UPDATE 3-Centerra, Kyrgyzstan reach draft deal on Kumtor gold mine

Tue Dec 24, 2013 12:58pm EST
 
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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.   Continued...