UPDATE 1-Kyrgyz MPs set new deadline for deal with Centerra Gold

Wed Jun 5, 2013 10:36am EDT

Related Topics

* Parliament sets Sept 10 deadline for new Kumtor mine deal

* Snubs PM's request for more time to negotiate

* Creating new Kyrgyz-registered Kumtor venture is an option (Adds quotes, details, background)

By Olga Dzyubenko

BISHKEK, June 5 (Reuters) - Kyrgyzstan's parliament has set a new Sept. 10 deadline for the government to agree an improved mining deal with Canada's Centerra Gold or unilaterally cancel the current arrangement.

Centerra, which runs the central Asian nation's flagship Kumtor gold mine, has come under pressure to revise a deal struck in 2009 after a state commission said it was underpaying the government and had caused "colossal" environmental damage.

Last week, hundreds of protesters forced a brief stoppage to production at the mine, hidden high in the Tien Shan mountains near the Chinese border.

In late February, the legislature gave the government three months to strike a new deal with Centerra, but the government missed a June 1 deadline, saying it needed more time for talks. These include a proposal for Kyrgyzstan to swap its stake in the Toronto-listed company for joint ownership of Kumtor.

After hours of heated debates, the new deadline was adopted by a 65-5 vote.

"There are three options. The first is to redraw the 2009 agreements and start working in line with Kyrgyz laws, including taxation," Economy Minister Temir Sariyev said before the vote.

"Second, Centerra proposes to establish a joint venture at the Kumtor mine by unbundling Kumtor from Centerra. The third option is to cancel (the 2009) agreements."

During the debates, two of the five parties represented in Kyrgyzstan's parliament demanded nationalisation of the mine, which underpins the shaky economy of the politically volatile nation that has seen two presidents toppled since 2005.

Prime Minister Zhantoro Satybaldiyev, who has ruled out Kumtor's nationalisation, had asked deputies to give his cabinet at least until Oct. 1 to complete talks with Centerra.

JOINT OWNERSHIP

Centerra said on Tuesday that Kyrgyzstan was in talks with its management to swap its one-third stake in the company for joint ownership of Kumtor.

It said that, according to the latest proposal, state gold company Kyrgyzaltyn would exchange its 32.7 percent interest in Centerra for "an interest of equivalent value" in a joint venture that would own the Kumtor project.

In a separate statement, the government said the size of the Kyrgyz stake in the prospective venture would be determined by "independent financial consultants" appointed by both parties.

The government said PricewaterhouseCoopers was appointed financial adviser for its talks with Centerra and DLA Piper as legal adviser.

It said the proposed restructuring would generate "significantly" more cash flow for the government than the current agreement.

"The government is taking the firm position that the restructuring option should provide the Kyrgyz side with control of the joint venture," the government said in the statement on its website, www.gov.kg.

"Other options would be unsatisfactory to the government, to parliament and to society," it added.

It said the joint venture would be registered in Kyrgyzstan and governed by a board comprising an equal number of representatives of Kyrgyzaltyn and Centerra. Chairmanship of the board would be rotated annually. (Writing by Dmitry Solovyov; Editing by Elaine Hardcastle and Mark Potter)

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