UPDATE 2-Centerra says blockade hits Kumtor mine production

Mon Dec 5, 2011 12:55pm EST

* Production reduced as blockade interrupts fuel, other supplies

* Mill continues to operate, company says will make 2011 guidance

* Protesters say will remove roadblock on Tuesday

By Julie Gordon and Olga Dzyubenko

TORONTO/BISHKEK, Dec 5 (Reuters) - A group of protesters in Kyrgyzstan said on Monday they would remove a week-long roadblock that has interrupted supplies to Centerra Gold's Kumtor mine in the restive Central Asian republic after striking a deal for more community involvement.

Toronto-listed Centerra Gold had said it was reducing activity at the open-pit mine, which contributes nearly 10 percent of Kyrgyzstan's gross domestic product, after the blockade at a marshaling yard disrupted fuel and other supplies.

The company, owned 33 percent by the Kyrgyz state, said the mill at Kumtor was continuing to operate and that it believed it would still meet its 2011 production forecast of between 580,000 and 600,000 ounces.

The economy in Kyrgyzstan, a mountainous former Soviet republic of 5.5 million, relies heavily on output from Kumtor and remittances from migrant workers. Per capita GDP of $843 is less than a tenth of that in oil-rich neighbour Kazakhstan.

Centerra said in a statement the protesters were seeking greater benefits from the Kumtor project, one of the highest-altitude gold mines in the world and contributor of nearly half of Kyrgyzstan's industrial output last year.

The protesters had blocked deliveries to and from the marshaling yard in Balykchy, a town 270 km (168 miles) from the mine at the western tip of Lake Issyk-Kul, where fuel, chemical and food supplies are transferred from rail cars to trucks.

Two of the protesters told Reuters by telephone they were preparing to remove the roadblock on Tuesday morning after Centerra Gold agreed to open a micro-credit organisation for the residents of Balykchy.

Centerra Gold already operates a micro-credit agency in Tamga, a town at the foot of the valley near the mine, among several other community-oriented projects in the country.

"All movement will be completely restored tomorrow," said protester Samat Aliyev. "The company will participate more in the life of local society."

Stalbek Akeyev, among 30 people maintaining the blockade on Monday evening, said he was removing the yurt, a traditional felt tent used by nomads, where protesters had gathered. At the peak of the blockade, up to 100 protesters were present.

"We reached a compromise decision. A micro-credit organisation will be opened and from tomorrow the blockade of the yard will end," he said.

Centerra Gold did not comment on the specific demands of the protesters. The company said in the statement that the main road access to Kumtor had not been affected.

John Pearson, vice-president for investor relations, said Centerra Gold was working with local authorities and the Kyrgyz government and he was "hopeful" the blockade would end soon.

STAMPING OUT CORRUPTION

Kyrgyzstan's incoming president, Almazbek Atambayev, has vowed to stamp out the corruption that has stifled previous attempts to develop a viable mining industry in a country that has seen two revolutions in the last six years.

Anti-corruption watchdog Transparency International ranked Kyrgyzstan joint 164th of 183 countries in its 2011 Corruption Perceptions Index, level with Yemen, Guinea and Cambodia.

Other mining and exploration companies have suffered disruption at their projects across the country, including a joint venture run by South African miner Gold Fields, where men on horseback attacked a geologists' camp in October.

Centerra Gold is the biggest and most successful mining enterprise in the country, having produced 7.8 million ounces of gold between its launch in May 1997 and the end of 2010.

"This is a crime against the people of Kyrgyzstan," said Valentin Bogdetsky, chairman of the Kyrgyz Mining Association.

The company now operates under a 2009 deal that gave the Kyrgyz state a 33 percent in the company, which also mines gold in Mongolia. It pays a 14 percent revenue-based tax: 13 percent to central government and 1 percent to the local region.

Aliyev, the first protester, is a member of a commission of members of parliament and local interest groups set up to re-examine the 2009 deal. Pearson said this was a matter for protesters to take up with the government.

He said there was no safety issue, other than the need to conserve diesel to be certain there is enough to operate back-up generators. Trucks had slowed production to conserve fuel, he said.

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