June 4, 2013 / 6:08 PM / in 4 years

UPDATE 1-Centerra, Kyrgyz gov in talks to form company for Kumtor mine

* Government company to swap interest in Centerra for stake in JV

* Government says new plan to generate more cash flow than current one

* Shares rise 1.2 pct

June 4 (Reuters) - The Central Asian state of Kyrgyzstan is in talks with Centerra Gold Inc to swap its one-third stake in the company for joint ownership of the flagship mine that underpins the economy of the restive ex-Soviet country.

Toronto-listed Centerra has come under pressure to redraw an agreement struck in 2009 to operate the Kumtor mine, hidden high in the Tien Shan mountains. Hundreds of protesters forced a brief stoppage to production last week.

A state commission has said Centerra is paying too little to run the mine and accused it of damaging the environment, while protesters have raised demands ranging from new jobs to building roads.

Centerra said that, according to the latest proposal, state gold company Kyrgyzaltyn would exchange its 32.7 percent interest in Centerra for “an interest of equivalent value” in a joint venture that would own the Kumtor project.

Centerra’s shares rose 1.2 percent to C$4.22 on the Toronto Stock Exchange. They have lost about 57 percent of their value this year until Monday close.

“It’s a positive that they’re making progress and negotiations,” said analyst David West of Salman Partners Inc.

In a separate statement, the government of Kyrgyzstan said the size of the Kyrgyz stake would be determined by “independent financial consultants” appointed by both parties.

The government said PricewaterhouseCoopers was appointed financial adviser for the joint venture and DLA Piper as legal adviser.

In a statement published in Kyrgyz and Russian, it said the proposed restructuring would generate “significantly” more cash flow for the government than the current agreement.

“The government is taking the firm position that the restructuring option should provide the Kyrgyz side with control of the joint venture,” the government said in the statement on its website, www.gov.kg.

“Other options would be unsatisfactory to the government, to parliament and to society,” it said.

It said the joint venture would be registered in Kyrgyzstan and governed by a board comprising an equal number of representatives of Kyrgyzaltyn and Centerra. Chairmanship of the board would be rotated annually.

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