April 23, 2015 / 10:40 AM / 2 years ago

UPDATE 2-Kyrgyz PM resigns after failing to reach new gold mine deal

* No agreement reached with Canada's Centerra

* PM had said proposed JV not in national interest

* Mine accounts for 15 pct of industrial output (Adds Otorbayev quotes, details)

By Olga Dzyubenko

BISHKEK, April 23 (Reuters) - Kyrgyzstan's Prime Minister Joomart Otorbayev resigned on Thursday after failing to clinch a deal with Canada's Centerra Gold on the future of the country's biggest gold mine.

Centerra, which operates the Kumtor mine, has been in talks with Kyrgyzstan for more than a year on a deal that would involve the former Soviet republic swapping its 32.7 percent stake in Centerra for half of a joint venture that would control the gold deposit.

Otorbayev, who this month withdrew his backing for the joint venture, resigned after several hours of heated debate in parliament over the government's performance last year. Many deputies attacked it for failing to reach a new deal with Centerra.

Kumtor, located in a permafrost area in the Tien Shan mountains near the Chinese border, is the central Asian country's largest gold field, and Centerra Gold's core asset. It accounted for 7.4 percent of Kyrgyz gross domestic product and 15.5 percent of industrial output in 2014.

As the main hard currency earner for the volatile, mainly Muslim nation of 5.5 million people, it is likely to loom large in parliamentary elections this autumn.

"The only issue - that of Kumtor - remains (unsolved). But the chosen direction is correct, and there is a need to move on," Otorbayev told reporters after announcing his resignation.

Otorbayev, who took office a year ago, had staunchly resisted opposition calls to nationalise Kumtor and made it his priority to reach a deal with Centerra.

But talks hit a new hurdle this month after Otorbayev said that instead of forming the long-discussed joint venture to run Kumtor, the government now wanted to increase its representation on Centerra's board of directors.

He said at the time that the joint venture was no longer in Kyrgyzstan's national interest because of Centerra's new, lower estimate of Kumtor's reserves. In February it estimated proven and probable reserves at 6.1 million ounces of contained gold as of end-2014, compared to 8.5 million a year earlier.

Kyrgyz President Almazbek Atambayev must now sign a decree accepting the resignation of Otorbayev and his cabinet. The three-party majority coalition will then have 15 days to present the candidature of a new premier to the legislature for approval. (Reporting by Olga Dzyubenko; Writing by Dmitry Solovyov; Editing by Mark Trevelyan)

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