May 31, 2013 / 2:53 PM / in 4 years

UPDATE 3-Kyrgyzstan sets state of emergency to protect Centerra mine

* Protest broken up in north, new one flares up in south

* Government to continue talks with Centerra beyond deadline

* Says may still cancel 2009 agreement if no new deal

* Centerra says production in second and fourth quarters to be impacted

* Shares fall as much as 15 percent

By Olga Dzyubenko and Bhaswati Mukhopadhyay

BISHKEK/BANGALORE, May 31 (Reuters) - Kyrgyzstan imposed a state of emergency on a northern district on Friday to protect Centerra Gold’s Kumtor mine from protesters but more unrest against the Canadian investor flared up in the country’s south.

Centerra’s shares fell 15 percent to C$3.52 on the Toronto Stock Exchange after the miner said it would not be possible to determine the extent of the impact on its production and results until grid power was restored at the mine.

“Over 50 percent of our gold production was scheduled to be produced in the fourth quarter. Any delays will impact that, but I do not have the extent of that impact,” John Pearson, Centerra’s vice-president for investor relations, told Reuters.

“We have a large stripping campaign going on right now to enable us to access higher-grade ore in the fourth quarter. By ceasing mining operations, that is pushing that mining activity further or delaying access into the zone.”

Production in the current quarter will be impacted as well, Pearson said.

Toronto-listed Centerra said on Thursday operations at the flagship mine had been suspended after villagers blocking the only road to the mine cut off power supply.

The company said on Friday it would continue with an orderly shutdown of the mine facilities until calm returns. It was taking steps to ensure safety and security of its personnel.

Centerra said there was an orderly shutdown of the milling facility. The mill has been placed on standby with fluids circulating in order to ensure there is no damage from freezing, the company said.

Centerra’s Kumtor mine, nestled in the Tien Shan mountains, is Kyrgyzstan’s largest gold deposit and helps keep the Central Asian state’s shaky economy afloat.

But Centerra has come under immense local pressure. A state commission has said the firm is paying too little to run Kumtor and accused it of damaging the environment while protesters have raised demands ranging from jobs at Kumtor to building roads.

Police on Friday cleared away demonstrators who had been blocking the road to Kumtor for days and arrested 92 people, Prime Minister Zhantoro Satybaldiyev told a news conference.

A few hours later police used tear gas and stun grenades in clashes with villagers who tried to seize a substation and cut power supplies to the mine, a police spokesman said. Fifty-five people, including policemen, needed medical treatment.

President Almazbek Atambayev imposed the state of emergency and a curfew on Dzhety Ohuz district of the Issyk Kul region until June 10, his office said.

“Those who broke the law must be brought to justice in line with the full severity of the law,” it quoted Atambayev as saying during a meeting with security officials.

Hundreds of villagers had blocked the road to Kumtor, in Dzhety Oguz district, on Tuesday afternoon and threatened to move on the mine if the government did not tear up its agreement with Centerra Gold.

“That agreement was a solid agreement. It was negotiated openly and transparently, approved by all levels of government ... Investors internationally have invested in Centerra based on that 2009 agreement,” Pearson said.

UNREST SPREADS

Defying his warnings, a crowd of protesters occupied the regional administration building in the southern town of Jalalabad several hours later. They demanded that Centerra be nationalised and a jailed nationalist parliamentarian be freed, an eyewitness and a police officer told Reuters from the town.

“The President and the Prime Minister have clearly stated in the past that the mine is not going to be nationalized,” Pearson said.

The Central Asian state’s government said that only a few opposition protesters were in the building and threatened to use force if they did not leave voluntarily.

Local villagers in the north have floated a list of demands to Centerra, varying from building roads and a kindergarten and laying water pipelines to giving them long-term loans, offering them jobs at Kumtor and buying equipment for local hospitals.

The protesters moved on Thursday night to an electricity substation feeding the mine and forced its operators to cut off power. Centerra Gold said it had begun an orderly shutdown of the milling facility using back-up diesel-generated power.

The police action prevented the mine from shutting down.

On Friday evening the protesters again seized the substation and cut off power to Kumtor and local border guard posts.

Centerra Gold alone contributed 12 percent in 2001 to the gross domestic product of Kyrgyzstan, a mainly Muslim nation of 5.5 million that has seen two presidents toppled since 2005.

Kyrgyz nationalist deputies and groups have called for the nationalisation of the mine - the biggest gold venture run by a Western company in Central Asia. Parliament has set a deadline of June 1 for the government to renegotiate or repudiate a 2009 deal struck with Centerra to operate Kumtor.

Prime Minister Satybaldiyev said the government would miss the deadline as it needed more time for talks with Centerra.

“They agree to establish a joint venture by unbundling Kumtor from Centerra and registering it in Kyrgyzstan. If such joint venture is created, cash flow will double,” he said without giving further details.

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