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For Centerra, Kyrgyzstan Claim for $152 mln Environmental Compensation Is Baseless

Monday 17 December 2012

TORONTO (Centerra Gold press service) – Centerra Gold Inc. (TSX: CG) announces that its subsidiary, Kumtor Operating Company CJSC, has received five claims from the State Inspectorate Office for Environmental and Technical Safety under the Government of the Kyrgyz Republic (SEITS) relating to alleged environmental damages at the Kumtor Project.

The claims are for an aggregate amount of approximately $152 million, including:

  1. a claim for approximately $142 mln for alleged damages in relation to the placement on waste dumps of waste rock from mining operations (2000 to date);
  2. a claim for approximately $4 mln for use of water resources for the period of 2000 to date;
  3. a claim for approximately $2.8 mln for waste placed in the tailings management facility and for emissions for 2009-2011;
  4. and a claim for approximately $2.3 mln for alleged damages caused to land resources at the time of initial construction of the Kumtor facilities.

The claims by SEITS reference the review of the Kumtor Project carried out by the environmental and technical working group of the Kyrgyz Republic State Commission.

Centerra declared studying the claims and believes that the allegations contained in the claims are exaggerated or without foundation. Ian Atkinson, President and CEO of Centerra stated:

We believe that the Kumtor Project complies with Kyrgyz laws, and meets or exceeds Kyrgyz and international environmental, safety, and health standards. The activities raised in the claims, particularly the mining and placement of waste rock on waste dumps, have been approved at all times by appropriate Kyrgyz authorities and are specifically referred to in Kumtor’s annual mine plans, which are submitted and approved annually by Kyrgyz authorities.

Centerra notes that, as part of the restated project agreements signed by the Kyrgyz Republic and Centerra in 2009 (the “New Project Agreements”), the Kyrgyz Republic fully released Kumtor in respect of all prior claims, including all environmental matters known by or reported to any Kyrgyz authority.

In addition, the Company also says to have received and reviewing a directive from SEITS requiring that actions be taken to correct various alleged environmental and technical violations discovered in its review.

The Kumtor Project’s environmental performance has been the subject of systemic audits and investigations over many years by Kyrgyz and international experts. The Board of Directors of Centerra Gold recently retained a leading international expert to conduct an independent assessment of the environmental practices and performance of the Kumtor Project primarily through a review of existing data. The expert review and subsequent site visit, which were reported in October, 2012, concluded that within the terms of reference of their assignment, “No major or materially significant environmental issues were identified by the document review, site visit and legislative review” at Kumtor. The review focused on numerous environmental areas, including waste management, environmental management systems, and water management. The report can be found on the Kumtor website at www.kumtor.kg/en under the Environment section.

The Company notes that the New Project Agreements provide a complete listing of all taxes and payments to be made to the Kyrgyz Republic, including a fixed environmental charge. Accordingly, no other tax, duties, or other obligations are to be paid to the Kyrgyz Republic, however they may be characterized. Furthermore, under the New Project Agreements, the Kumtor Project is entitled to receive and maintain such licenses, permits and approvals as are needed or convenient for the operation of the project, and the Kyrgyz Government agrees to use its best efforts to reverse or annul any actions of public officials (including state agencies) which conflict with the rights and benefits granted to Kumtor under the New Project Agreements.

Members of Centerra management will be meeting with senior Kyrgyz government officials to discuss the claims and directive from SEITS and the status of the State Commission’s review of the Kumtor Project. The Company understands that the State Commission is continuing its work and is expected to report to the Kyrgyz Government shortly and to the Kyrgyz Parliament in early 2013.

The Company has benefited from a close and constructive dialogue with the Kyrgyz authorities over many years and remains committed to continuing to work with them to resolve these issues in accordance with the New Project Agreements, which provide for all disputes to be resolved by international arbitration, if necessary. However, no assurances can be given that the claims and the directives issued by SEITS and the outcome of the State Commission review can be resolved without a material impact on the Company. Further claims from Kyrgyz authorities arising from the State Commission review may also be forthcoming.

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