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(Adds analyst comment, details on deal, share price move)
By Euan Rocha and Swetha Gopinath
Dec 24 (Reuters) - Centerra Gold Inc said on Tuesday it has reached a non-binding agreement with the government of the Kyrgyzstan that could pave the way for joint ownership of Kumtor, the country's flagship gold mine.
The mine, which accounted for some 12 percent of the Central Asian country's gross domestic product in 2011, has been at the center of a spiraling controversy for months, with some within the country demanding that the gold mine be nationalized, while others have pushed for the country to get a big stake in it.
Shares in the Toronto-listed Centerra soared as much as 9.8 percent in early trading after it announced the tentative deal in which Kyrgyz Republic would swap its 32.7 percent equity stake in the Canadian miner for a 50 percent ownership interest in the Kumtor mine itself.
The draft deal is broadly similar to a previous agreement that the Kyrgyz parliament rejected, so it is not immediately clear whether the latest terms would win legislative approval.
As part of the new deal, Centerra has agreed to forfeit a $100 million payment from the Kyrgyz Republic that was part of the original memorandum of understanding signed back in September.
Analysts and investors cheered the new agreement that takes the company a step closer to resolving the controversy that has largely been responsible for dragging Centerra's share price down nearly 80 percent over the last two years.
The agreement "is superficially positive as it points to a potential resolution to the current impasse," wrote RBC Capital Markets analyst Jonathan Guy in a note to clients.
"If this agreement were to be approved by the parliament in this form then we would view that as a material positive for the company's shares," said Guy.
Centerra, as part of the new agreement, said the 50-50 joint venture will also commit to increasing local procurement in the Kyrgyz Republic by $100 million over the remaining life of the mine and increase the number of Kyrgyz nationals in management positions in the joint venture.
At the end of the mine's planned life in 2026, the company said the country would have the rights to increase its ownership interest in the project to 67 percent for a price equal to fair market value.
Talks to reach this deal have taken place amid riots and opposition calls to nationalize the mine. Kyrgyz parliament has demanded that the country hold 67 percent in a joint venture to run the mine, which is a major foreign-currency earner for the nation.
Kyrgyz President Almazbek Atambayev said last week the order to seek a 67 percent stake for the state in a Kumtor venture was "obviously unachievable". He also noted that if Kyrgyzstan were to withdraw from the current agreement, prompting legal action, the current ownership structure would stand while any case is before the courts.
"This would take five to 10 years and would inflict huge damage on Kyrgyzstan," Atambayev said last week, adding that the country would face a lawsuit amounting to billions of dollars if the mine were to be expropriated.
The Kyrgyz government delivered the new draft agreement to parliament on Monday for its consideration, Centerra said in a statement.
The tentative deal would potentially also resolve all legal claims relating to Kumtor, including those around environmental, technical and land use matters. Earlier this month, the country said it was suing Centerra for 15 billion soms ($304 million) over ecological damage caused by the mine.
The two sides have agreed that a number of prior agreements entered in 2009 by the miner and the government would remain in effect, including the one on the tax regime.
As part of the deal, Centerra has agreed to give the country warrants to acquire six million Centerra shares, for an exercise price of C$10 per share, exercisable within three years after the restructuring. The initial agreement in September had only given the country a two-year window to cash in the options.
Centerra cautioned that there can be no assurance that the Kyrgyz parliament will approve the tentative agreement, or any definitive agreements which the parties may negotiate further to the current deal.
Shares in Centerra were up 5.8 percent at C$4.20 at midday, in a shortened trading day on Christmas Eve. (Reporting by Euan Rocha in Toronto and Swetha Gopinath in Bangalore; Editing by Joyjeet Das, Marguerita Choy and Bob Burgdorfer)