* Government to cancel contract if no compromise
* Insists Centerra must pay for environmental damage
* Centerra says facing new government claim for $315 mln
* Centerra says 2009 deal "solid"; open to talks
By Olga Dzyubenko and Bhaswati Mukhopadhyay
Feb 21 Kyrgyzstan has given Centerra Gold
three months to redraw terms before ripping up an
agreement to run its flagship mine in the Central Asian country,
accusing the Canadian miner of "colossal" environmental damage
and underpaying the state.
Centerra said it had received a new claim from the
government for $315 million for alleged environmental
destruction, almost tripling the damages claims that it faces.
Parliament ended two days of fierce debate by passing a
resolution on Thursday demanding the government revise a deal
struck in 2009, a year before then-president Kurmanbek Bakiyev
was driven from power by a popular revolt.
"If within three months our negotiations yield no results,
the government will unilaterally cancel the agreement," Economy
Minister Temir Sariyev said during the debate on Wednesday.
Centerra, whose shares have halved since the Kyrgyz
government said in June it would review the mine deal, said the
2009 agreement was "solid and transparent" and it had already
started talking to the government.
The Kumtor mine, bisected by a glacier 4,000 meters (13,000
ft) above sea level, is the largest gold mine in Central Asia
operated by a Western company. It is the industrial centerpiece
of the fragile Kyrgyz economy, contributing 12 percent of GDP in
Kyrgyzstan's gross domestic product contracted by 0.9
percent last year after Centerra reduced output at the mine by
40 percent as a result of ice movement in the pit.
Sporadic protests, often fueled by the nationalist rhetoric
of opposition politicians in the five-party parliament, have
also disrupted operations at the mine over the last year.
Sariyev said there was no desire within parliament to
nationalize the mine, repeating earlier statements by both the
country's president and prime minister.
But a specially appointed state commission has determined
that deals signed by Centerra between 1992 and 2009 were
approved by previous political elites without public discussion
and were not entirely in Kyrgyzstan's interests.
"We want to cancel it all and return to the legal
framework," said Sariyev, who also heads the commission.
He accused Centerra of paying too little into Kyrgyz state
coffers and said the company had inflicted "colossal damage" to
Centerra, which maintains it has broken no laws, said it
would study the latest claim, but believed the allegations were
"exaggerated or without merit".
"We think the environmental claims are unfounded," said
Chief Executive Ian Atkinson, who visited Bishkek last week to
meet Prime Minister Zhantoro Satybaldiyev.
Atkinson said he hoped Centerra, in Kyrgyzstan for 15 years,
could resolve the issue without the need for arbitration.
"We managed to resolve this in the past through discussions.
We hope to do it again this time," he told Reuters in an
Under the 2009 agreement, the Kyrgyz state became a 33
percent shareholder in Toronto-listed Centerra Gold, giving it a
foothold in the company's Mongolian operations and exploration
projects in Turkey, Russia and China.
Asked whether its international assets offered Centerra
bargaining power in talks with the government, Atkinson said:
"If we are a two-mine company today and we become a four-mine
company, it just gives you greater operating flexibility."
But Kumtor will continue to generate the bulk of production.
As operations recover in 2013, Centerra forecasts consolidated
gold output - including its Boroo mine in Mongolia - in a range
of 605,000 to 660,000 ounces, versus 387,076 ounces in 2012.
"Once we get through this year, our production profile at
Kumtor ... for the next 10 years is going to be back up to
650,000 ounces a year," Atkinson said.
The company must first reach accord with the government.
Official Kyrgyz data show that, if the current agreement
were to be renegotiated, Centerra would pay about 5 billion soms
($105 million) more to the government every year.
"They would also have to pay (another) $10 million annually
for ecological damage," Sariyev told parliamentary deputies.
The additional damages claim for $315 million relates to
tailings, rock dumps, and other waste from the mine. This comes
on top of the government's previous environmental damages claim
worth 6.8 billion soms, or $142 million at current exchange
The company on Wednesday reported a fourth-quarter loss of
$68 million, or 29 cents per share, on a one-time accounting
charge and said it expected to incur closure costs related to
underground operations at Kumtor in the first quarter of 2013.
It made a profit of $79.4 million, or 34 cents per share, a
Shares in Centerra, which has a market value of C$1.8
billion, edged up a cent to C$7.61 on Thursday, having fallen
from C$16.19 last June.