Criminal probe opened against Centerra's Kumtor managers

The dispute between the Kyrgyz Republic and Canada's Centerra Gold (TSX:CG) took an ominous turn on Monday with authorities opening a criminal probe against managers at the firm’s giant  Kumtor gold mine in the central Asian nation.

Toronto-based Centerra said in a statement on Monday the Kyrgyz Republic General Prosecutor’s Office has carried out searches at its wholly-owned Kumtor Gold Company offices and seized documents and records relating to a charge that certain unnamed managers "engaged in transactions that deprived Kumtor of its assets or otherwise abused their authority, causing damage to the Kyrgyz Republic."

"Specifically, the case appears to be focused on the commercial reasonableness of certain of KGC’s commercial transactions and in particular, the purchase of goods and supplies in the normal course of its business operations and the expenses relating to the relocation of the Kumtor Project’s camp in 2014 and 2015," according the Centerra.

Centerra also announced that a separate claim  by the Kyrgyz government's environmental protection agency for $220 million in pollution fines was upheld in an inter-district court in the country. The injunction effectively orders a financial freeze at Kumtor as it prohibits the company "from taking any actions relating to certain financial transactions including, transferring property or assets, declaring or paying dividends or making loans."

The latest salvo fired by Kyrgyz authorities in the long-running dispute over ownership of the mine appears to be retaliation against Centerra filing for international arbitration last week. The company said the arbitration proceedings will be held at Stockholm and Sweden, and that they will be conducted under UN rules of arbitration and the governing law of New York.

Centerra says it remains open to discussing proposals to resolve all outstanding matters with the Kyrgyz Republic, but the disagreement has only become more bitter in recent months.

Len Homeniuk, a former chief executive officer of Centerra Gold,  spent weeks under house arrest in Bulgaria, after being detained in  July last year while on holiday with his family on a boat cruise on the Danube after Kyrgyzstan put him on Interpol’s wanted list last year.

Centerra has in the past suggested a 50/50 joint venture with the state, but that proposal was rejected by the former Soviet republic and rumours pointing to nationalization of the asset began spreading after that, but were later denied by Kyrgyzstan authorities.

The vast open pit mine, which lies near the Chinese border at an altitude of 4,000 metres, is expected to produce 480,000-530,000 ounces at an all-in sustaining cost between $817-$902 per ounce this year.

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