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Centerra continues talks with Kyrgyzstan despite arrest of former CEO

Two engineers pour the top layer of molten gold into a basin in the Kumtor mine mill, in the Tien Shan mountain range, in Kyrgyzstan, on Saturday, May 24, 2008.

ANDREW CABALLERO REYNOLDS/BLOOMBERG NEWS

Toronto-based Centerra Gold Inc. says it remains in talks with the government of Kyrgyzstan on the future of the company's massive Kumtor gold mine in the mountains of the former Soviet republic, despite word that its former chief executive officer has been arrested on corruption allegations.

"We are committed to concluding these discussions," John Pearson, Centerra's vice-president of investor relations, said Tuesday, a day after the company disclosed that former president and CEO Leonard Homeniuk was detained in Bulgaria at the request of the Kyrgyzstani government.

Mr. Homeniuk, a Canadian mining executive who spent 16 years at the helm of the company as it developed the mine in Kyrgyzstan, retired in 2008. In a statement released on Monday, the company said he was picked up by Bulgarian authorities while on a family vacation. His photo was on Interpol's website, saying he was wanted by Kyrgyzstani officials for "involvement in corruption."

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Mr. Homeniuk, 68, is now a director of Polymetal International PLC, a London- and Moscow-listed Russian gold and silver miner with operations in Russia and Kazakhstan. He is also listed as the founder and CEO of a private company, Polygon Gold, involved in Russian mining ventures.

Centerra said the allegations, which it did not detail but said involve payments to Kyrgyzstani officials, are "completely unfounded."

Centerra, whose operations have been plagued by protests and allegations of environmental damage, has been in tense negotiations with Kyrgyzstan since 2009, discussing a restructuring of the ownership of the Kumtor mine that would give the government a larger share of the proceeds. Kumtor, located in Kyrgyzstan's Tian Shan mountains, is the largest gold mine in Central Asia operated by a Western company, and is extremely valuable for both Centerra and its impoverished host country.

The mine is Kyrgyzstan's largest enterprise, investor and taxpayer. In 2014, it contributed to 7.4 per cent of the country's gross domestic product and 23 per cent of the country's total industrial output. For Centerra, the mine is also its most important asset – last year, it accounted for 90 per cent of total revenues.

The company said the Kyrgyzstani allegations date to 2003-04. That was when Centerra was spun off into an independent company by Saskatoon-based uranium giant Cameco Corp., and Mr. Homeniuk was at the helm.

"In that time, all parties including the Kyrgyz government were advised by capable and reputable legal and financial advisers throughout all the stages for all the related transactions," Mr. Pearson said in an interview. "The Kyrgyz government have provided no support or evidence for their claims despite repeated requests for information. As far as we are concerned, there was no illegal activity, no illegal transactions."

The talks over restructuring the mine have been frustrated by politics in Kyrgyzstan and court proceedings.

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In late 2013, the Kyrgyzstani government finally came to an agreement with Centerra to sell its 32.7-per-cent equity stake in the company for a 50-per-cent interest in a joint-venture company with Centerra that would own the mine.

In June, 2014, Centerra threatened to close the mine because of delays in government approval of the plans. The saga continued when earlier this year, the Kyrgyzstani Prime Minister backed out of the agreement, saying a joint venture no longer served the national interest after learning of a decline in gold reserves at the mine.

Despite the company's assertion it was committed to the talks, it is unclear whether it is safe at the moment for current members of Centerra's senior management and the board to visit Kyrgyzstan.

"Certainly, Centerra executives have travelled overseas to see the Kumtor project," Mr. Pearson said. "We are continually reviewing the appropriateness of travelling to the country at any given time."

In recent years, Centerra has made efforts to diversify away from its dependence on the Kumtor mine.

"Historically it's kind of been the foundation of the company," said Andrew Breichmanas, analyst at BMO Capital Markets. "But they've been pursuing a number of different projects and looking for options outside of the Kyrgyz Republic."

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The company's newest move in this direction is at home. It formed a joint venture partnership with Premier Gold Mines Ltd. in Ontario this March.

On whether the detainment will have a significant effect on the company's share prices, Mr. Breichmanas is not too concerned. "Not to make light of the situation or anything, but these are the types of things that the company has been dealing with ever since the mine established itself."

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About the Author
Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. From 2010 to 2016, he was the law reporter in Report on Business, covering Bay Street law firms and white-collar crime. He won an honourable mention at the National Magazine Awards for investigative journalism in 2010. More

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