June 12, 2009 / 2:35 PM / 8 years ago

UPDATE 2-Mongolia suspends Centerra mine, shares drop

* Boroo mine operating licenses suspended for up 3 months

* License can be reauthorized if issues resolved

* Shares drop 9 percent (Adds details, background)

By Cameron French

TORONTO, June 12 (Reuters) - Centerra Gold (CG.TO), a Canadian gold producer focused on Asia and the former Soviet Union, said on Friday authorities in Mongolia have suspended the operating license at its Boroo mine, knocking the company’s shares down 9 percent.

The news, which has no immediate impact on Boroo’s production as the mine was already shut down due to a labor dispute, comes one day after Centerra formally resolved an ownership dispute at its other key asset, the Kumtor mine in Kyrgyzstan.

Centerra, which is partly owned by Canadian uranium producer Cameco Corp (CCO.TO), said Mongolia cited issues related to record-keeping, incorrect land use, and improper operating procedures in its suspension, which is set to last for up to three months.

The Toronto-based company said if the issues aren’t resolved within the three-month period, the licenses could be revoked.

Centerra spokesman John Pearson said the suspension was handed down following a visit from Mongolia’s State Specialized Inspection Agency.

“We’re working with the authorities to understand what these issues really are and to resolve these issues in a timely manner,” he said.

Pearson said he did not know whether the inspection agency’s visit was related to conditions of the work stoppage. Some striking workers have gone on a hunger strike.

“I don’t know whether that was directly related to the strike or not. Certainly there was a working group formed to inspect the Boroo mine site. So they came and visited and the report came out of that visit,” he said.

Mongolian media have reported the government formed the working group to investigate the company after workers accused it of misdeeds.

Workers walked off the job in late May demanding higher wages. The company has said the strike is illegal as there is a collective agreement in place.

The mine had been expected to produce between 160,000 and 170,000 ounces this year, but Centerra will revisit its projections when the issues are resolved, Pearson said.

POLITICAL RISK

The issue highlights the difficulties resource companies have faced operating in developing countries in Asia and Africa.

Centerra spent the past year trying to revive an ownership agreement for its larger Kumtor mine in Kyrgyzstan, which had been operating under a cloud of nationalization worries.

The company hammered out a new agreement in April giving the government a larger stake in the company. The deal closed on Thursday.

In Mongolia, Ivanhoe Mines (IVN.TO) has been trying for years to strike a deal to develop the massive Oyu Tolgoi copper and gold deposit.

A pact struck in 2006 was withdrawn last year when Mongolia sought more favorable terms. The two sides recently came to a new agreement, which is now awaiting parliamentary approval.

John Ing, president of Toronto investment dealer Maison Placements, said he doubted the Boroo dispute would develop into a major headache for Centerra.

“These guys are well used to dealing with the government, so it’s part of the price you pay for mining,” he said.

The company’s shares were down 66 Canadian cents at C$6.64 on the Toronto Stock Exchange.

$1=$1.12 Canadian Additional reporting by Pav Jordan; editing by Peter Galloway

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