Centerra Gold Inc, a Canadian mining company, the Kyrgyz government and Kyrgyzaltyn JSC, the state-owned gold mining company, signed a non-binding Memorandum of Understanding (MoU) that paves the way for resolving the mining crisis. According to the MoU, Kyrgyzaltyn would swap its 32.7% stake in Centerra for a 50% stake in the newly created joint venture that would own the Kumtor project. Centerra would also receive USD 100 million in dividends over ten years. The MoU will increase Kyrgyzstan’s revenues from the Kumtor gold mine. Centerra was under pressure to find an agreement as it was accused of damaging the environment and paying too little to run the project. The Kyrgyz parliament had set 10 September as a deadline for finding an agreement with Centerra or unilaterally cancelling the current arrangement. The signature of the MoU defuses the risk of national violent protests. Over the past year, local unrest has grown into violent protests that disrupted gold production at Kumtor. Protesters demanded that Kumtor be nationalised, social benefits increased and environmental practises improved.
Impact on country risk
Kyrgyz economy is highly reliant on gold, which accounted on average for 12% of GDP and nearly 16% of current account receipts. Hence, disruption at Kumtor, the largest gold mine, has had a significant spill-over effect on the economy. Apart from gold, the economy is also heavily reliant on remittances and international aid. It leaves Kyrgyzstan vulnerable to external shocks, all the more as the current account is in deficit and external debt burden is high. That and a far-from-stable political scene have led ONDD to classify the MLT political risk in category 6. After all, since 2005, the country has seen the removal of two presidents in popular revolts and serious inter-ethnic clashes. Following the removal of President Bakiyev in 2010, a parliamentary republic was put in place. Nevertheless, the political scene remains unstable, marked by violent protests and divisions among ethnic lines and between the richer more industrialised north and the poorer rural south remain large.
Analyst: Pascaline della Faille, email@example.com