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Kyrgyz officials search Centerra Gold's Bishkek offices over criminal investigation of Kumtor mine


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Kyrgyz officials search Centerra Gold's Bishkek offices over criminal investigation of Kumtor mine

Kyrgyz prosecutors and law enforcement officials searchedthe Bishkek offices of a subsidiary of TSX-listed , operator of theKumtor goldmine, as part of an inter-agency criminal investigation into alleged"financial violations" by the Canadian company, according to astatement published April 28 by the Kyrgyz Prosecutor's Office.

Investigators alleged that Centerra violated Kyrgyz law by illegallywithdrawing assets from the Kumtor Gold Company, the Centerra subsidiary thatoperates the gold mine, one of the biggest in the world.

"At the present time, investigators from theinteragency group are carrying out a search in the offices of Kumtor GoldCompany with the goal of finding documents, objects and other evidence relatedto the criminal case. In the near future the investigation will also involvemanagers and others at Kumtor Gold Company," the statement read.

The government, which controls a stake of approximately32.7% in Centerra Gold, is involved in a long-running dispute with Centerra'smanagement over a range of issues, including a claim that a proposed shareissue would dilutethe Kyrgyz share stake.

Bishkek in 2014 also attempted to revise the terms of themine agreement with Centerra, including a proposal to swap its shareholding in the Canadiancompany for a 50% direct stake in the mine. Negotiations over the proposal haveso far failed.

Centerra acknowledged the search of its offices in astatement of its own April 28, in which it also denied any wrongdoing, andconfirmed that mine operations had not been impacted by the development.

"The Kyrgyz Republic government has very recentlyindicated to Centerra its dissatisfaction with the current arrangementsgoverning Centerra and the Kumtor project," the statement read.

"[It] has expressed concerns regarding, among otherthings, an inter-corporate dividend paid by KGC to Centerra in 2013. Thecompany re-iterates that such inter-corporate dividend complied with the 2009agreements governing the Kumtor Project… and all applicable Kyrgyz Republiclaws. Any claims to the contrary are without merit."

Centerra said the government had made it clear it would sendproposals to resolve the situation, but the sides have not yet met to discussthem.

The Canadian company confirmed it wants to resolve thesituation within the framework of its existing project agreement with thegovernment, and had "benefited from a close and constructive dialogue withKyrgyz Republic authorities during Kumtor Project operations"

The company remained "committed to working with them toresolve these issues in accordance with the Kumtor Project Agreements,"which also allow for disputes to be settled under international arbitration.

But despite the reassurances, Centerra acknowledged that itmay ultimately be unsuccessful in negotiations with the government.

"There are no assurances that any discussions betweenthe Kyrgyz Republic government and Centerra will result in a mutuallyacceptable solution… and that the Kyrgyz Republic government … will not takeactions that are inconsistent with the Government's obligations under theKumtor Project Agreements, including adopting a law "denouncing" orpurporting to cancel or invalidate the Kumtor Project Agreements."

Kumtor, the country's largest mine, with 2015 goldproduction of 520,000 ounces, accounts for approximately 7.4% of total KyrgyzGDP, according to information from the Kumtor Gold Co.