June 22, 2012 / 6:49 PM / 5 years ago

Centerra's Kyrgyz gold mine caught in green tangle; shares plunge

(Reuters) - Canadian miner Centerra Gold Inc said allegations of environmental violations at its flagship Kumtor mine in Kyrgyzstan, made by a commission set up by the country's parliament, were without merit.

The Kyrgyz Parliament is discussing a report by the commission, formed to review Kumtor's compliance with environmental, health and safety standards, the company said.

Shares of Centerra, in which the Kyrgyz state owns a 33 percent stake, fell as much as 35 percent to a more than two-and-half-year low of C$7.66 on Friday on the Toronto Stock Exchange.

Centerra, which also produces gold in Mongolia, said it is not able to comment on the likely outcome of the discussions in parliament at this time.

The report said the company is polluting the site around the mine, Centerra CFO Jeffrey Parr told Reuters. He said he did not expect the report to interrupt the mine's production.

The economy in Kyrgyzstan, a mountainous former Soviet republic, relies heavily on gold production from Kumtor.

"The operating mine is vital to the economy. Whatever the outcome is, the parliament will tread very carefully in terms of what impact its decision will have on the operation of the mine," said analyst David West of Salman Partners.

Kumtor, one of the highest-altitude gold mines in the world at nearly 4,000 meters above sea level, accounted for nearly 12 percent of the country's GDP and more than half of its export revenue last year.

The project is in compliance with Kyrgyz laws, and meets Kyrgyz and international environmental, safety and health standards, the company said.

It has been operating without interruption since 1997, Centerra said.

NO EXPROPRIATION LIKELY

Analyst West said there is a very low probability that the government will expropriate the Kumtor asset at this point.

"I do not think the government has the technical expertise to run this mine. With that in mind, I don't think they have a choice but to allow Centerra to run it," West said.

Any negative impact on the operation at Kumtor will not only bring down the amount of Kyrgyzstan's tax revenue but also hurt the actual asset value that the country holds through the Centerra shares, the analyst said.

The mine has been hit by a series of disruptions, with villagers of the Central Asian state blocking the only road to the mine, demanding land and jobs.

Ice movement in the high-altitude pit has cut Kumtor's output, dragging Kyrgyzstan's annual GDP growth to 1.8 percent from the original target of 7.5 percent.

Toronto-based Centerra in March forecast production of 390,000 to 410,000 ounces this year, down from its previous estimate of 575,000 to 625,000 ounces. Kumtor accounted for over 90 percent of the 583,156 ounces the company produced last year.

Shares of Centerra, which has a market value C$2.78 billion, have lost more than a third of their value so far this year.

Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Sriraj Kalluvila and Joyjeet Das

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