Kumtor Gold Mine

Kumtor is 100% owned by the Canadian mining company, Centerra Gold. Centerra Gold Inc. is a Canadian-based gold mining and exploration company engaged in the operation, exploration, development and acquisition of gold properties in North America, Asia and other markets worldwide. Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is headquartered in Toronto, Ontario, Canada (4). The Kyrgyz Republic, via Kyrgyzaltyn JSC, is Centerra's largest shareholder owning 77,401,766 shares (5), or more than 26 % of the issued shares of Centerra (6). Kumtor Gold Company is the operator of the Kumtor project responsible for the entire production cycle.

The deposit is mined by open-pit mining techniques utilizing typical drill, blast and truck/loader or truck/shovel operations. The ore is delivered to the crusher and further to the mill, where the gold is extracted using carbon-in-leach technology The mill's rated throughput is approximately 16,000 tonnes of ore per day. After the ore treatment is complete, the gold is poured in the form of Dore bars containing about 80 percent of gold. As of December 31, 2017, Kumtor had produced approximately 11.5 million ounces or 357 tonnes of gold since the start of commercial production in May 1997. (7). The Dore bars produced by the Kumtor mine are purchased by Kyrgyzaltyn JSC for processing at the Kara-Balta refinery pursuant to a Gold and Silver Sales Agreement signed by Kumtor Gold Company, Kyrgyzaltyn and the Government of the Kyrgyz Republic. Kyrgyzaltyn JSC enjoys the exclusive right to sell refined gold and silver both in and outside the Kyrgyz Republic. In 2017, gold production at the Kumtor mine was 562,749 ounces or 17,503.46 kg. Gold sales were 550,134 ounces or 17,111.09 kg (8).

Despite the fact that the Kumtor gold deposit was discovered in 1978 and the feasibility study was drafted by GINALMAZZOLOTO of the Chief Directorate of Precious Metals and Diamonds of the USSR Council of Ministers in 1989, the development of the mine was delayed as the project was seen as being too costly: 995.4 million Soviet rubles (an approximate equivalent of 1.46 billion USD as it stood in those days). It was not until after Kyrgyzstan gained independence that it found itself in a position to attract western investment to start developing its own mineral resources. After thoroughly examining several investment offers, the Government of the Kyrgyz Republic favored those made by Canadian Cameco Corporation, one of the world’s largest uranium producers. On December 4, 1992, in Toronto the sides signed the Kumtor Master Agreement (9).

The Mine's construction commenced in 1993, and commercial gold production at Kumtor started in May 1997 so that as soon as one year later, the company poured its first million gold ounces. Mining operations in the open pit are expected to be completed in 2023 while milling operations are thought to continue until 2026 (10).

Dates

• 1978 A geophysical expedition of the Kyrgyz State Geological Committee discovers the Kumtor deposit.
• 1989 The USSR Geology Ministry publishes the results of the detailed exploration of the Kumtor deposit.
• 1992 Cameco geologists travel to the CIS in search of promising deposits.
• 1992 The Government of Kyrgyzstan and Cameco Corporation sign Master Agreement forming the Kumtor Gold Project.
• 1993 Kumtor Operating Company is formed as the project operator.
• 1994 The feasibility study finalized. Construction at Kumtor began.
• 1995 Initial financial package necessary for getting credits is completed and approved.
• 1996 The gold mill inauguration was held.
• 1997 Commercial gold production began.
• 1998 A million ounces of gold produced.
• 2002 Gold production at Kumtor exceeded 100 tonnes (3.2 million ounces).
• 2004 Project restructuring. Centerra Gold Inc. was formed. The Investment Agreement came into effect (June 22, 2004).
• 2005 Based on exploration results, the Kumtor mine-life extended till 2013.
• 2006 95 million USD invested in the Kumtor modernization program.
• 2009 Parliament of the Kyrgyz Republic signed and ratified the Agreement on New Terms for the Kumtor Project.
• 2010 196,7 million USD was invested in capital expenditures.
• 2012 A record amount of US $370 million invested in the development of the mine.
• 2012 Based on exploration results, the Kumtor mine-life extended till 2023, and milling operations to conclude in 2026.
• 2014 Kumtor Operating Company transferred its responsibilities as the Project's operator to Kumtor Gold Company.
• 2017 The Government of the Kyrgyz Republic, Centerra Gold Inc., Kumtor Gold Company and Kumtor Operating Company entered into the Environment and Investment Strategic Agreement (12)

Controversies

In 1992, Cameco Corporation became the owner of the Kumtor mine with no tender or competition ever announced. The Master Agreement between Cameco and the Government of Kyrgyzstan said that Kyrgyzstan's laws were applicable to the corporation insofar as they didn't contradict the Master Agreement. (13)

One of the worst accidents relating to the mine occurred on May 20, 1998, when a truck overturned while carrying a load of sodium cyanide, used for extracting gold from ore. The spill necessitated evacuation of approximately 5,000 residents of the village of Barskoon. In late 1998, a joint Russian-Canadian expert commission concluded that toxic concentrations in the Barskoon and Tamga irrigation water was too insignificant to cause any harm to human health (14). A series of analyses, including chemical ones, conducted by a laboratory of the national sanitary-epidemiological station under the Agency for Geology and Natural Resources, showed that cyanide concentration in the river, diversion ditches and the lake was under MAC (the maximum allowable concentration) as soon as May 27, 1998. (15) Nor cyanide was ever detected in the vegetables or fruits. (16) Moreover, no follow-up medical examinations discovered any growth in cancer rates or gene mutations among the residents of Jety-Oguz district, Issyk-Kul Province. (17)

After Cameco sold all of its shares to Centerra Gold Inc. in 2009, Kyrgyzstan became the major shareholder of the company. (18) That same year, when Kurmanbek Bakiyev was President of the Kyrgyz Republic, a new project agreement was signed between the company and Kyrgyzstan. Deposed in 2010, he was blamed for accepting terms that he knew were against the interests of the country. (19)

In this context, a temporary parliamentary commission was formed by Jogorku Kenesh in February 2012 to review the Kumtor mine's activities (20). Based on its findings, in June 2012, a State Commission was formed to carry out a comprehensive audit of Kumtor Operating Company. The Commission was chaired by Temir Sariyev, Minister of the Economy and Antimonopoly Policy (21).

In February 2013, the Parliament of Kyrgyzstan supported the State Commission's recommendation that the 2009 Kumtor Agreement should be reviewed. The Government was ordered to have the Agreement with Centerra Gold Inc. revised in favor of Kyrgyzstan. Otherwise, the Government was instructed to terminate the Agreement (22).

As a result of the Commission's efforts, On May 22, 2013, the State Inspectorate Office for Environmental and Engineering Safety filed a claim against Kumtor Operating Company to an amount of 6.8 billion soms. On May 24, the claim was dismissed by the court. On June 7, claims were filed again by the said Inspectorate Office which were rejected by the court decisions dated June 11 and 13, 2013. (23)

Against this background, on May 28, 2013, about 500 village residents in Jety-Oguz district, Issyk-Kul Province blocked the road to the mine demanding that the 2009 Agreement should be terminated. In the evening May 30, a few dozens of protesters seized an electric power substation and shut down the grid power supply to the gold mill. Electricity supply was resumed early in the morning on May 31 after police forced out the protesters from the electric power substation. President of Kyrgyzstan Almazbek Atambayev declared the state of emergency in Jety-Oguz district. (24) As the result of the outage, the gold mill suffered more than $4 million in losses (25).

By October 2013, the Kyrgyz Republic's Government had completed negotiations with the Canadian company and submitted to Parliament a draft Memorandum creating a 50/50 joint venture company, which, however, was rejected by Parliament as it demanded that Kyrgyzstan's equity interests in the company should be increased to 67% (26, 27).

In 2014, the Kyrgyz Republic's Government sponsored amendments to the existing Water Code which banned any activities that might affect the status of glaciers. However, it made an exception for the Davydov and Lysyi glaciers located within Kumtor's concession area. In its explanatory notes, the Government proved that Kumtor was critically important for the economy of Kyrgyzstan (28).

In the meantime, the Government came up with a modified version of the Kumtor restructuring Memorandum which it submitted to Parliament in February 2014. The restructuring program for Kumtor was approved by Parliament(29). In December 2015, however, it was announced that the Kyrgyz Republic's Government was pulling out of the talks as it was going to provide a new restructuring program(30). In that situation, a risk of operations being shut down at Kumtor arose as the Water Code amendments permitting Kumtor's operations had still to be adopted by Parliament(35).

That same year, the Supreme Court of the Kyrgyz Republic affirmed the State Inspectorate Office's appeal and brought the case back to the Inter-District Court. A second stage of litigation began. In 2016, the court made a ruling in favor of the Inspectorate Office. The principal difference between the ways the Inspectorate Office's claims were considered in 2013 and 2016 was that in 2013 court proceedings were purposefully slowed down by Kyrgyzstan's authorities in anticipation of the results of the ongoing negotiations with Centerra Gold Inc. about the restructuring of the Kumtor Project. (31)

Then legal proceedings were transferred to international courts and continued until the Strategic Environment and Investment Agreement was signed between Centerra Gold Inc. and the Kyrgyz Republic's Government (32, 33). The said Agreement settled all disputes and the existing arbitration and environmental claims. (34) On November 16, 2016, were also adopted amendments to the Water Code permitting commercial activities near the Davydov and Lysyi glaciers (28).

Kumtor's Contribution to Kyrgyzstan's Economy

According to preliminary reports of the Kyrgyz Republic's National Statistics Committee, Kumtor's impact on Kyrgyzstan's macroeconomic indicators in 2017 looks as follows:

- Kumtor's contribution to Kyrgyzstan's GDP accounted for 9.7%;

- Kumtor's contribution to the aggregate industrial output amounted to 21.1%;

- contributions made within the Kyrgyz Republic in 2017 (including taxes, refining, domestic suppliers, infrastructure, charities, etc.) exceeded US $269,731,000.

Kumtor's total payments made within Kyrgyzstan between 1994 and 2017 exceeded US $3.472 billion. (33)

Kumtor’s 2018 gold production forecast is expected to be in the range of 450,000 to 500,000 ounces or 14.15 to 15.55 tonnes. Total capital expenditures, excluding capitalized stripping, are forecast to be US $63 million. Growth capital investment is forecast at US $14 million primarily related to tailings dam construction ($9 million). Capitalized stripping costs are expected to be approximately $122 to $168 million. (34)

1. Kyrgyz Republic. Third Review Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report 2. Mountain of gold, Reuters 3. Centerra Gold Inc. 4. Кыргызстан и «Центерра Голд Инк.» (Kyrgyzstan and Centerra Gold Inc.) 5. Кыргызстан, через ОАО «Кыргызалтын», является держателем самого крупного пакета акций «Центерры» - 77 401 766 акций - около 33% ("Kyrgyzstan, via Kyrgyzaltyn JSC, is Centerra’s largest shareholder owning 77,401,766 common shares or over 33%") 6. Алимбеков: "Кыргызалтын" будет получать дивиденды и после закрытия "Кумтора" ("Alimbekov: Kyrgyzaltyn Will Be Entitled to Dividends Even Closure of Kumtor") 7. 2017 Fourth Quarter and 2017 Year-End Results 8. 2017 Fourth Quarter and 2017 Year-End Results 9. History 10. Технический отчет по проекту «Кумторзолото» (Кыргызская Республика) для компании «Центерра Голд Инк.» ("Technical Report on the Kumtor Gold Project (Kyrgyz Republic) for Centerra Gold Inc.") 11. Акции Centerra подорожали на новостях о покупке рудника в Канаде ("Centerra's Shares Go Up in Price Following Reported Acquisition of a Mine in Canada") 12. Правительство и Центерра открыли новый этап реализации проекта «Кумтор» ("Government and Centerra Ushered In New Stage in Implementation of Kumtor Project") 13. К.Бенедиктов. Чужое золото ("K.Benedictov. Vicarious Gold") 14. Специальный репортаж: жертвы экологической катастрофы требуют компенсации ("Special Report: Environmental Disaster Victims Demand Compensation") 15. Постановление Правительства Кыргызской Республики от 29 сентября 1998 года № 629 Об итогах работы специальной правительственной комиссии по расследованию причин возникновения аварии в Джеты-Огузском районе, определению экологического и экономического ущерба ("Decree of the Government of the Kyrgyz Republic dated as of September 29, 1998, #629, 'On Findings of the Special Government's Commission Appointed to Investigate the Causes of the Jety-Oguz Accident and Appraise the Environmental and Economic Damage' ") 16. Н.Мешков: Загрязнение цианидами реки Барскоон и озера Иссык-Куль не более чем домысел (N.Meshkov: "Cyanide Contamination of the Barskoon River and Lake Issyk-Kul is Nothing But Speculation") 17. Директор наццентра онкологии: Барскоонская авария не привела к росту онкологических заболеваний ("Director of National Cancer Center: Barskoon Accident Didn't Lead to Cancer Rate Growth") 18. Timeline: при каких обстоятельствах подписывали соглашения по "Кумтору" ("What Were the Circumstances that Prevailed When the Kumtor Agreements were Signed") 19. Кыргызстан и Канада делят золото «Кумтора» ("Kyrgyzstan and Canada Divide Kumtor's Gold") 20. Создана депутатская комиссия по проверке деятельности рудника Кумтор ("Parliamentary Commission is Formed to Audit Kumtor Mine") 21. Госкомиссия по проверке «Кумтор Оперейтинг Компани» утвердила план работы ("The State Commission formed to audit Kumtor Operating company has adopted its working schedule") 22. Текст постановления Жогорку Кенеша, принятого по итогам рассмотрения отчета госкомиссии по Кумтору (The text of the Parliament's Decree based on the report provided by the State Commission for Kumtor) 23. Межрайонный суд Бишкека отклонил иск к "Кумтору" на 6,8 млрд сомов ("6.8-Billion-Som Claim Against Kumtor Rejected by Inter-District Court in Bishkek") 24. Беспорядки в Киргизии: введено чрезвычайное положение ("Unrest in Kyrgyzstan: A State of Emergency Imposed") 25. Обесточивание Кумтора привело к финансовым потерям, превышающим $4 млн ("Kumtor has suffered $4 million in losses as the result of the outage") 26. Жогорку Кенеш отклонил меморандум с Centerra Gold Inc. о создании совместного предприятия. ("Parliament Rejected Memorandum with Centerra Gold Inc. Creating Joint Venture Company") 27. В парламенте Кыргызстана вновь передумали и снова требуют, чтобы правительство Кыргызстана добилось увеличения доли в СП до 67 процентов ("Kyrgyzstan's Parliament Changed Its Mind and Demands Again that Government Must Have Equity Interests in JVC Increased to 67%") 28. Подписан Закон Кыргызской Республики «О внесении изменений в Водный Кодекс Кыргызской Республики» ("The Law of the Kyrgyz Republic 'On Water Code Amendments' Signed") 29. Жогорку Кенеш поддержал реструктуризацию «Кумтора» ("Parliament Okays Restructuring for Kumtor") 30. Кабмин КР выходит из переговоров по реструктуризации проекта "Кумтор" ("Cabinet Pulls out of Talks on Restructuring for Kumtor Project") 31. Иски на 7 млрд: Centerra Gold проиграла все суды Госэкотехинспекции ("7-Billion-Som Claims: Centerra Gold Lost All Court Cases to State Inspectorate Office for Environmental and Engineering Safety") 32. Кабмин и Centerra Gold Inс. подписали соглашение по экологии на Иссык-Куле ("Cabinet and Centerra Gold Inc. Signed Issyk-Kul Environment Agreement") 33. Правительство и Центерра открыли новый этап реализации проекта «Кумтор» ("Government and Centerra Ushered In New Stage in Implementation of Kumtor Project") 34. Компания «Центерра Голд Инк.» достигла полного урегулирования спорных вопросов с Правительством Кыргызской Республики ("Centerra Gold Inc. Achieved Comprehensive Settlement of Disputes with the Kyrgyz Republic's Government") 35. «Кумтор» может остановить работу без поправок в Водный кодекс ("Kumtor May Shut Down Operations with Water Code Amendments Still to be Adopted")

• Kumtor Gold Mine official web page
• Centerra Gold - Kumtor Gold Mine web page
• A view of the mine (NewEurasia Citizen Media)
• Kumtor Gold Mine, Kyrgyzstan (CEE Bankwatch Network)
• Kyrgyzstan Prime Minister announced change in administration of Kumtor Gold Mine project

• State Committee for Industry, Energy and Subsoil Management of the Kyrgyz Republic