The Kumtor mine, located about 4,000 metres above sea level in the Tien Shan mountains, contributed about 10% of Kyrgyzstan’s GDP last year and accounted for about 40% of the country’s exports.
The Kumtor gold deposit is located in the southern Tien Shan Metallogenic Belt, a major suture that traverses Central Asia, from Uzbekistan in the west through Tajikistan and the Kyrgyz Republic into northwestern China, a distance of more than 1,500 km. A number of important mesothermal-type gold deposits occur along this belt including Muruntau, Zarmitan, Jilau and Kumtor.
Centerra owns 100% of the Kumtor gold mine through its wholly owned subsidiary Kumtor Gold Company. Kumtor is located about 350 km southeast of the capital Bishkek and about 60 km north of the border with China. It is the largest gold mine operated in Central Asia by a Western-based company, having produced more than 7.8 million oz of gold between 1997 and the end of 2010.
In 2010 Kumtor’s gold production was 567,802 oz.

The TSX-listed company forecast output of between 640,000 to 660,000 oz this year from its Boroo operation in Mongolia and the Kumtor mine in the Kyrgyz Republic. At Boroo, the company is producing at around 50,000 oz/y using stockpiled ore, but Centerra wants to increase the mill’s output to between 150,000 oz/y and 200,000 oz/y by feeding it with ore from the Gatsuurt deposit 35 km away.

Permitting has delayed this, though Lang remains confident Centerra will ultimately win approval from the Mongolian government. The problems began in 2009 when the government introduced a new law that blocked any mining development in forested areas or at headwaters, and Gatsuurt falls in this category. The legislation said that miners that lost previously held licences would get compensated. Then, about a year ago the government completed a study of how many permits were affected by the law and what levels of compensation the government would have to dish out.

The numbers it came up with were more than US $5-billion required to compensate the holders of around 1,700 licences that would be revoked. The Mongolian parliament decided it would implement the law despite the scale of compensation, but would do so in stages.

The first victims were around 500 alluvial miners, mainly local companies. The compensation they were to receive still totalled a hefty $500-million, which Lang said the state would have struggled to pay, so the companies that got their licences revoked decided to collectively sue the government.

As a result of this, Prime Minister Sukhbaatar Batbold decided to suspend the enforcement of the law, and the group of miners dropped their court case. He formed a parliamentary committee that came up with amendments to the legislation to make it more practical. Lang said the result would have allowed Gatsuurt to progress.

Parliament soon after broke off for the summer recess, before the amendments had gone to vote. Upon its return, a group of 20 parliamentarians opened up a hornets’ nest in demanding that Batbold renegotiate an investment agreement with the owners of the country’s biggest mining project, the giant Oyu Tolgoi copper-gold mine. Canada’s Ivanhoe Mines refused to budge on the agreement, which took more than six years to draw up, as did its biggest shareholder, Rio Tinto, with the government ultimately backing down.

How the affair impacted Centerra, was that it distracted Parliament’s from the amendments to the environmental legislation, which Lang said fell somewhat on its priority list.

Where does this leave the Toronto-based firm?

“Although it’s frustrating not to see progress being made, it’s best at this point that we step back from it,” Lang said of what he perceived to be “an internal Mongolian matter”. The country is set for general elections in June next year, which could further delay Gatsuurt’s approval if it does arrive before the ballot.

Centerra’s other growth will come from its flagship Kumtor mine, where it is adding underground production to the existing pit, starting from 2013, said Lang. “It will probably take two years to get up to the regular run rate there,” he added.

That project, combined with Gatsuurt, would lift Centerra’s output by about 50% to just under one-million ounces annually “in the next three years or so,” said Lang.