TORONTO — One of Centerra Gold Inc.’s Kyrgyz directors denounced the company at its annual meeting on Tuesday, saying there is “urgent need” for change at the management and board level.
“There are fundamental breaches of trust between Centerra and the government of the Kyrgyz Republic, which has led to instability of the Kumtor project,” Bektur Sagynov, deputy chairman at Kyrgyzaltyn JSC, told shareholders at the meeting in Toronto.
State-owned Kyrgyzaltyn, which controls 32 per cent of Centerra shares, also withheld votes for all of the gold miner’s non-Kyrgyz directors for the second straight year. It withheld votes on some directors in prior years.
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The voting results ultimately did not matter, as the directors were all re-elected easily. But they highlighted how chaotic Centerra’s situation has become in Kyrgyzstan, a country that the Fraser Institute consistently ranks as one of the least stable mining locales on earth.
“It’s not viewed as a top-tier jurisdiction,” Centerra chief executive Scott Perry acknowledged at the meeting.
Last month, the company’s Bishkek office was raided by law enforcement agencies. They were seeking documents related to an apparent criminal investigation involving inter-corporate transactions. Meanwhile, Kyrgyz politicians have accused Centerra of massive environmental damage at the Kumtor gold mine, its 2016 mine plan has yet to receive full approval, and former chief executive Len Homeniuk recently told the Financial Post that he fears for the safety of employees.
Toronto-based Centerra has repeatedly denied the wrongdoing that has been alleged over the years. Regardless, Sagynov said that the public perception of Centerra deteriorates “every year” in Kyrgyzstan.
“All of this obviously points to the potential ineffectiveness and the lack of transparency in the existing management of the Kumtor project,” he said.
Centerra thought it resolved the turmoil around Kumtor back in 2009, when it struck an agreement with the government that laid out investment terms for the mine. But within months, Kyrgyzstan was unhappy with the deal and wanted a bigger piece of the overall pie. It has been pressuring the company to scrap the agreement, though negotiations for a new deal broke down late last year.
Despite the conflicts, Centerra has operated the Kumtor mine since 1997 with almost no interruptions.
Investors and analysts doubt the political tensions in Kyrgyzstan will ever go away completely. They have become accustomed to the occasional flare-ups, which are simply the cost investors have to pay to get exposure to Kumtor, an extremely rich and profitable gold mine.
Ironically, these political flare-ups also harm Kyrgyzstan itself, since they lower the value of the Centerra shares owned by the state.
Centerra recognizes that it will trade at a discounted valuation as long as nearly all of its gold output is coming from Kyrgyzstan. So not surprisingly, Perry devoted much of his presentation to the company’s diversification efforts, which he hopes will bring a positive re-rating to the stock. Centerra has development projects in Turkey, Mongolia and Northern Ontario that it hopes to bring into production in the years ahead.