June 3, 2014 / 3:13 PM / 4 years ago

Environmental hurdles add to uncertainty over future of Centerra's Kyrgyzstan mine

BISHKEK, June 3 (Reuters) - Centerra Gold’s development plans for its Kumtor gold mine in Kyrgyzstan could damage the nearby Davydov glacier, the Central Asian state’s environment protection agency said on Tuesday, adding to uncertainty about the mine’s future.

The Kumtor mine, which lies in the Tien Shan mountains near the Chinese border, has been a source of political tension in Kyrgyzstan, which has been trying to increase revenues from the project.

The environment agency said after looking into Centerra’s 2014 plan of works for the mine there were serious concerns the plans could damage the glacier.

“I do not know if the mine will stop or not. If it stops, this will be bad for the economy. But our laws ... do not allow anyone to destroy glaciers,” Abdykalyk Rustamov, deputy agency head, told Reuters.

Kyrgyzstan’s Water Code bans any kind of industrial activity near glaciers, which are protected as a strategic fresh water reserve, which Kyrgyzstan also supplies to its neighbour Uzbekistan.

Centerra has threatened to begin winding down work at the mine, Kyrgyzstan’s flagship joint-venture project, if its new mine plan and related operating permits were not approved by the government by June 13.

The mine, the largest gold deposit in Kyrgyzstan, is a big source of foreign exchange for the country. Centerra has said the project is the main taxpayer and biggest employer in the country of 5.5 million people.

A shut-down of the mine would aggravate the dispute between Centerra and the government, which wants more revenue from the mine.

Under a draft agreement in December, Kyrgyzstan would swap its 32.7 percent stake in Centerra for half of the Kumtor mine, the company’s main asset. But the deal has not been finalised, and Centerra is still facing a $300 million ecological damages suit filed by the government, which has repeatedly rejected opposition calls to nationalise Kumtor.

Kumtor’s gold production in 2014 is expected to be approximately 550,000 to 600,000 ounces or 17.1 to 18.7 tonnes, according to its website.

Centerra said if the mine were shut down, it would keep staff on site for environmental and safety monitoring, security and required maintenance.

It said Kumtor had “significant geotechnical and other challenges,” including instability in the wall of the open pit, water flows and ice movement from a nearby glacier.

An official at Kyrgyzstan’s state geology and mineral resources agency said the authorities “were on the horns of a dilemma” in trying to tackle the glacier issue.

“We have to answer the question: is the economy a priority, or should we protect the environment?” Kasiyet Karachokolova, a spokeswoman for the agency, said.

“We could amend the Water Code, taking into account Kumtor’s strategic position. The question is, how fast these changes in the code can be made.” (Writing by Dmitry Solovyov. Editing by Jane Merriman)

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