After two days of heated debate, 60 parliamentarians voted for the government to continue work with Centerra on forming a 50-50 Kumtor venture, while 35 voted against.”

400 tonne of gold

Even though this puts an end to the main dispute and opens the way towards a final solution, not all queries seem to be off the agenda. Multi-billion claims against Centerra for environmental damages still loom on the horizon. “While Parliament’s resolution appears to support the concept of the restructuring described in the HOA, the resolution also contains a number of recommendations that are materially inconsistent with the terms of the HOA,” a company press release warns. “Among other things, the resolution calls for further audits of the Kumtor operation and for the Government and the General Prosecutor’s Office to continue pursuing claims for environmental and economic damages, which the Company disputes.”

Local news agencies have tended to stress the chances the new deal is offering Kyrgyzstan ever since its draft was publicised during the dark days up to last Christmas. “The 2014-2026 mining work plan envisages extraction of 240 tonne of refined gold,” one background report by 24.kg dated December 24 reads. “According to geological data, the current reserves of gold at the deposit constitute 710 tonne excluding potentially possible growth in the surroundings areas. That means that expected residue reserves may reach about 400 tonne of gold, which will be developed by the Kyrgyz party on more profitable economic conditions.”

But a compromise with Centerra is also bound to lead to improved trust in Kyrgyzstan by other present-day and future investors – in particular those with clout in the global mining industry. Both the outgoing and the newly incoming government of Kyrgyzstan have picked up on granting mining concessions to bidders of late. 


Kumtor’s outlook for 2014

  • Gold production in 2014 is expected to be approximately 550,000 to 600,000 ounces or 17.1 to 18.7 tonnes.
  • Approximately 50% of gold production is expected to occur in the fourth quarter.
  • The projected capital expenditures, excluding capitalized stripping, are estimated to be $85 million.
  • Capitalized stripping costs in the Central Pit are expected to be approximately $191 million.