Kumtor Saga Roils With Additional Arbitration Claims and Scathing Open Letters

Last month, Kyrgyz authorities said they had begun the process of denouncing all agreements related to the Kumtor Gold Mine project, nearly two months after the Kyrgyz government seized control of the prized asset. Meanwhile, the Canadian mining company that has long operated the mine said it was filing additional arbitration claims against the Kyrgyz government.

According to a 24.kg report, Kamchybek Tashiev, the head of the Kyrgyz State Committee for National Security, said Bishkek had begun the process to withdraw from the 2009 agreement between the Kyrgyz government and Centerra Gold, the Canadian mining operator that has long controlled the mine via its Kyrgyz subsidiary, the Kumtor Gold Company.

“We have initiated a withdrawal process from the 2009 agreement with the government. This will lead to the withdrawal of the Kyrgyz side from the shareholders of the Canadian company Centerra. Active work is underway,” he said.

Tashiev also defended the investigations into corruption that have swept up a number of Kyrgyz politicians in recent weeks, including Omurbek Babanov, a former prime minister and presidential candidate; Asylbek Jeenbekov, a former speaker of parliament and the brother of deposed Kyrgyz President Sooronbay Jeenbekov; and several others.

Centerra has said in several press releases that the Kyrgyz government has refused to engage.

The company initiated an arbitration proceeding in mid-May, and on May 31, filed for Chapter 11 bankruptcy in the United States on behalf of its subsidiaries, the Kumtor Gold Company (KGC) and the Kumtor Operation Company (KOC). The bankruptcy filing was explicitly for the purpose of seeking worldwide automatic stay protection. Per Centerra: “This internationally recognized, court-supervised process is designed to preserve the value of KGC and KOC and prevent any further efforts by the Kyrgyz Government to strip KGC of its assets or otherwise improperly dispose of the Kumtor Mine in violation of its agreements with Centerra Gold.”

On June 10, the Kumtor Gold Company published a press release expressing concern about the filing. The press release called the filing “illegal.”

In a July 7 statement, Centerra announced “that it has brought additional claims against the government of the Kyrgyz Republic in binding arbitration and asserted claims against the state-owned entity Kyrgyzaltyn JSC in response to the wrongful expropriation of the Kumtor Mine.”

Kyrgyzaltyn is the state gold refining company and the largest shareholder in Centerra, with a 26.1 stake.

Meanwhile, Centerra and the Kumtor Gold Company have exchanged rounds of open letters.

Centerra’s President and CEO Scott Perry released an undated “message to the people of the Kyrgyz Republic” in which he made the case that the mine in Kyrgyzstan had for decades been “considered simply impossible” but then “after the Kyrgyz people gained independence and with your help, we began building the Kumtor Gold Mine with an initial life of 18 years.”

In the message, Perry reiterated the company’s stance that “[t]he seizure of the mine is based on false information and groundless allegations that undermine everything we have built together.” He also went on to warn that the Kyrgyz government’s actions, and the refusal of Bishkek to engage, threaten the Kyrgyz economy.

In a separate letter, also undated as the “message” had been but with a URL labeled June 30, Perry addressed himself directly to the employees of Kumtor in an attempt to “make sure you know the truth.”

Perry rebutted the Kyrgyz government’s allegations about the mine’s environmental record. In the letter, he stated that the practice of depositing waste rock on glaciers near Kumtor ended in 2014, while also noting that “glacial retreat” is common as a result of climate change. Perry also reiterated that while access to Centerra’s central system has been restricted, “mine safety systems, including the individual pit wall and glacier monitoring systems, remained operational” as of when the government seized control. Perry then addressed allegations that Centerra blocked the Kumtor Gold Company’s access to $1.7 billion, writing that as of April 30, the company had $17.1 million in its bank account.

In both the “message” and the letter, Perry lamented that Centerra had recently announced an additional investment of $2 billion “to extend the life of the Kumtor Mine once again.”

“That is all on hold now because of what has happened.”

In a response on July 6, the Kumtor Gold Company published on its website an open letter from the “Kumtor Mine Employees” to Perry. The response was unabashedly harsh: “We can’t even say what in your words particularly unpleasantly struck all of us: your hypocrisy, lies or desire to evade liability by any means?”

The lengthy open letter fired broadsides not just at Perry but at Kyrgyzstan’s former leaders, who “despite the objections of sensible politicians and country patriots, not caring about the future of their country and its people, decided to conclude agreements that each time became more and more enslaving in nature, not reflecting the interests of Kyrgyzstan.”

In bolded text, the letter stated that the employees of the mine “fully support” the external management law passed in May that enabled the Kyrgyz government to seize control of the mine following a conveniently timed court finding that the mine had flouted environmental regulations. The letter specifically referenced the dumping of waste rock on glaciers. “Of course, this was done under the patronage of the former irresponsible leaders of the country. You yourself confirm that the criminal practice of depositing waste rock on glaciers in the Kumtor area, had been prior approved by Kyrgyz governments…” (all emphasis in original). The letter also mentioned allegations that Centerra avoided taxes and more before closing with this: “We request that you, Mr. Perry, not bother yourself in the future, trying, as people say, to ‘Muddy the waters’. Return what you have stolen to the people! Return our money!!!”

That the letter cited Kyrgyzstan’s former “irresponsible” leaders is a line straight out of the current government’s mouth. But it begs the question: If a previous Kyrgyz government made an agreement, is the current government obliged to uphold it? If not, why would any international company engage with Kyrgyzstan in the future, knowing that a different government might sweep into power and burn up all its predecessor’s agreements?

Centerra’s website page for the Kumtor mine leads with this: “CAUTION: CENTERRA IS NO LONGER IN CONTROL OF THE KUMTOR MINE, AS A RESULT OF THE KYRGYZ GOVERNMENT ACTIONS IN MAY 2021.”

Centerra’s Perry has said in several interviews that the Kyrgyz government’s actions “appears to be a concerted effort to falsely justify a nationalization of the mine.” The Kyrgyz government, led now by President Sadyr Japarov, whose political rise was marked by a clearly stated desire to nationalize the Kumtor Mine, maintains it is doing no such thing. Nevertheless, the mine is in Kyrgyz government hands now.