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Gold Diggers in Central Asia Centerra Gold’s response to attempted expropriation in Kyrgyzstan Jin Hao, Paul Kundel, Whit Morehouse, Cameron Platt, Eric Vandenbrink 23 February 2015 What’s A Kumtor? Source: The Economist -1- Kumtor Mine: A Key Asset for Centerra & Kyrgyzstan Centerra Gold Kumtor Mine Kyrgyz Republic 63% of production 500,000 oz per year 80% of production 63% of revenue $214 M Sales 9% of GDP Source: Centerra Gold Annual Report 2005, World Bank, The Economist -2- Timeline of Events Kyrgyz Republic gains independence from Soviet Union 1991 2004: Cameco spins out Centerra Gold 1996 2001 2006 Exploration begins Production begins Government owns 60% of Kumtor -3- • Gov’t swaps Kumtor stake for 33% of Centerra • Gov’t retains 15.6% of equity, sells remainder Case Situation: •Centerra & Gov’t negotiate new operating agreement •Government wants larger ownership stake to mollify critics Country Risk Premium -4- Project Risk Mitigation -5- Project Valuation -6- Options: How Should Centerra Move Forward? Sue: Seek Redress in Foreign Court Pro •Fair hearing of Centerra’s position Con • High potential to lose full investment • Limited enforceability of court order Sell Remaining Stake To Outside Investors Pro • Eliminate potential for future disagreements Con • Few plausible buyers • Distressed sale lowers price Suck It Up: Accommodate Kyrgyz Demands Pro •Better aligns Gov’t and Centerra incentives -7- Con • Short term appeasement may increase long term challenge Aftermath Tentative agreement: Gov’t to exchange Parliament orders Kumtor 33% Centerra stake for 50% of Kumtor audit, imposes $500m fine Pres Bakiyev Kyrgyz Gov’t overthrown, Tulip offered 29% of new deal Revolution negotiated Centerra 2006 2009 2006 deal was never ratified New Deal: •Gov’t given 33% of Centerra + $22M back taxes •14% flat tax on Kumtor •Centerra analyst says “revenue-neutral” 2012 • Centerra refuses to pay • CEO & executives indicted • Kyrgyz Director jailed -8- 2015 Thank you
