May 1, 2008 / 12:47 PM / 10 years ago

UPDATE 2-Centerra expects small changes to Kumtor agreement

(Adds details, changes dateline from Ottawa; in U.S. dollars unless noted)

TORONTO, May 1 (Reuters) - Centerra Gold (CG.TO), which is hoping to finally firm up its ownership of the Kumtor mine in Kyrgyzstan, said on Thursday it expects the Kyrgyz government will make some small changes to a key mine agreement, but stressed the changes should not be major.

The Toronto-based miner hopes the agreement will pass quickly and largely intact when the Kyrgyz parliament reconvenes on May 29 to consider the issue.

The deal, which will introduce a new tax structure and see Kyrgyzstan double its stake in the company to about 30 percent, is seen as essential to quelling lingering fears that the government might nationalize the project.

The agreement was reached last August, but its ratification has been delayed several times, most recently on Monday when Centerra extended the deadline to June 1.

Speaking on a conference call on Thursday to discuss quarterly earnings, Chief Executive Len Homeniuk said that the extension had been sought so a government working group could study the deal to make recommendations to the Kyrgyz parliament, which could include changes to the document.

“I’m fairly confident that there will be some changes to the agreements, but I don’t expect that they’re going to be substantive in any way,” Homeniuk said.

He added: “When I met with the prime minister (Igor Chudinov) last Friday, he made the point that the Kyrgyz Republic is not like Venezuela, so I think that probably says something.”

Venezuela’s socialist government has taken control of companies across several sectors, while mining firms such as Canada’s Crystallex International KRY.TO have faced ongoing delays getting approvals to operate in the country.

The delays to the Kumtor agreement have led to volatile trading in Centerra’s stock over the past year.

On Thursday, the shares were down 12 Canadian cents at C$8.52 on the Toronto Stock Exchange, after earlier touching their lowest level since September 2007.

The Kumtor mine accounts for about 4 percent of gross domestic product in the impoverished Central Asian country.


Centerra said that its first-quarter profit soared as results were lifted by higher gold prices and sales volumes.

The mid-tier gold producer earned a net $19.3 million, or 9 cents a share, in the quarter ended March 31, up from a profit of $5.9 million, or 3 cents a share, a year earlier.

Revenue rose 37 percent to $112.7 million, as realized gold prices soared to $909 an ounce, compared with $645 an ounce.

Centerra produced 120,395 ounces of gold from the Kumtor mine and its Boroo mine in Mongolia in the quarter, up from 133,005 ounces a year ago.

The cash cost per ounce of gold produced jumped 49 percent to $610 from $410.

The company forecast 2008 production of 770,000 to 830,000 ounces of gold at a cash cost of between $360 and $400 per ounce.

Kumtor production is forecast between 580,000 and 620,000 ounces at a cash cost of between $350 and $390 per ounce. Boroo production is estimated between 190,000 and 210,000 ounces at a cash cost of $380 to $420 per ounce.

Canadian uranium giant Cameco Corp. (CCO.TO), which holds a 53-percent stake in Centerra, will see its stake reduced to just under 40 percent when the agreement with Kyrgyzstan is ratified. ($1=$1.02 Canadian) (Reporting by Cameron French and Susan Taylor; editing by Rob Wilson)

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