February 4, 2016 / 5:23 PM / a year ago

UPDATE 2-Canada's Centerra given go-ahead to mine Mongolian gold deposit

3 Min Read

(Adds details, comments from Centerra spokesman, updates stock price, paragraphs 4-5, 13)

By Terrence Edwards

ULAN BATOR, Feb 4 (Reuters) - Canada's Centerra Gold Inc has received the go-ahead from lawmakers in Mongolia to mine the Gatsuurt deposit after a five-year delay, as that resource-rich country looks to bolster its economic activity and gold reserves.

Mongolia's once-booming economy has taken a steep slide, with the Asian Development Bank estimating 2015 growth at less than 3 percent compared with 17.5 percent in 2011. Mongolia hopes to boost revenue and stimulate growth by advancing projects such as Gatsuurt, despite some backlash.

The parliament passed a bill on Thursday granting the country 34 percent ownership of the Gatsuurt project, with 1.6 million ounces of probable gold reserves, a government website said. Centerra, which also owns the Boroo mine in Mongolia, will hold the remaining 66 percent.

The government can now negotiate final conditions for mining with Toronto-based Centerra, whose stock closed nearly 0.5 percent higher.

"In October, as we announced, we agreed with the government on a 3 percent special royalty in place of the state 34 percent ownership," said Centerra spokesman John Pearson. "This (bill) just gives the goverment the authorization to put this in place."

Developing Gatsuurt will require "very modest" initial capital investment, said Centerra Chief Executive Scott Perry, because the project will use a mill and other infrastructure at Centerra's existing Boroo mine, which is 55 kilometres (34 miles) away.

Approval comes a year after legislators rejected the first deal, which proposed a smaller government stake in return for larger royalty fees. It also follows an agreement signed last May to relaunch an expansion project at Mongolia's $4-6 billion Oyu Tolgoi copper mine, owned by Rio Tinto .

Centerra has been waiting since 2010 for a decision from the government on whether it could proceed, after a law banned mining at certain areas near forests and water sources, including Gatsuurt.

In December 2014, Gatsuurt was included in a list of strategic deposits exempt from the restrictions, but requiring government ownership.

Environmentalists and conservationists oppose the development, concerned about historical artefacts discovered in neighbouring sites at the Noyon Uul mountain.

The government ramped up efforts to reach a deal when artisanal miners began mining the area illegally.

Separately, on Thursday, a Kyrgyz representative on Centerra's board said Kyrgyzstan may sue the company over its plans to issue additional shares, which will dilute the Central Asian nation's stake slightly.

Equity issues are routine business transactions, said Pearson, who declined to comment further. (With additional reporting by Susan Taylor in Toronto; Editing by Sue-Lin Wong, David Evans and David Gregorio)

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