Centerra Gold’s (TSX: CG) subsidiary has been fined US$98 million for environmental damages at the Kumtor gold mine, and faces another US$225 million in environmental fines, all of which the firm intends to appeal.
On May 25, the Bishkek inter-district court in Kyrgyzstan ruled that the Kumtor Operating Company (KOC) would have to pay a US$98.4-million environmental fine for Kumtor’s waste rock. The ruling follows a claim that the state inspectorate office for environmental and technical safety (SIETS) — filed along with others in 2012 — alleging that the company should pay tariffs for placing waste rock on Kumtor’s waste dumps. The tariffs normally apply to industrial or domestic waste.
“The agency is interpreting that the waste rock should have a fee … but you see our 2009 [investment] agreements outline a complete set of taxes, fees and other charges applicable to the Kumtor project. So we have been arguing that the waste rock is covered under our mine plan and shouldn’t be subjected to this tariff,” the firm’s vice-president of investor relations John Pearson explains. “We are obviously appealing that.”
Centerra is also appealing a May 24 inter-district court ruling against its subsidiary in another SIETS claim alleging unrecorded wastes from Kumtor’s effluent and sewage treatment plants, amounting to US$10,000 in damages.
The company intends to appeal both decisions to the Bishkek city court, and if required, to Kyrgyzstan’s Supreme Court. On May 30, it delivered a notice of arbitration to the government regarding other ongoing disputes at Kumtor.
The inter-district court is set to hear two more SIETS claims that charge KOC has caused land damage and failed to pay for water use. The two claims total US$5 million.
In addition, KOC faces a US$220-million claim made by the state agency for environment and forestry protection (SAEPF) for alleged environmental pollution, which was filed in 2013.
Court hearints on the SIETS and SAEPF claims have been postponed to May 31 and June 3.
Pearson says Centerra has dealt with the two environmental agencies in court for some time.
“As we stated before, we dispute the allegations in their claims and consider the claims to be without merit. So they will be automatically appealed.”
Meanwhile, Centerra is working with the government to resolve other matters surrounding its sole producing mine, including a criminal case by the general prosecutor’s office (GPO) and outstanding approvals for its annual mine plan.
The GPO alleges the company’s Kumtor Gold Co. subsidiary made a financial violation by paying a US$200-million, inter-corporate dividend to Centerra in 2013.
In late April, the GOP and other officers raided Kumtor Gold’s Bishkek offices to collect documents related to the dispute.
“There was nothing illegal done,” Pearson says. “It was an inter-corporate dividend. It’s done all the time. It was done within Kyrgyz law, business law and within corporate governance rules.”
In a separate matter, Centerra cautions that if it does not receive the outstanding permits and approvals for its 2016 mine plan by the end of June, it will have to shut down operations on July 1.
Historically the annual permits have been “somewhat delayed,” but Centerra has “always received them,” Pearson says.
BMO analyst Andrew Breichmanas notes that Kumtor has operated since 1997, producing more than 10 million oz. gold and paying over US$1 billion to the country’s budget and social fund.
“Given the importance of the mine to the country’s economy … sustaining operations would appear to be a priority,” he writes.
Despite the outstanding matters, Kumtor is on track to meet its 2016 production guidance of 480,000 to 530,000 oz. gold, Pearson says.