Kyrgyzstan's massive loss at an arbitration court this month has encouraged speculation that the country's only significant foreign asset – its stake in a Canadian gold mining company – is up for grabs.
On July 2, a tribunal in Moscow awarded Toronto-listed Stans Energy Corp $118.2 million in damages in a dispute over the Kutessay-II heavy rare earth elements mine in Kyrgyzstan’s Talas Province. Stans acquired a 20-year license to the mine in 2009, which the Kyrgyz parliament recommended the government annul in 2012. (Stans has alleged that powerful Chinese interests in Kyrgyzstan bribed parliamentarians to revoke the license in order to help Beijing maintain control over the lucrative rare earths market.)
Canada’s National Post reports that Stans has few options because Kyrgyzstan, one of the poorest countries in Asia, does not have that kind of cash lying about. So Stans could seek to seize Kyrgyzstan’s shares in Toronto-listed Centerra Gold, which, in turn, owns Kyrgyzstan’s largest industrial asset, the Kumtor Gold Mine. From the National Post’s financial pages:
It is highly unlikely that Kyrgyzstan will respect the ruling and pay out any cash. That leaves Stans the option of securing verdicts against one or more of the state’s foreign assets. And a logical one to go after would be Kyrgyzstan’s 32.7% stake in Centerra, currently worth almost $500 million.
David Vinokurov, vice-president of corporate development at Stans, declined to comment on whether the company would target Centerra, also based in Toronto, shares for payment. But he acknowledged that it would be a logical place to look.
“That’s the low-hanging fruit,” he said in an interview. “It’s a Toronto-based company on a Toronto exchange.”
This is not the first time the plaintiff in a dispute with Kyrgyzstan has eyed Centerra shares.
Back in 2009, a Geneva tribunal found in favor of a Turkish company, Sistem, which owned a hotel that Kyrgyz authorities seized in 2005. After its win in Geneva, Sistem took its case to Toronto, where in 2012 an Ontario Superior Court judge instructed Centerra to freeze over $8.5 million worth of Kyrgyzstan’s shares in the company. Earlier this year, an Ontario judge ruled that the shares could be transferred to Sistem to satisfy the Geneva award.
Centerra is merely a bystander, for now. But the disputes come at an awkward time. Centerra and the Kyrgyz government have been negotiating for a year and a half over the fate of Kumtor, which produces about 10 percent of Kyrgyzstan’s GDP. In February, after a year of bitter negotiations and sometimes violent protests, the two sides announced a non-binding memorandum that said they would work toward a 50-50 split in the mine; in exchange Kyrgyzstan would give up its shares in Centerra (which also operates a smaller project in Mongolia).
But repeatedly this year, populists in parliament have demanded Kyrgyzstan get a 67 percent share in Kumtor, making the fate of the resolution uncertain.
More recently, two curious sideshows have suggested that progress may be ephemeral. Until early June, the Kyrgyz government had held up Kumtor’s operating plan. This led the company to threaten to shutdown production, which would have directly hurt Kyrgyzstan’s revenues. And in late May, authorities arrested the head of Kyrgyzstan’s state-run gold firm (Kyrgyzaltyn, which technically owns those Centerra shares) and charged him with illegally transferring $200 million into Centerra accounts.
For Kyrgyz politicians, the Centerra shares are an abstraction. No matter who ends up owning that 33 percent stake in the company, no transfer would change Kyrgyz demands for at least 50 percent of the Kumtor gold mine.
Until now, Centerra has profited from the delay in reaching a deal, since it still owns 100 percent of the Kumtor mine. It should now be eager to finish negotiations. Otherwise, all the other aggrieved parties suing Kyrgyzstan abroad – over half a dozen by a recent count – could start claiming bits of the company, making negotiations over Kumtor even messier.